US Washington DC increases sales tax rate

District of Columbia raises sales tax rate from 6% to 7% by Oct 2026

Washington District of Columbia has proposed a two-stage rise in its current 6% sales tax rate as follows:

• 1 Oct 2025 – rise to 6.5%
• 1 Oct 2026 – rise to 7%

This general state rate applies to tangible personal property and selected services. There are several higher rates on a range of services include restaurants, theatres, vechilce rental, hotels etc.

The rise was announced in the state’s 2025 budget by the district’s Council. It must now be reviewed by the US Congress.

US Sales Tax rates and selling thresholds

Sales tax in the United States is a consumption tax imposed by state and local governments on the sale of goods and services. Unlike a value-added tax (VAT) used in many other countries, which is applied at each stage of production and distribution, sales tax is collected only at the point of sale to the final consumer. The specifics of sales tax, including the rates and the items taxed, can vary widely from state to state and even between localities within a state.

How US Sales Tax Works

1. Imposition and Collection: Sales tax is levied by state governments, and sometimes by local governments within states (such as cities and counties). Retailers are responsible for collecting the tax from customers at the time of purchase and remitting it to the appropriate tax authorities. The sales tax rate is a percentage of the sale price of the goods or services.
2. Rates and Exemptions: Sales tax rates differ by state and locality. As of 2024, state rates range from 0% (in states with no sales tax like Delaware, Montana, New Hampshire, and Oregon) to over 7%, with local rates adding additional percentages. Some items may be exempt from sales tax, such as groceries, prescription medications, and clothing, depending on the state.
3. Nexus: For a business to be required to collect sales tax, it must have a “nexus” or sufficient physical or economic presence in the state. Nexus can be established through various means, such as having a physical office, warehouse, employees, or significant sales volume in the state.

When Foreign Businesses Need to Register in Each State

Foreign businesses, like domestic ones, need to consider the concept of nexus to determine their sales tax obligations. The landmark Supreme Court case South Dakota v. Wayfair, Inc. (2018) significantly changed the landscape by ruling that states could require businesses with no physical presence in the state to collect sales tax based on economic presence (economic nexus).

1. Economic Nexus: Many states have established thresholds for economic nexus. These thresholds typically involve a minimum amount of sales or a number of transactions in the state over a specified period, usually a calendar year. For example, a common threshold is $100,000 in sales or 200 transactions annually. If a foreign business meets or exceeds these thresholds, it must register, collect, and remit sales tax in that state.
2. Physical Nexus: Besides economic presence, having a physical presence such as offices, warehouses, employees, or sales representatives in a state also creates a nexus. This means that even without significant sales, physical operations in a state would obligate a business to collect sales tax.
3. Marketplace Facilitators: With the rise of online sales, many states have enacted laws requiring marketplace facilitators (platforms like Amazon or eBay) to collect and remit sales tax on behalf of sellers using their platforms. Foreign businesses selling through these platforms might not need to register individually for sales tax if the platform handles it.

Steps for Foreign Businesses to Comply

1. Determine Nexus: Assess whether the business meets the physical or economic nexus criteria in any state. This involves reviewing sales volumes, transaction counts, and physical operations.
2. Register for Sales Tax: If nexus is established, the business must register with the state’s tax authority. This process varies by state but generally involves completing a registration form and providing business information.
3. Collect and Remit Tax: Once registered, the business must collect sales tax on applicable sales to customers in the state and remit it to the state tax authority, typically on a monthly, quarterly, or annual basis, depending on the state’s requirements.
4. Stay Informed: Sales tax laws and regulations frequently change, so businesses need to stay updated on the latest requirements and ensure ongoing compliance.

In conclusion, understanding and navigating U.S. sales tax involves recognizing the jurisdiction-specific nature of the tax, determining nexus, and fulfilling registration and remittance obligations. For foreign businesses, staying compliant requires vigilance and often consulting with tax professionals to manage these responsibilities effectively.