What Factors Determine Who Pays Sales Tax?

When you go shopping, the amount you pay for an item at the register is often higher than the amount on the price tag: depending on where you live and what you buy, the vendor adds sales tax to the final cost. Sales taxes are not imposed at the national level: state and local governments determine who pays sales tax. Your shopping habits can also affect whether you pay sales tax.

State Sales Tax

The federal government collects income tax from workers across the country, but sales taxes are determined on a state-by-state basis. Each state government handles taxation differently. For instance, some states have high income taxes, while others impose high sales taxes or real estate taxes. Six states do not impose sales tax: Montana, Oregon, New Hampshire, Delaware, Hawaii and Alaska. In addition, depending on where you live, certain necessities, such as food and clothing, may be exempt from sales tax.

Local Sales Tax

Local governments can choose to assess sales taxes at the city or county level. Sales taxes imposed by local governments are charged in addition to state sales taxes. For instance, if a city imposes a 1 percent sales tax in a state that already has a 5 percent sales rate, customers pay a total sales tax rate of 6 percent. Local governments can impose sales tax even if the state does not, so you might not avoid all sales taxes even if you live in a state that doesn't charge sales tax.

Online Shopping

You may not have to pay sales taxes on items you purchase online, depending on the physical operations of the company you patronize. According to the Small Business Administration, online vendors have to collect sales tax only when they have a physical presence in your state. For example, if you live in Nebraska and buy a computer online from a company in Michigan, the company generally doesn't have to collect sales tax. If you buy online from a nationwide chain, however, with stores in Nebraska, you typically have to pay tax.

Use Tax

While online vendors may not have to collect sales tax from you, most states impose a "use tax." Use taxes require you to pay taxes on items purchased online when no sales tax was paid and on items purchased in other states that were not subject to sales tax. Taxpayers are supposed to voluntarily keep track of transactions that are subject to use tax and pay use tax to state governments. In practice, consumers typically do not pay use tax, either because they are unaware of it, or because the law is not enforced.

About the Author

Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.

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