During the course of business many sales tax issues can come up. Below I’ve compiled a list of questions that will get you the general information you need to know about your state’s sales tax laws.
Look for answers to the questions below on your state’s website, the paperwork they sent you when you registered or give them a call and ask one of your state’s employees. That’s how to best get facts about your state’s laws, not someone else’s interpretation or opinion.
There are links to official state websites in this post that should help you find the answers to the questions below:
Links to Official Government Websites
Sales tax laws are different from state to state and the answers to the questions below vary widely.
There is only one law that applies to all states when it comes to collecting sales tax:
- You don’t charge sales tax to buyers outside your business nexus. That is:
- 1. outside of the state you sell from,
2. outside of states you are registered in (if you are registered in more than just your home state) or
3. from states you don’t have a business representative in.
- What does that mean?
- 1. Most sellers need to collect sales tax from buyers in their own state. Most states require you to register before you can collect sales tax, then collect only from in-state buyers unless 2 or 3 below applies to you.
2. If you are registered in a state other than the one you live in, you need to collect sales tax for that state too (like for doing an out of state craft show).
3. If you have a business nexus (see below) in another state you may need to register and/or collect sales tax there too, depending on that state’s sales tax laws.
What’s a nexus? The description varies a bit, but generally if you don’t have a physical presence in a state (be it a place you ship from, a public storefront of your own, a representative who presents your items for sale in a state, do a craft show in a state), you generally don’t have a business nexus there.
• Must I register to collect sales tax in my state?
You may think your business is too small or that you are just a hobby seller therefore you don’t need to register to collect sales tax for your state. From what I’ve seen, that’s probably not true. Many states require you register before you start selling, regardless as to whether or not you ever make a sale to someone in your state, make a sale at all or turn a profit, or whether or not you are a business or just an individual.
• Is there an amount of sales I can make before I am required to register?
Most states with sales tax require you to register straight away–rarely there’s a “You can sell $XXX worth of goods before registering to collect sales tax” rule so you need to find out what your state’s rules are for when registration is required.
Usually it’s “Intend to make a sale? Register before you start selling whether you are a business or just an individual planning on selling to the public”.
• Can I just include sales tax in my price?
Some states allow it, some don’t, and some allow it so long as you mention tax is included. There may be other stipulations, but none I have heard of off-hand.
• Can I just pay the sales tax for my customers?
Some states allow it, some don’t. Some allow it so long as you don’t advertise it.
• Can I advertise that I pay sales tax for my customers?
Some states have specific laws about publicizing that you will pay sales tax for your customers.
• What rate do I charge?
There’s two main types of sales tax for those of us in the mail-order/internet-sales business, you need to find out which of these applies in your state:
1. Origin-based sales tax: You charge the rate of where you sell from *to buyers your state*, just like when you purchase something in-person. When the package is shipped outside areas where you are obligated to collect sales tax (usually just your home state), you don’t charge sales tax.
2. Destination-based sales tax: You charge the rate of tax at the address to which you mail the package. That’s a bit of a hassle, but if that’s what the state requires that’s what you need to do. Here in NY, I must find out what county a buyer is in before I know what rate to apply.
There’s also a hybrid–some states have both state & local taxes and they require sellers to only collect the local taxes when items are being shipped within their home region (which makes it a bit like destination based sales tax–but only for those in their own area). So if the buyer is in the seller’s city or county, they collect state+city or state+county tax from that buyer, and only state sales tax from buyers in all other parts of their state.
• Are there different rates depending on the items or services I provide?
Some states have different rates for food, clothing, shoes, services… be sure to understand how they apply to your business.
• Do I collect sales tax on shipping?
In some states all shipping is taxed, in some only shipping of taxable goods (and the shipping might be partially taxable if only part of the order is taxable), in states the cost shipping isn’t taxable but any amount over the actual cost of shipping is taxable (so if you have a handling fee it would be taxed, or if you just round up the amount that would be taxable (for example from $1.72 actual shipping rounded up to $2.00, 28 cents would be taxable).
• Must my receipts to customers specify the amount of sales tax the customer paid and/or state that sales tax is included in the purchase price?
Some states require that you show how much tax the customer has paid/you paid for the customer. If the customer doesn’t know how much tax they paid, they won’t know if “use tax” is due on their purchase. (Use tax is due on purchases that should have had tax collected by the seller but didn’t. Many (most/all?) states with sales tax also have use tax which applies to internet and mail order purchases where the seller didn’t collect sales tax, though many people think that purchases from the internet are sales tax-free.)
|Need help getting your business registered & finding answers to these questions for sellers in your state? Start here:
US: Sales Tax & Business Registration