When products are taxable in America

With few exceptions, all products in America are taxed when they are intended for final consumption. The tax rate applied to products depends on the product category and the U.S. state where the sale occurs.

In the United States, sales tax rates vary based on the state, the product category, and the pre-tax sale price. For example, let’s calculate the sales tax for a clothing item priced at $200, sold in New York State, where the sales tax rate is 8.25%:

• Sales tax calculation: $200 x 8.25% = $16.50
• Final retail price: $200 + $16.50 = $216.50

In America, sales tax must always be applied at the appropriate rate when selling to an end consumer unless the product is exempt—which is relatively rare for consumer goods.

Unlike in Italy, where VAT-inclusive prices must be displayed, the United States does not require sales tax to be included in displayed prices. As a result, the final retail price is always the sum of the listed product price plus the applicable sales tax.

Generally, clothing is taxed at higher rates than food products, while industrial goods are rarely taxable if they meet certain conditions.

Understanding product taxation in the U.S.: sales tax regulations

When discussing product taxation in America, we refer to sales tax. To determine the exact tax amount for a product in the U.S. market, we must refer to state-specific sales tax regulations. Since each state administers its own sales tax, there are effectively fifty different tax laws governing product taxation.

Despite the variations in sales tax laws across states, some general principles apply to product taxation in America:

• Sales tax applies only at the final stage of distribution, when the product is sold to the end consumer.
• Products are not subject to sales tax when sold to a distributor who then resells them to final consumers.
• Industrial products incorporated into a manufacturing process are generally not taxable.
• Sales tax obligations may apply even in states where the seller has no physical presence. This occurs when sales in a state exceed the economic nexus threshold, triggering tax obligations.

ExportUSA provides a comprehensive sales tax management service to prevent costly errors in determining product taxation and making state tax payments. We also offer an initial consultation to determine whether your products or services are subject to taxation or exempt in different U.S. states.