Glossary · Legal & Admin
What is Sales Tax?
Definition
Sales tax is a percentage added to the price of taxable goods and services that a seller collects from customers and passes along to state and local governments.
Why it matters
In the US, sales tax is set by states and often by cities and counties, so rates and rules differ widely. As a seller you generally collect it on behalf of the government, and it is not your revenue.
If you sell a $50 candle in a location with an 8 percent combined rate, the customer pays $54, and $4 must be remitted. Selling 500 candles in a quarter means setting aside $2,000 of the money in your account that is not yours.
Whether you owe tax depends on your product, where you sell, and whether you have economic nexus in other states, which often begins around $100,000 in sales or 200 transactions. Registration and rules vary by state, so confirm with an accountant.
Common mistakes
- !Spending collected sales tax as if it were income, then lacking the cash to remit it.
- !Ignoring obligations in other states after crossing sales thresholds.
Frequently asked questions
What is Sales Tax?
Sales tax is a percentage added to the price of taxable goods and services that a seller collects from customers and passes along to state and local governments.
What mistakes do beginners make with Sales Tax?
Spending collected sales tax as if it were income, then lacking the cash to remit it. Ignoring obligations in other states after crossing sales thresholds.
Related terms