Forty-five states and Washington D.C. all have a sales tax. Find out what each state has to say about sales tax here). Sales tax is governed at the state level, meaning each state sets their own laws and rules when it comes to sales tax. There is no “national” or “federal” sales tax.
Sales tax rates can be made up of a variety of factors:
Each state with a sales tax has a statewide sales tax rate. States use sales tax to pay for budget items like roads and public safety. The state sales tax rate is the rate that is charged on tangible personal property (and sometimes services) across the state. These usually range from 4-7%. For example, the state rate in New York is 4% while the state sales tax rate in Tennessee is 7%.
In some states, the sales tax rate stops there. Ten states don't have local sales tax rates, so if you make a sale to a buyer in one of those states (Ex: Michigan) then you'd just charge them the Michigan state sales tax rate of 6%.
The other states, though, also allow local areas such as counties and cities to set a sales tax rate. In this case, you may collect a state sales tax rate, but also a percentage set by the county or city.
Special Taxing District Rates
Some states may have a 4th type of rate – as special taxing district. Just like states use sales tax to pay for public safety, etc. so do local areas. They may raise sales tax if they’re in a budget crunch, or join with several surrounding areas to create a special, limited time sales tax to pay for a publicly-funded venture, like a new school, park, or rail system.
Example: Centennial, Colorado's total sales tax rate is 6.75%. But that rate is made up of many different rates, like:
|Colorado State Rate||2.9%|
|City of Centennial||2.5%|
|Regional Transportation District Tax||1%|
|Scientific and Cultural Facilities District||0.1%|
As you can see, buyers in Centennial, CO pay not just state, city and county sales tax rates but also two separate district taxes.