Sales Taxes for a Sole Proprietor

Food purchases are not subject to sales tax in some states.
Food purchases are not subject to sales tax in some states. (Image: Thomas Northcut/Photodisc/Getty Images)

Every business must charge and remit sales tax on applicable purchases, regardless of whether that business is a sole proprietorship, partnership or limited liability company. In addition, the ownership structure of a company does not affect the sales tax that it pays on applicable business purchases. The amount of sales tax that a business must pay depends on state and local rates, as well as the specific tax rate for the type of purchase being made.

State Sales Tax Rates

Each state sets its own sales tax rate, which applies to businesses regardless of their ownership structure. These rates are composite percentages of amounts due to city, county and state revenue departments, so they may vary from one part of a state to another. In addition, states may charge different sales tax rates for different types of business activities. Rates on sales and services used by out-of-state visitors, such as entertainment and rental cars, tend to have especially high tax rates.

Wholesale vs. Retail

Sales tax is paid only once, by the end user or the last person to purchase a product. When an item is resold by a series of wholesale middlemen, the buyers generally are not required to pay sales tax because they are selling these products to other merchants who will also resell them. In order to sell products without collecting sales tax, wholesalers are required to collect documentation from their wholesale customers verifying that the products they are buying are intended for resale.

Tax-Exempt Retail

In some states, some items are not subject to sales tax even if they are sold at the retail level. Nontaxed products tend to be necessities rather than luxuries. Groceries are not subject to sales tax in some states, although restaurant food is taxed virtually everywhere. In Vermont, clothing purchases under $100 are not taxed, but clothing purchases in excess of this amount are subject to sales tax. Oregon does not charge any sales tax at all.

Collecting Sales Tax

Retail businesses act as agents of the state for the purpose of collecting sales tax, which must be added to the price of all applicable purchases. Business owners, including sole proprietorships, must collect sales tax from their customers and send it to the state according to the schedule that the state provides. Tax reporting schedules vary for different businesses based on the sales volume they transact. Companies with higher sales must remit sales tax more frequently.

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