Definition
Sales tax is collected only at the final retail transaction, not at every step of the supply chain. The seller collects it from the buyer and remits it to the relevant state, county, or city tax authority.
In the United States, sales tax rates and rules vary by state and even by city. Some states (Oregon, New Hampshire, Montana, Alaska, Delaware) have no statewide sales tax; others combine state, county, and local rates that exceed 10 percent. After the Supreme Court's South Dakota v. Wayfair decision, sellers can be required to collect sales tax in states where they have 'economic nexus' — typically defined as a threshold of sales or transactions into that state.
Why it matters
If you sell across state lines in the US, you may have sales tax obligations in states you have never physically operated from. Track sales by state from day one. A small business can build up six-figure tax liabilities — and penalties — without realising it.
Where this appears in your tools
The Tax Survival Calculator treats sales tax as a separate exposure from income tax, similar to VAT in other jurisdictions. The invoice generator shows sales tax broken out per line for jurisdictions that require it.
Example
You sell a 100 product to a customer in California (combined rate ~9 percent). You collect 109 from the buyer; 9 belongs to California. Cross 100,000 of sales into Texas in a year and you likely owe a Texas sales tax registration too — even from a New York office.
Common confusion
Sales tax and VAT are not interchangeable terms. VAT is collected at every stage and netted; sales tax is collected only at the final consumer sale. Also: a 'sales tax exempt' resale certificate from a B2B buyer means you do not charge them sales tax — but you must keep the certificate on file as evidence.