Sales tax can be a serious headache, especially with over 13,000 taxing jurisdictions in the US. But ensuring you’re collecting the correct amount of sales tax every time is vital for your business.
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Sales tax rates and laws vary from state to state, with each state deciding what products and services to tax. To learn more about sales tax, read our complete guide here and reach out to our team at Zamp to ensure your business stays compliant every step of the way.
Yes, there is a difference between sales and use tax. Sales tax is a tax on the sale, transfer, or exchange of a taxable item or service at the point of sale. It is added to the price of an item and charged to the customer.
Use tax is a tax on the storage, use, or consumption of a taxable item or service on which no sales tax has been paid. It often shares the same rate as sales tax, but not always.
You’ll need to collect and remit taxes to a state if you have achieved nexus, either through physical or economic activity. If your business has an office, warehouse, or employees in a state, you likely have physical nexus.
On the other hand, if you sell products in states where you don’t have a physical presence, you can reach economic nexus by hitting a certain transaction or dollar amount. This is usually $100,000 in sales or 200 transactions in a calendar year, though it varies by state.
It depends. If you have nexus (either through physical or economic activity), you must collect and remit sales tax to the states. However, if you sell on marketplaces like Amazon or Etsy, they are required to charge and remit sales tax to the states for you once you reach nexus thresholds.
Keep in mind, however, that you should always confirm the amount that marketplaces are charging and remitting to the states. When you reach nexus, you will also need to collect and remit any sales tax for non-marketplace transactions.
Specific sales tax laws vary from state to state, but this is a general overview of business factors that create sales tax nexus for retailers:
Five US states – Alaska, New Hampshire, Oregon, Montana, and Delaware – do not have a state sales tax.
One of the more complicated aspects of charging sales tax as an e-commerce seller is the concept of “sales tax sourcing.” In sales tax, the term “sourcing” refers to the location where the sale is taxed.
The good news is that for nearly all interstate (i.e., between two states) online sales, the sale is taxed at the buyer’s ship-to address. This is called “destination-based sales tax sourcing.”
The bad news is that some states confuse this when it comes to intrastate (i.e., sales within the same state).
Most states simply want an e-commerce seller to charge sales tax at the buyer’s location on interstate and intrastate sales. But a handful of states have “origin-based sales tax sourcing” where they require that e-commerce sellers charge sales tax at the rate where the sale originates. Hence the name “origin-based.”
List of Origin-Based Sales Tax States
Important to note: This is a list of origin-based sales tax states for intrastate sales (i.e., sales where the buyer and seller are located in the same state). States marked with an * also have special rules regarding sales tax sourcing for interstate sales.
Origin-based sales tax sourcing example
You run your e-commerce business from a warehouse in Abingdon, Virginia. You make a sale to a buyer in Virginia Beach, Virginia. Since Virginia is an origin-based sourcing state for intrastate sales, you’d charge the sales tax rate based on your location to your customer.
But keep in mind this only applies to Virginia-based customers. If you run your business out of a location in Virginia but also have sales tax nexus in neighboring North Carolina, you’d be required to collect sales tax.
List of Destination-Based Sales Tax States
Important to note: This is a list of destination-based states for intrastate sales (i.e., sales where the buyer and seller are located in the same state). In most, but not all, cases, e-commerce sellers should charge sales tax at the buyer’s destination for interstate (between two states) sales.
Destination-based sales tax sourcing example
You operate your business in Abingdon, Virginia but also have sales tax nexus in North Carolina. You make a sale to a buyer in Elizabeth City, North Carolina. In this case, you would charge sales tax at the rate of your buyer’s address in Elizabeth City.
Read more on origins vs. destination sourcing
You can find the sales tax rate for your area by combining the state sales tax rate and any additional local sales tax levied by a county, city, or district. Sales tax can differ from one city to another.
To calculate the sales tax rate for your area, enter your address or zip code into our sales tax calculator. This will provide you with the rate for your location. You can also use an automated sales tax solution, like Zamp, to calculate sales tax for all the areas you sell in or to.
When you register for sales tax, the state will assign you either a monthly, quarterly, or annual filing frequency. The more sales volume you have in a state, the more often you will be required to file a sales tax return.
The taxability of products and services is set within the laws of each state. You can speak with a sales tax expert to determine your product’s taxability or visit a state’s Department of Revenue website to access the laws and regulations of that state.
If you fail to file a sales tax return and don’t collect taxes, you’re at risk of incurring significant penalties. This could include paying interest on top of the state sales tax that you owe. There’s also the possibility you could face a lawsuit or criminal penalty for failing to file.
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