Developers Sales Tax 101 Sales Tax API

The Anatomy of a Sales Tax Rate

by Mark Faggiano

Sales Tax API

We get a lot of questions at TaxJar about exactly how much sales tax you should be charging your customers.

As with most things in the sales tax world, the answer is usually “It depends.”

This post will explain what factors go into those weird “6.75%” or “9.5%” sales tax numbers you see when charging sales tax to your customers. And we’ll also arm you with the tools and knowledge you need to be sure you’re charging your customers the right amount of sales tax! (And if you’re building your own shopping cart and reading all this sounds like pulling teeth, we get it. Check out TaxJar’s SmartCalcs Sales Tax API and let us handle it for you!)

What is a Sales Tax Rate Made Of?

Forty-five states and the District of Columbia all have a sales tax.

Sales tax rates can be made up of a variety of factors.

State Rates – Each state with a sales tax has a statewide sales tax rate. States use sales tax to pay for budget items like roads and public safety. The state sales tax rate is the rate that is charged on tangible personal property (and sometimes services) across the state. These usually range from 4-7%. For example, the state rate in New York is 4% while the state sales tax rate in Tennessee is 7%.

In some states, the sales tax rate stops there. Ten states don’t have local sales tax rates, so if you make a sale to a buyer in one of those states (Ex: Michigan) then you’d just charge them the Michigan state sales tax rate of 6%.

Local and District Sales Tax Rates – The other states, though, also allow local areas to set a sales tax rate. In this case, you may collect a state sales tax rate, but also a percentage set by the county, city or other taxing district.

Just like states use sales tax to pay for public safety, etc. so do local areas. They may raise sales tax if they’re in a budget crunch, or join with several surrounding areas to create a special, limited time sales tax to pay for a publicly-funded venture, like a new school, park, highway or regional hospital.

When looking up a sales tax rate (try it now!), you may notice several different rates all go into that wonky-looking percentage.

Example: Centennial, Colorado’s total sales tax rate is 6.75%. But that rate is made up of many different rates, like:

Colorado State Rate 2.9%
Arapahoe County 0.25%
City of Centennial 2.5%
Regional Transportation District Tax 1%
Scientific and Cultural Facilities District 0.1%
Total 6.75%

As you can see, buyers in Centennial, CO pay not just state, city and county sales tax rates but also two separate district taxes.

Sales Tax Rate Exceptions

Some states have different tax structures for different types of items. For example, in Illinois, a state with no local sales tax rates, the state sales tax rate is 6.25% for most tangible property. But the sales tax rate for qualified food, drugs and medical appliances is just 1%.

And some states don’t tax grocery items at the state level, but have a special-purpose local-option sales tax (SPLOST) that does not exempt groceries. In Georgia, for example, grocery items to be consumed off the premises are non-taxable. But since Cherokee County, GA has a SPLOST that does not exempt groceries, consumers there pay the 2% SPLOST sales tax rate on groceries, even though other people in the state may not pay sales tax on groceries.

Before you get too overwhelmed, keep in mind that this is only a handful of exceptions. But if you sell items that are often taxed differently – like food & groceries, clothing, prescription drugs, software-as-a-service, digital goods, supplements or alcohol, you may have to deal with more complicated sales tax rates.

A Sales Tax Solution for Developers

We get it. Sales tax is complicated and nobody wants to become a sales tax expert just to sell products online.

That’s why we created the TaxJar SmartCalcs Sales Tax API. The SmartCalcs Sales Tax API offers accurate sales tax rates & calculations at the state, county city and special taxing district level. No more fussing with rate tables or chasing down tax changes (and they do change often!). You’re sure to charge the customer the right amount, every time. We offer a sales tax calculation solution for online marketplaces, too.

Take it out for a spin yourself with our SmartCalcs Sales Tax API Demo.

It’s dead simple to implement, with no contracts or set-up fees, so try a 30-day free trial of TaxJar SmartCalcs today!

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