Many business owners that sell or render tangible goods and/or services will be required to add a sales tax percentage for every transaction. What sales tax is, and how it works is quite simple, but with this, business owners will have to review their state tax legislations, as sales tax is governed on the state level. To calculate your sales tax per item, or figuring out the percentage of sales tax required, one will first need to review some additional questions.
What is sales tax?
Sales tax is a small percentage, it can usually be anything between 3% – 9%, that is added to a product (books, tables, chairs, computers, etc.) and calculated during the final phase of purchase. Depending on the business, sales tax is required by local government and state authorities to render additional civic services such as funding the local police and fire department, keeping streets clean, and general upkeep of parks and recreation facilities.
How do I know if an item will require sales tax?
Most tangible goods are subject to sales tax, these goods and items are physical products that you can see and touch. In many cases, some states have changed legislation over the last few years and waived sales tax on essential items such as groceries, school textbooks, or clothing. Because sales tax is governed at the state level, it can vary from area-to-area, with the addition that some counties and cities will also add a smaller percentage of sales tax above the required state sales tax.
What services are subject to sales tax?
Many states have managed to reduce or completely waive sales tax on certain services, such as general house maintenance and specialized services such as graphic designers and music producers. The area where you reside and deliver these services will depend on whether you will be required to pay the sales tax for these services. Local authorities in some cities do require some service delivery businesses to add sales tax per transaction, but this will mean business owners will need to review local tax regulations.
Why should businesses incorporate sales tax in their day-to-day transactions?
The state government will require businesses to incorporate sales tax on items and services to deliver other public amenities. Businesses will be required to submit a tax form to their local Department of Revenue, which will then review the amount of sales tax collected. Any business or service provider needs to submit these sales tax forms to comply with both state and federal government legislation.
Do I have to charge sales tax if I have an online business?
This is a tricky question, but yes, sales tax will need to be added on all items on your online store, but the percentage of sales tax per item will be calculated for the “shipping to address.” This entails customers who purchase goods on your online store will only pay the sales tax from their state and not the state which your business is in. In many cases the sales tax per item will be calculated at checkout, making it easier for both you and the customer.
How do I calculate the sales tax on items?
The percentage of sales tax required by businesses can be a combination of different rates and where the business is located. For example, if your business has a store-front trade location in Seattle, WA, the state’s sales tax rate is 6.5%. Seattle resides in King County which has a zero percent sales tax, but the city of Seattle has a 3.5% sales tax and zero percent district tax rate. In the end, businesses will need to add a 10.10% sales tax on certain tangible goods and items. You can read more on how to calculate the sales tax for items and services in your area which will shed some light on how sales tax is calculated in different states.