Sales Tax

How to avoid sales tax and more

Countries across the world implement sales tax to gather funds for improvements to services and maintenance costs for roads, schools and other public resources. Many countries have a national or government sales tax, but in the U.S., only individual state sales tax is imposed.

State sales tax rates will vary, but typically fall between 4 and 8 percent. Hawaii is the only state without a sales tax, but it does have another type of tax called an excise tax that applies to almost all types of transactions.

What is Sales Tax?

The sales tax rate varies from state to state, but its general definition is a tax added to the price of goods and services that is collected by merchants and handed over to the state. It can be applied to goods such as clothing, furniture, electronics and household items, and in some states even to food. Services and costs that are excluded from sales tax include lawyer fees, stocks, bonds and real estate investments, as well as private school tuition.

Unlike many other types of tax, such as property tax, sales tax is considered a "regressive" tax, which means it has more of an impact on low-income individuals and families than it does on those with high income, because it is non-adjustable. Many of the services exempt from the tax are those used by higher income families, and it is also believed that low-income families contribute a greater share of their income to taxable consumption.

Do You Have to Pay Sales Tax?

Though it may not be possible to avoid sales tax entirely, there are ways you can save money when you're buying goods and services. Try any of these techniques to help lower the tax you pay or avoid it altogether:

  • Shop secondhand. Buying from the classifieds, garage sales or at flea markets can help you avoid sales tax completely.
  • Buy online. Many online businesses don't charge sales tax, or may be located in state that has better sales tax rates than your own. As long as shipping costs don't outweigh the money saved on taxes, you could walk away with a discount.
  • Shop out of state. If a nearby state has a better tax rate than you, head over the border. Or, save up for a time where you can travel to a state that's farther away but has no taxes, and do the bulk of your shopping there.
  • Research tax break times. Some states will lower taxes or completely get rid of them on certain items for a specific time, such as back to school time, or they may institute a tax-free month.
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