Sales Tax
AccountingA consumption tax charged at the point of sale, calculated as a percentage of the price and remitted by the seller to the relevant US state or local authority.
Detailed Explanation
Examples
- A California invoice shows a 7.25% state sales tax plus a local district tax
- A Shopify merchant configures sales tax collection in 15 states where they meet economic nexus
Quick Q&A
What is Sales Tax?
A consumption tax charged at the point of sale, calculated as a percentage of the price and remitted by the seller to the relevant US state or local authority.
What does "Sales Tax" mean?
Sales tax is the dominant consumption tax model in the United States. Unlike VAT or GST it is single-stage: only the final retail sale is taxed, and businesses do not reclaim tax on their inputs. Rates and rules are set by states, counties, and cities, so the rate on the same item can vary by ZIP code. Following the 2018 Wayfair decision, sellers must collect sales tax in any US state where they have economic nexus — typically once their sales into that state cross a revenue or transaction threshold. SaaS and digital goods are taxable in some states and exempt in others. An invoice issued to a US customer should show the taxable subtotal, the sales tax rate, the sales tax amount, and the total separately.
When is Sales Tax used?
A California invoice shows a 7.25% state sales tax plus a local district tax ; A Shopify merchant configures sales tax collection in 15 states where they meet economic nexus