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How Do State and Local Sales Taxes Work?

Sales Taxes Work: Sales tax is the type of tax collectible by each state in the United States for both local businesses and out-of-state sellers. Businesses need to collect sales tax for each product they sell to their customers. Local sales tax will apply for local businesses selling their products to their customers, which include tangible products such as electronics, foods, school supplies, and many others. The state sales tax will apply for out-of-state sellers selling their products within the state. For additional information, you can check the sales tax nexus by state chart.

Different States Have Different Sales Tax Rules

Each product sold within the state will have sales tax included in their pricing, so customers will always pay sales tax for the products they buy. However, the rates for sales tax will differ in each state, and the rules surrounding the sales tax will also differ for businesses in each state. Some states will apply lower sales taxes than other states, and they might require businesses to pay the sales taxes in different ways.

Some different products will have their own sales tax rules, such as tobacco, motor fuels, and alcoholic beverages. However, each sales tax helps the local government to earn more revenues from businesses, which the government will use to grow and develop the state further.

Economic Nexus Tax

Economic nexus tax is the type of tax applied for sellers from other states. In each state, they have their own rules regarding the economic nexus tax. Most states will require businesses to reach a certain threshold of transaction per year before they need to pay for the economic nexus tax. Remember, economic nexus tax doesn’t apply for local businesses. It only applies for out-of-state businesses running their operations in the state.

Also, it is important to know that economic nexus tax applies for both offline and online interstate businesses. So, you will still need to pay the economic nexus tax for the state where your business is operating, whether you are selling your products via e-commerce or running your own business in another state via a traditional store.

The Sales Tax Holidays

The state government sometimes runs special occasions called tax holidays. It means that during the tax holidays, people can buy any products within the state without having to pay sales tax for it. It means they will get their products for cheaper prices during this period. The state might only apply tax holidays for specific products, such as school supplies and clothing during the school holidays.

The sales tax holidays often happen before a holiday celebration, encouraging people to purchase more products during this period. However, this policy is only available for some states in the United States.


Local and state sales taxes go hand in hand. Businesses need to collect the local and state sales taxes depending on their business operations. It is also worth noting that each state has their own policy regarding sales taxes, such as those applied for local businesses and those applied for out-of-state businesses. As a business owner, it is your responsibility to do some research. Before you run your business in any state within the United States.

It is also important for you to keep track of the economic nexus rules. As you need to pay sales taxes to the state where your business is operating. It means if you are serving customers in other states, it will become your responsibility to keep track of the economic nexus rules in those states.

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