I want to know about the assessment of sales tax for online transactions in the USA (for states which collect such tax).

As I understand, sales taxes are assessed at multiple levels of government: district[s], city, county, and state. These 4 independent rates combine to establish the sales tax rate, which applies to the final sale price of an item delivered to an address within that jurisdiction, to be collected by the seller (or the seller's platform provider), and remitted to each applicable tax authority at some later date.

Of course, there are exceptions, exclusions, exemptions, etc -- let's call these situations "exempt" and any other sale "non-exempt".

Some questions:

  1. First, please correct errors in the above
  2. What authority oversees this process?
  3. How might one determine the exact tax rate applicable to their address?
  4. How can it be explained when non-exempt sales from different online sellers being shipped to a single address are all assessed different tax rates? i.e., you purchase a $10.00 item (non-exempt) with $10.00 shipping from each of 5 online retailers, and the total with tax for each of the 5 sales is different
  5. What are the legal consequences of charging the wrong tax rate (collecting the wrong tax)?
  6. What entity enforces compliance and hears consumer complaints?

3 Answers 3

  1. What authority oversees this process?
  1. What entity enforces compliance and hears consumer complaints?

The state tax agency. They go by different names, such as the California Franchise Tax Board, Texas Comptroller, New York State Department of Taxation and Finance, and Florida Department of Revenue.

  1. What are the legal consequences of charging the wrong tax rate (collecting the wrong tax)?

This would depend on State law. If you merely fail to file or under-remit, you would likely have to pay a percentage penalty, which may go up depending on time, plus interest.

If you intentionally misrepresent taxes due, that would be tax evasion or tax fraud, which could result in a higher percentage penalty, seizure of assets, a misdemeanor or felony conviction, depending on the magnitude, and potential jail.

  1. How can it be explained when non-exempt sales from different online sellers being shipped to a single address are all assessed different tax rates?

Some states use an origin-based sales tax system. For in-state remote sales, the seller collects tax based on the rate in the seller's location. This would be similar as if you had collected the purchase yourself at their premises.

The opposite would be a destination-based sales tax system where the tax rate collected is based on the address the goods were shipped to. Out-of-state sales tax collection is almost always destination-based.

States with generally origin-based tax rates are Arizona, Illinois, Mississippi, Missouri, Ohio, Pennsylvania, Tennessee, Texas, Utah, Virginia. California is origin-based for city, county, and state taxes, but destination-based for district.

This is all broadly speaking, there are complicated state-dependent rules. For example New Mexico is origin-based on some types of services.

i.e., you purchase a $10.00 item (non-exempt) with $10.00 shipping from each of 5 online retailers

Another factor is the taxability of shipping fees is complicated. In some states, "shipping and handling" becomes taxable when the fee charged is different from the fee charged by the carrier, e.g. the store is charging for boxes and labor. In other states, it may depend on the taxability of the items being shipped.

  • Are you certain that local governments are not also involved in the collection and enforcement process?
    – ohwilleke
    Apr 4, 2023 at 17:01
  • A complex system indeed, as we might expect for the US. I understand from your explanation that a seller can be punished for under-collection or under-remittance. What about over-collection? This seems to be fully legal. So if the consumer has a problem with it, he should try to work it out directly with the seller?
    – Jamesfo
    Apr 8, 2023 at 23:54
  • @Jamesfo A buyer would have a civil claim against the seller for sales tax over collection. (I remember a class action lawsuit against Dell that involved the characterization of service contracts, and I got some money back) The seller would generally get a refund back from the state.
    – user71659
    Apr 10, 2023 at 19:53

You can determine the sales tax that you should be subject to by determining the applicable sales taxes of each taxing jurisdiction that you live in. There is a fair chance that the state's "Department of Revenue" or similar has that information consolidated. In Washington, you start here and note that Ch. 82.08 and 82.14 are the sales tax chapters. Fortunately for residents in Washington, there is a program that computes tax based on address, which is actually accurate (AFAICT) unlike some unofficial websites.

A vendor is only allowed to charge the correct tax. This imposes an unreasonable burden on online vendors, who have to accurately determine the tax facts of the individual customer. The burden is primarily shifted to the customer, who has to apply for a tax refund. For the most part, the vendor will give a refund when the appropriate paperwork is submitted, but if e.g. the vendor disappears or has no money, you instead apply to the Dept. of Revenue. There are penalties for willfully overcharging sales tax.

Because vendors use different online resources for guessing what a customer's tax is, different taxes may be charged. One service may have better geo-location services: these are "business" details, not legal features.

  • Thank you for this answer. From the links you provided, my jist is that the system operates on a best-effort principle, leaving the consumer to sort out any errors directly with the seller. Any ideas how one would find these same linked resources in other states?
    – Jamesfo
    Apr 8, 2023 at 23:39
  • I have some idea how a large online company does it: they have a division that keeps tabs on ever-changing tax statutes. Hire 50 people (for the US), each person focuses on one state. You could use salestaxhandbook.com for example, but it is not actually accurate w.r.t. local taxes.
    – user6726
    Apr 9, 2023 at 0:13

Responding to 3 and 4

3.How to determine the tax rate from address

10 second google turned up https://www.taxjar.com/sales-tax-calculator which seemed to work well

  1. How can it be explained . . .

People are used to paying different amounts when sales tax is involved.

  • FYI, it fails w.r.t. municipal tax add-ons, and "charged" me an extra 1%.
    – user6726
    Apr 4, 2023 at 1:20
  • I didn't get accurate results from the calculator in the provided link, but I think you've made the point that nobody really knows what their tax rate is, and nobody really cares. As a caretaker for Ukrainians, it was interesting for me to learn that sales tax there is embedded in all retail prices, online and in-store, and the burden is on the seller to do accurate tax collection.
    – Jamesfo
    Apr 8, 2023 at 23:44

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