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The Ingredients of a Sales Tax Rate

Even if you’re not a product seller, chances are you’ve noticed that weird little “7.85%” sales tax line item on a receipt and wondered “Why that particular number?”

And if you do sell products then forget about it. Figuring out how much sales tax to charge can be a bear!

This post will explain why sales tax looks the way it does and what online sellers need to know to demystify those strange numbers.

What Makes Up a Sales Tax Tate?

Forty-five states and Washington D.C. all have sales tax. States use this money to pay for budget items like schools, roads and public safety.

States set their state sales tax rate anywhere from 4% to 7%. Some states leave it as that. Here’s a list of states that have a state sales tax rate but no local rates.

But most states also allow local areas to levy a sales tax as well. (After all, local areas also want funds to pay for budget items!) So, in most states, counties, cities and other “special taxing districts,” sales taxes also exist.

A couple of examples:

States sales tax rates – Connecticut only has the 6.35% sales tax rate and no local rates. So if you were to buy a toothbrush in Connecticut, you’d pay the price of the toothbrush plus the 6.35% sales tax rate no matter where in the state you purchased it.

States and local sales tax rates – Most areas aren’t as considerate of buyers and sellers as Connecticut, though! Let’s take New York for example. If you buy a toothbrush in Nyack, NY (zip code 10960) then your sales tax rate is made up of:

  • 4% New York state sales tax rate
  • 4% Rockland County sales tax rate
  • 0.375% Metro Commuter Transportation District (MCTD) tax

For a total of 8.375% sales tax. Strange number, right?

Sales Tax Rate Exceptions

If you sell online, you probably already know that sales tax rates aren’t quite this simple for some items. For example, grocery items, clothes, medicine and medical supplies and other items are often taxed differently from state to state and even within states.

For example, in Georgia grocery items are exempt from the 4% state sales tax rate. But local areas are allowed to tax groceries. For that reason if you were to make a grocery store run in Cherokee County, Georgia you’d pay a 2% sales tax. That’s the local area tax and NOT the Georgia state tax.

And some states have periodic sales tax holidays, where all sales tax is suspended on certain items.

For online sellers just trying to do the right thing and charge the right amount of sales tax, all this complexity is enough to give you a massive headache!

That’s where TaxJar’s SmartCalcs sales tax API can save your bacon. The SmartCalcs Sales Tax API offers accurate sales tax rates & calculations at the state, county city and special taxing district level. No more fussing with rate tables or chasing down tax changes (and they do change often!). You’re sure to charge the customer the right amount, every time. We offer a sales tax calculation solution for online marketplaces, too.

We hope this post has demystified those strange and decimal-laden numbers we call sales tax rates. Have questions? Start the conversation in the comments!

Mark Faggiano

Mark Faggiano

CEO at TaxJar
Mark Faggiano is the founder and CEO of TaxJar, a service built to make sales tax compliance simple for eCommerce sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!
Mark Faggiano