Sales Tax 101: What is Sales Tax?

by Head of Research at TTR, Ken Webster

Sales tax is the tax on the sale of goods and services due at the time of a sale. Sales tax applies to a great deal of products and services that happen every week and every second of the day.  Everywhere. 

Where sales tax does apply, it is vital to have it figured out at that moment and it must be correct. In order to know whether and how much sales tax applies, the company must know:

1. Everything that is sold (what it is, how it is used)

2. Every type of company buying the thing sold (entity type)

3. Where each sale takes place (location)

4. Whether the thing sold is taxable (by reading a law in the location where the thing was sold) or not

5. The tax rate at the location where the sale takes place

Each state sets their own sales tax rules and laws. Some states, such as Oregon and Montana, do not charge sales tax. In most states, there’s a base rate that is used to pay for things like roads, schools, and public safety. But in some states, there are additional local rates on top of the state rate. 

If a company is doing business in multiple states, their tax department must be aware of all the laws and rules for each state. Imagine the amount of work this is for a large franchise company that is doing business in several locations at once. 

A company must know all of the above for every transaction that takes place at every business location at all times.  

So, you can see, getting sales tax right can be confusing. Luckily there are tax rate look-up tools available. 

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Ken Webster is an Executive Leader and Head of Research at TTR, a subscription-based website that provides sales, use, and transaction tax answers and tax rates to thousands of companies worldwide. https://www.ttrus.com

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