Are Local Governments Exempt From Sales Tax? Sales Tax Exemptions

Government agencies – Federal, state, and local government agencies are exempt from paying sales tax on purchases made for official government use. This includes police, fire departments, schools, universities, and hospitals.

Some states exempt sales to state and local governments. Others tax them. Five states don’t have sales taxes: Delaware, Montana, New Hampshire, Oregon, and Alaska. However, local municipalities in Alaska can impose local sales taxes.

As of 2021, California has the highest state sales tax rate at 7.25%. Some California counties have rates as high as 10.75%.

Charitable organizations registered as 501(c)(3) non-profits are exempt from paying sales tax on purchases made for their charitable purposes. So are churches and religious organizations on purchases made for religious purposes.

There is no federal sales tax. State and local governments determine sales taxes. Consumers can see their tax burden printed on their receipts.

Sales tax rates differ by state and county. Sales taxes are a transparent way to collect tax revenue. Consumers can see their burden printed on receipts.

Property taxes are the largest source of local tax revenue. Sales taxes make up the majority of state tax revenue.

Income and property taxes provide most combined state revenue. Sales taxes provide the majority of state tax revenue.

The sales tax rate varies within states. Local governments can impose sales taxes. Local sales taxes can increase rates substantially.

Sales taxes apply at the point of sale. They are typically a percentage of the purchase price. Sales taxes fund government programs and services.

Most states allow local sales taxes in addition to state sales taxes. Local sales taxes range from 0.5% (Hawaii) to 8% (Colorado).

Thirty-seven states allow local sales taxes. Alaska has no statewide tax but allows local taxes.

Five states have no sales taxes: New Hampshire, Oregon, Montana, Alaska, and Delaware. Over 100 local governments in Alaska levy sales taxes.

Depending on products sold, most businesses must collect sales tax. Not collecting sales tax can result in fines and jail time.

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