Sales tax

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A sales tax is a tax that is levied on the sale of good and sometimes services. Usually this tax is 3% to 8%. Often the tax has state, county and city components. Sales tax is collected in addition to the sales price and the seller has the responsibility to remit the money to the state. The state will usually handle distributing the money to the county and city governments.

Sales tax only applies to in-state purchases. The Supreme Court has ruled that sales tax cannot be levied on transactions that involve purchasing items through the mail or over the phone from out of state. This would cause an undue burden on intra-state commerce. They actually ruled that out-of-state vendors cannot be compelled to collect tax for a state in which they have no nexus. Some states have responded to this with a use tax that basically requires buyers within their state to remit the taxes rather than the vendor.

The rise of Internet based businesses has caused a lot of concern for states who worry that their income from sales taxes will drop. This has led to several lawsuits of companies like Amazon.com in order to compel them to collect and remit sales tax for states in which they have no nexus. These cases are ongoing and it seems possible that the Supreme Court may eventually overturn their previous ruling saying that technology has made it where collecting sales tax between states is no longer an undue burden. However, for this to happen there needs to be a more standardized way of dealing with sales tax. Right now all the different components can be very difficult to calculate. When all you have is the address of a buyer, there isn't an easy way to tell what their tax rate should be. Worse still, different states charge tax on different things. In some states shipping costs are taxed while in others they are not. In some states services are taxed, while in most they are not.