Knowing your sales tax obligations is an important part of running any type of business. But the myriad taxes can be confusing to even the most astute professional.
A sales tax is a duty imposed on a retail sale or market transaction. There are several categories of sales taxes, based mainly on whether the tax is paid by the seller or the buyer.
In the vast majority of states, consumers bear the legal burden of paying sales taxes, and the seller is simply an agent who collects and remits the money to the taxing authority.
In some jurisdictions, however, sales taxes are imposed on vendors that may either absorb or pass the tax along to customers. And there are a few states where the tax is levied on the retail sales transaction itself, so the tax liability is shared by sellers and buyers. In addition, there are five states that do not have a sales tax: these are Alaska, Hawaii, Delaware, New Hampshire, Montana and Oregon.
Sales taxes are calculated on the gross transaction amount. Generally, the method of payment is irrelevant, and thus installment plan sales, layaway sales, and sales involving trade-ins or other property exchanges are still subject to sales taxation. In most states, certain items such as food and clothing are exempt from sales tax.
If you operate an Internet-based business, you are responsible for collecting and remitting applicable sales taxes. In addition, if your business has a physical presence in a given state, you must collect state and local sales tax on online purchases made by customers in that state.