Tag Archives: sales tax

Even Non-Income Tax States Have Taxes

With the increased popularity of working-at-home, you may consider moving to one of the nine states that don’t impose an individual income tax. Before doing so, you should understand how each of these states raises its revenue. And then consider how you can reduce your tax obligation in your current home state.

Here’s some help.

According to Kiplinger and the Tax Foundation, here is how the nine states that collect no individual income taxes collect money from their residents.

Alaska

  • Alaska is one of five states with no sales tax, but local jurisdictions may impose sales taxes, with rates reaching 7.5%. The average is 1.76%.
  • The median property tax rate is $1,182 per $100,000 of assessed home value, slightly above the national average.

Florida

  • The statewide sales tax is 6%, but local jurisdictions can add up to 2.5%, with an average combined rate of 7.08%.
  • The median property tax rate is $830 per $100,000 of assessed home value, a middle-of-the-road figure nationally.

Nevada

  • The state sales tax rate is 6.85% while local jurisdictions can add up to 1.53%. The average combined rate is a lofty 8.23%.
  • The median property tax rate is $533 per $100,000 of assessed home value, one of the lowest in the country.

New Hampshire

  • Besides no state income tax, this tax haven has no state or local sales taxes.
  • Property tax is the main revenue source. The median property tax rate is $2,050 per $100,000 of assessed home value, the third-highest rate in the U.S.

South Dakota

  • The 4.5% state tax may increase to an average combined rate of 6.4%, below the national average.
  • The median property tax rate is $1,219 per $100,000 of assessed home value, above the national average.

Tennessee

  • Tennessee previously had an income tax on dividends and interest, but it disappeared after 2020. The current 7% state sales tax rate may be combined with a 2.75% on sales of single items for an overall maximum rate of 9.55%, the highest in the U.S.
  • The median property tax rate is $636 per $100,000 of assessed home value, below the national average.

Texas

  • The sales tax in the Lone Star state is 6.25%, plus local jurisdictions can add up to 2%, with an average combined rate of 8.19%, which is well above the national average.
  • The median property tax rate is $1,692 per $100,000 of assessed home value, which is a tie for the seventh-highest rate in the country.

Washington

  • Municipalities can increase the 6.5% state levy by 4% for an average combined rate of 9.23%, the fourth-highest in the nation.
  • The median property tax rate is $929 per $100,000 of assessed home value. This is middle of the pack.
  • Unlike the other eight states, Washington has an estate tax, with a $2.193 million exemption (indexed for inflation). Tax rates range from 10% to 20%.

Wyoming

  • The 4% sales tax may be increased by municipalities for a combined rate of 5.33%. This is the eighth-lowest in the U.S.
  • The median property tax rate is $575 per $100,000 of assessed home value, tied for the tenth-lowest in the nation.

Here are some ideas to lower your property and sales tax bills:

Appeal your property’s valuation assessment. You may be able to lower your property tax bill by providing evidence that your home’s assessed value should be lower. Start your appeals process by contacting your county assessor’s office. Some appeals can be done online, while others may require a visit to your assessor’s local office.

Shop during tax-free weekends. Many states feature one or two weekends each year where sales taxes are suspended. These sales tax holidays sometimes correspond to high volume shopping periods, such as back-to-school sales in late summer.

Deduct sales taxes on your Form 1040 tax return. You’re allowed to deduct up to $10,000 of combined property taxes and sales taxes on your tax return, so be sure to look into this deduction if you itemize your Schedule A deductions. The only potential headache if you deduct sales taxes is needing to track and record all sales taxes you’ve paid throughout the year.

Amazon and eBay Sales Tax ALERT!

If you or your business sells product on Amazon using the Fulfillment by Amazon (FBA) service, you are well into the multi-state sales tax mess … even if you are not aware of it. You may be asking yourself:

  • Do I now need to register my business with every state and collect tax on their behalf?
  • Do I really have physical nexus? What about economic nexus? What is nexus?

Background

The old sales tax standard required you to collect and remit sales tax only in states that you have a physical presence (also known as physical nexus). The recent South Dakota vs. Wayfair, Inc. decision by the Supreme Court then legitimized the concept of economic nexus. This means your business could be required to collect and remit sales tax based on where you ship a product and not whether you ever set foot in a particular state (economic nexus).

The bigger mess

States were quick to jump on the bandwagon and actively identify Amazon, eBay and Walmart sellers to demand sales tax for website sales. Some states, like California, got even more aggressive and decided that FBA sellers actually have physical presence because Amazon may put your product in a warehouse in their state. They got seller lists from Amazon and sent out threatening letters to small sellers demanding back sales tax, even though businesses have no way to retroactively collect the tax because the customers are Amazon customers.

Marketplace facilitator to the rescue?

To help address this mess and alleviate the need for small businesses to collect and remit sales tax forms to 50 states, many states acknowledged the problem and have passed what is called Marketplace Facilitator laws.

In short, it’s on the facilitator, NOT you. States with these laws require Amazon, Ebay and similar companies that facilitate sales for resellers to collect and remit sales tax on reseller Amazon activity. There are more than 30 states that have adapted these laws.

You DO NOT need to register your business to collect sales tax in states that have Market Facilitator legislation unless you are otherwise required to do so.

What you need to know 

  • Know the states. Know which states have Marketplace Facilitator laws. If you don’t, you could unwittingly register your business with a state when you do not have to do so.
  • Some states deploy deceptive tactics. For example, California passed a Marketplace Facilitator law effective October 2019. Despite this law, the California Department of Tax and Fee Administration (CDTFA) is actively soliciting (threatening?) small businesses who sell on Amazon to register and remit sales taxes for a time period prior to this date without disclosing the new law. To make matters worse, their sales tax registration form could make you personally liable for business-related sales tax and disclose your confidential supplier list. It may also be filled with other legal entrapments.
  • Know the minimums. Even states without Marketplace Facilitator laws typically have minimum thresholds before they require you to collect and remit sales tax. Every state is different, but the typical limit is 200 transactions or $20,000 in sales.
  • Check out streamline states. Collecting and remitting sales tax is a daunting task for any small business. Using a third party sales tax administrator is very expensive. There is some help, albeit still complicated, for registering with 23 states that are part of a streamline sales tax agreement.

    Sales tax collection in multiple states is not for the faint of heart. Streamline Sales Tax  and Bill Track 50 are a few of the popular sites that can help.