What Sales Are Subject to Sales Tax - Sumandeepuniversity.org

Sales tax is a tax levied on the sale of goods and services. The rules for which sales are taxable vary from state to state. Generally, sales of tangible personal property are subject to sales tax. This includes items such as clothing, appliances, furniture, and cars. Some states also tax the sale of certain services, such as haircuts, dry cleaning, and repairs. There are some exemptions to sales tax, such as sales of food for home consumption, prescription drugs, and certain medical devices. In addition, some states offer reduced sales tax rates for certain items, such as groceries and clothing.

Sales to Individuals vs. Businesses

In general, sales to individuals are subject to sales tax, while sales to businesses are not. However, there are some exceptions to this rule.

Sales to Businesses

Sales of tangible personal property to businesses for use in their operations are generally not subject to sales tax.
Sales of services to businesses are also generally not subject to sales tax.

Sales to Individuals

Sales of tangible personal property to individuals for personal use are generally subject to sales tax.
Sales of services to individuals are also generally subject to sales tax.

Exceptions

There are some exceptions to the general rules for sales to individuals and businesses. For example, sales of food and beverages for human consumption are generally subject to sales tax, regardless of whether the sale is to an individual or a business.

Additionally, some states have specific rules for sales to businesses. For example, some states exempt sales of certain types of machinery and equipment from sales tax.

State	Exemptions for Sales to Businesses
Alabama	Exemptions for sales of machinery and equipment used in manufacturing
California	Exemptions for sales of food and beverages for human consumption
Texas	Exemptions for sales of agricultural equipment

Tangible vs. Intangible Goods

Sales tax is a tax levied on the sale or lease of goods or services. However, not all sales are subject to sales tax. The determination of whether or not a sale is subject to sales tax hinges upon the nature of the goods or services being sold. Primarily, the distinction lies between tangible and intangible goods.

Tangible goods are physical objects that can be touched and have a physical presence. Examples of tangible goods include cars, clothing, furniture, and food. Sales of tangible goods are generally subject to sales tax.

Intangible goods, on the other hand, are not physical objects and cannot be touched. Examples of intangible goods include services, such as haircuts, legal advice, and insurance; and digital products, such as software, e-books, and music.

Sales of intangible goods are generally not subject to sales tax. However, there are some exceptions to this rule, depending on the specific jurisdiction and the type of intangible good being sold.

The following table summarizes the sales tax treatment of tangible and intangible goods in the United States:

Type of Goods	Sales Tax Treatment
Tangible Goods	Generally subject to sales tax
Intangible Goods	Generally not subject to sales tax (except for certain exceptions, such as sales of digital products in some states)

It’s important to note that sales tax laws can vary from state to state. Therefore, it’s always advisable to consult with the relevant tax authorities to determine the specific sales tax rules and regulations applicable to your business.

Nexus and Sales Tax

Nexus refers to the connection between a business and a particular state. If a business has nexus in a state, it is required to collect and remit sales tax on any taxable sales made in that state. Nexus can be established in a variety of ways, including:

Having a physical presence in the state (e.g., a store, office, or warehouse)
Making sales to customers in the state
Having employees who work in the state
Owning or leasing property in the state
Storing inventory in the state

Once a business has nexus in a state, it must register with the state’s tax agency and begin collecting and remitting sales tax.

Taxability of Sales

Not all sales are subject to sales tax. Generally, the following types of sales are subject to sales tax:

Sales of tangible personal property (e.g., clothing, furniture, electronics)
Sales of certain services (e.g., repairs, maintenance, cleaning)
Sales of digital goods (e.g., software, music, videos)

The following types of sales are typically exempt from sales tax:

Sales of food
Sales of clothing
Sales of prescription drugs
Sales of gasoline
Sales to charitable organizations

The specific rules for what sales are subject to sales tax vary from state to state. It is important to consult with the state’s tax agency to determine the specific rules for your business.

Sales Tax Rates

Sales tax rates vary from state to state. The following table shows the sales tax rates for the 50 states and the District of Columbia:

State	Sales Tax Rate
Alabama	4%
Alaska	0%
Arizona	5.6%
Arkansas	6%
California	6%
Colorado	2.9%
Connecticut	6.35%
Delaware	0%
District of Columbia	6%
Florida	6%
Georgia	4%
Hawaii	4%
Idaho	6%
Illinois	6.25%
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	6.85%
New Hampshire	0%
New Jersey	6.625%
New Mexico	5%
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	4.85%
Vermont	6%
Virginia	5%
Washington	6.5%
West Virginia	6%
Wisconsin	5%
Wyoming	4%

Sales Subject to Sales Tax

Sales tax is a tax on the sale of goods and services. It is typically calculated as a percentage of the purchase price. In most states, the sales tax rate is between 5% and 10%.

The following types of sales are typically subject to sales tax:

Retail sales of tangible personal property
Sales of services
Leases of tangible personal property
Admissions to places of amusement or entertainment
Hotel and motel accommodations
Restaurant meals

Exemptions and Deductions

There are a number of exemptions and deductions that can reduce the amount of sales tax that you owe. These include:

Sales of food for human consumption
Sales of prescription drugs
Sales of clothing and footwear
Sales of motor vehicles
Sales to businesses that will use the goods or services in their business

The following table provides a summary of the sales tax rates and exemptions in each state: