Sales Tax (United States)

Sales Tax (United States)
Name	Sales tax (United States)
Type	Consumption tax
Administered by	State governments, Local governments
Introduced	20th century
Rate	Varies by jurisdiction

Sales Tax (United States)

Sales tax in the United States is a consumption tax levied at the retail level by subnational jurisdictions, principally the State of New York, State of California, State of Texas, and other state governments that fund public services. Originating in the early 20th century amid fiscal reforms associated with the Great Depression and Progressive Era politics, sales taxes have evolved through judicial decisions such as Quill Corp. v. North Dakota and legislative responses like the Marketplace Fairness Act debates. The tax interacts with federal institutions such as the United States Congress and with state courts including the Supreme Court of the United States.

Overview and History

Sales taxation in the United States developed as states sought revenue alternatives to property tax and income tax during periods including the Great Depression and post-World War II expansion. Early adoptions occurred in states like Mississippi and Colorado and spread through model legislation influenced by organizations such as the Council of State Governments and the National Conference of State Legislatures. Landmark judicial rulings including Complete Auto Transit, Inc. v. Brady and Quill Corp. v. North Dakota shaped nexus principles, while later decisions such as South Dakota v. Wayfair, Inc. overturned prior standards, prompting legislative initiatives at the United States Congress and by entities such as the Multistate Tax Commission.

Structure and Administration

Administration occurs at multiple levels: state departments like the California Department of Tax and Fee Administration, county governments such as Cook County, Illinois authorities, and municipal treasuries in cities including New York City and Los Angeles. Many states use centralized collection systems modeled on frameworks from the Streamlined Sales and Use Tax Agreement and coordinate with the Multistate Tax Commission and private vendors like Avalara and Sovos Compliance. Legal oversight involves state courts and administrative law processes, with disputes sometimes reaching the United States Court of Appeals or the Supreme Court of the United States.

Tax Base and Rates

Tax bases vary: states tax retail sales of tangible personal property while services taxation differs across jurisdictions such as Florida and Washington (state), and exclusions exist in states like New Jersey. Statutory rates range widely from low-rate states such as Colorado to higher-rate states like Tennessee, combined with local levies in counties such as Miami-Dade County and cities like San Francisco. Rate-setting involves state legislatures—examples include the California State Legislature and the Texas Legislature—and fiscal bodies like state comptrollers and treasurers.

Exemptions and Exclusions

Exemptions are commonly granted for necessities and policy objectives: food exemptions in New York (state) and Pennsylvania, medicine exemptions influenced by public health advocates and institutions like the American Medical Association, and manufacturing exemptions present in Ohio and Michigan. Nonprofit organizations including chapters of the Red Cross and educational institutions such as Harvard University often receive special treatment via statutes enacted by state legislatures and interpreted by state supreme courts. Exclusions may also reflect interstate commerce doctrines adjudicated by the Supreme Court of the United States.

Collection, Compliance, and Enforcement

Collection typically occurs at point of sale via merchants ranging from small businesses represented by the U.S. Small Business Administration to national retailers such as Walmart and Amazon (company), with remittances filed to entities like the New York State Department of Taxation and Finance. Compliance regimes include periodic returns, audit authority vested in agencies akin to the Internal Revenue Service at state level, and penalties enforced through administrative hearings and state courts. Technological solutions involve sales-tax software from firms such as Vertex, Inc. and integration with payment processors like Square, Inc..

Economic Effects and Criticisms

Economists at institutions such as the National Bureau of Economic Research and universities including Harvard University and Stanford University study incidence, regressivity, and behavioral responses. Critics—including advocacy groups like the Center on Budget and Policy Priorities and think tanks such as the Tax Foundation—argue sales taxes can be regressive, affect consumption patterns studied in theories by economists like Milton Friedman and Arthur Laffer, and distort interstate commerce discussed by lawmakers in the United States Congress. Proponents cite revenue stability for programs administered by state legislatures and fiscal officers such as state governors.

Interstate and Online Sales (Nexus and Marketplace Rules)

Nexus doctrine evolved through cases like Quill Corp. v. North Dakota and was redefined by South Dakota v. Wayfair, Inc., prompting state legislative responses and interstate compacts like the Streamlined Sales and Use Tax Agreement. Marketplace facilitator laws affect platforms such as eBay, Amazon (company), and Etsy by shifting collection obligations to marketplaces, and states coordinate through the Multistate Tax Commission and the Federation of Tax Administrators. Congressional proposals including the Marketplace Fairness Act and regulations considered by the United States Department of the Treasury further shape the legal landscape.

Category:Taxation in the United States