What is Sales Tax?
Sales tax is a type of consumption tax imposed by governments on the sale of goods and services. It’s usually a percentage of the purchase price and is collected by the retailer at the point of sale. Sales tax is used to fund various public goods and services, such as infrastructure, education, and healthcare.
U.S. Sales Tax
In the United States, sales tax is imposed by individual states, counties, and cities. Each state has its own sales tax rate, which can range from 0% to 7.25%. Some states also impose additional taxes on specific goods and services, such as gasoline, tobacco, and liquor.
How to Deduct Sales Tax in the U.S.?
Individuals can deduct sales tax on their federal income tax return using Schedule A (Form 1040). To qualify for the deduction, taxpayers must itemize their deductions and keep records of their sales tax payments. The Tax Cuts and Jobs Act (TCJA) limits the total state and local tax (SALT) deduction, including sales tax, to $10,000 per year.
Value-Added Tax (VAT)
Value-Added Tax (VAT) is a type of consumption tax that’s levied on the value added to goods and services at each stage of production and distribution. Unlike sales tax, VAT is usually imposed on businesses, which then pass the tax on to consumers. VAT is widely used in many countries, including those in the European Union, Canada, and Australia.
Sales Tax Rates for Different States
Here’s an overview of the sales tax rates for different states in the United States:
| State | Sales Tax Rate |
|---|---|
| Alabama | 4% |
| Alaska | 0% |
| Arizona | 5.6% |
| Arkansas | 6.5% |
| California | 7.25% |
| Colorado | 2.9% |
| Connecticut | 6.35% |
| Delaware | 0% |
| Florida | 6% |
| Georgia | 4% |
| Hawaii | 4.35% |
| Idaho | 6% |
| Illinois | 5% |
| Indiana | 7% |
| Iowa | 6% |
| Kansas | 6.5% |
| Kentucky | 6% |
| Louisiana | 5% |
| Maine | 5.5% |
| Maryland | 6% |
| Massachusetts | 6.25% |
| Michigan | 6% |
| Minnesota | 6.875% |
| Mississippi | 7% |
| Missouri | 4.225% |
| Montana | 0% |
| Nebraska | 5.5% |
| Nevada | 6.5% |
| New Hampshire | 0% |
| New Jersey | 6.625% |
| New Mexico | 5.125% |
| New York | 4% |
| North Carolina | 4.75% |
| North Dakota | 5% |
| Ohio | 5.75% |
| Oklahoma | 4.5% |
| Oregon | 0% |
| Pennsylvania | 6% |
| Rhode Island | 7% |
| South Carolina | 6% |
| South Dakota | 4.5% |
| Tennessee | 7% |
| Texas | 6.25% |
| Utah | 5.95% |
| Vermont | 6% |
| Virginia | 5.3% |
| Washington | 6.5% |
| West Virginia | 6% |
| Wisconsin | 5% |
| Wyoming | 4% |
Note: Sales tax rates are subject to change, and this table may not reflect the current rates.
U.S. History of Sales Tax
The first sales tax in the United States was imposed in 1921 by the state of Mississippi. Other states soon followed, and by the 1930s, sales tax had become a common source of revenue for state governments. The federal government also imposed a sales tax during World War II, but it was repealed in 1947.
Goods and Services Tax (GST)
Goods and Services Tax (GST) is a type of value-added tax that’s levied on the supply of goods and services. GST is used in many countries, including Canada, Australia, and India