Sales & Use Tax 101

Sales Tax

Some states impose a tax on the sale, transfer, or exchange of goods and services. This tax is known as "sales tax," and customers typically pay this tax at the point in time they purchase a good or service (it will be noted on the sales receipt). Businesses are responsible for collecting sales tax from their customers and then transferring the collected amounts periodically to their respective state taxing authority. Note, though, several states do not impose a sales tax on the sale of food, clothing, medicine, newspapers, and utilities. Also, business owners should review their specific state requirements to determine if registration is required prior to paying or collecting sales tax. To check the current sales tax rate in your state, review USA.gov's State Sales Tax Rates and Food & Drug Exemptions guide.

Use Tax

Every state that imposes a sales tax also has a "use tax" that applies to the purchase of certain goods and services made outside the state, but consumed within the state. So, if you purchase taxable goods from businesses located outside of your state of residence (regardless of whether the purchase is made in person, over the phone, or online), the purchase may be subject to your state's use tax if you intend to use the merchandise within your home state. Unlike sales tax, individual purchasers are generally responsible for paying any applicable use tax over to their respective state taxing authority. 

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