Many small business owners will go through a lot of decision processes before establishing where they want to open their business. An array of elements and factors can influence their thought process, with one being on how high or low the state sales tax may be in the area where they will be trading from. In some cases, many states have a substantially low sales tax rate, apart from those having the highest sales tax rate in the U.S. With this, there are notable states that have become widely popular for their zero-income tax but make up for it with higher sales tax rates.
What is sales tax exactly and why is it so important?
Some states have seen the benefits of charging a small sales tax rate on certain tangible goods, and services. Sales tax is a rate that is paid by regular customers on physical goods and items such as crockery, furniture, home appliances, electronics, clothing, etc. This means that businesses will set out a price margin for a product and will add sales tax rate (normally anything between 4% and 10%) to the price.
Local governments and city authorities require businesses to charge sales tax for them to render other public services, such as maintenance and upkeep or upgrading of public spaces. Some states will have a flat tax rate, but on top of this, districts, counties, and cities can also have their own sales tax rate, showing how sales tax can be a layered understanding in day-to-day trade.
Which businesses will need to charge sales tax?
Depending on the physical residence and location of your business, and the type of products being sold, business owners will need to charge sales tax. Some states have waived sales tax on essential items such as clothing, groceries, pharmaceutical drugs, and school textbooks. This is all dependent on the state, and/or city where your business trades, as some services may also be subject to sales tax. Reviewing local guidelines and jurisdiction can help clear out which goods and services are subject to sales tax.
Which states have the highest sales tax?
These states ranked with the highest overall base sales tax percentage, with a very higher average on local sales taxes.
- Tennessee – 9.53%
- Louisiana – 9.52%
- Arkansas – 9.47%
- Alabama – 9.22%
- Washington – 9.21%
- Illinois – 9.08%
Although these states may have some of the highest sales tax in the U.S., residents may also enjoy some other tax benefits such as, no income tax, low tax on prescription and non-prescription drugs, or will overall waive sales tax on groceries and food items.
Which states have the lowest sales tax?
These states were allocated the lowest sales tax rates since the start of 2020.
- Alaska – 1.76%
- Hawaii – 4.44%
- Wyoming – 5.34%
- Wisconsin – 5.46%
- Maine – 5.5%
- Michigan, DC, and Maryland all share a 6% sales tax.
Although these states may have a low sales tax, they render their revenue from other industries such as agriculture, oil and gas refineries, or will perhaps tax other food items such as bottled water, pharmaceutical drugs, or have an overall higher tax income rate.
Are there any states that have zero percent sales tax?
Yes, five states have become exceedingly popular for small and medium businesses as the state has now overall sales tax rates. Although this might be the case on the state level, there may be instances where counties and cities will still require sales tax on certain tangible goods and services. The following states have no statewide sales tax:
- New Hampshire
How do I know what my state sales taxes are?
Local business owners and merchants will need to review their state jurisdiction and ensure they comply with sales tax regulations. To find out what sales tax is in your area, you can use this free tool to calculate it.
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