Sales tax is a percentage of the price a business charges for one or more products. If you have to pay 6 percent sales tax on a $100 purchase, for instance, your sales tax equals $6. Therefore, your total is $106.
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Sales Tax Basics
The sales tax you pay is a combination of any city, state and state taxes. Typically, a state-based sales tax is most or all of the tax that you pay. According to the Tax Foundation, 45 states collect statewide sales taxes as of 2015. Some cities and counties charge additional long-term or temporary sales taxes to cover the costs of infrastructure development or special building projects.
Assume a state assesses a 5 percent sales tax, a county adds 1 percent and a city adds 0.5 percent. Your total tax on the purchase is 6.5 percent of the purchase. If you buy a $500 appliance, your
sales tax amount is $32.50. Your total purchase amount is $532.50. The Tax Foundation reported that Tennessee, at 9.45 percent, had the highest combination of state and local taxes. The same appliance would cost $547.25 with tax at that rate.
Taxable vs. Non-Taxable Items
Some states have exceptions to sales taxes on certain items. When you buy non-taxable items, you only pay the provider's listed price for the product. Food and beverage products are among those commonly sold as nontaxable items in many states.
Nonprofit, charitable and educational institutions can apply for tax-exempt status in states as well. When eligible, the applicant receives a certificate of tax-exempt status that it can present to providers at the point of purchase. A school could save thousands of dollars a year even on high-volume purchases of basic school and office supplies.
Consumers sometimes cross borders for major purchases to save on sales taxes.