Sales tax is calculated as a percentage of the total taxable purchase. It’s a one-time tax charged at the point of sale to the end customer. The money goes from the consumer, to the vendor, to the government, the end.
Sales tax by state
In the US, sales tax rates are determined at the state and local levels. There is no overarching national sales tax in the US. In fact, some states don’t have sales tax at all, such as Alaska, Delaware, Montana, New Hampshire, and Oregon.
If you’re selling remotely to other US states, you should check the economic nexus laws to see if you are liable for sales tax there.
Local sales tax rates are determined by different jurisdictions, such as the city or county. Sometimes local jurisdictions will add a temporary sales tax to raise funds for a public project, such as transportation or a cultural building.
Though local rates are generally quite low compared to state-level tax, they’re just as important to stay aware of!
At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or accountant.
Frequently Asked Questions
Who should collect sales tax?
Businesses should collect sales tax only if they have nexus in a state. Sales tax nexus could be:
A physical presence (office, employee, storage or warehouse, inventory) in that state.
Marketing or sales affiliates that refer customers to your business.
Web cookies or click-through ads used on in-state websites.
A large volume or number of sales to in-state customers, a.k.a. economic nexus. (See next question!)
Each state has its own rules about nexus and when you’re liable for sales tax, so it’s important to check with local policies. Once you have a nexus, you should register for sales tax there and start collecting it on sales to customers within that state.
Do you have to charge sales tax for online sales?
Maybe, this depends on how much you’re selling and where.
These days there are many places that tax online sellers, and the US is no different. More states are added to the list every year. In these states, you must charge sales tax for online transactions only if your annual sales exceed the economic nexus threshold. See question above!
Once you have economic nexus in the state, you’re legally required to register for sales tax.
How do I get a seller’s permit or sales tax number?
If you’ve determined you’re liable for sales tax and are now wondering how to get a seller’s permit, check out our sales tax registration guides. These guides explain – step by step – how to register in different states around the US. You receive a seller’s permit or sales tax number once your registration process is complete!
How much is sales tax?
Sales tax rates vary across the US for a number of reasons. Sales tax rates are set at the state level, with the possibility of regional or city-wide taxes added on top. This second layer of sales tax is typically referred to as “local taxes” and the percentages are very small in comparison.
Another reason rates might vary is whether the state follows destination-based or origin-based sales tax rules. The first follows the tax rate based on the destination of your sale, i.e. where your customer is located, while the second uses the tax rate of the origin of the sale, i.e. where your business or the item is located.
Yet another reason tax rates might differ is because of the product you’re selling. Authorities often set different rates for certain products in order to encourage or discourage their sales. For example, educational products, books, and newspapers often have low or no tax added – while cigarettes and alcohol are taxed at rates higher than average.
If you’re curious about a specific location, calculate the sales tax in your area by entering a location and zip code into our Sales Tax Calculator.
When should I file sales tax returns?
When you first register for sales tax, the state’s tax authorities assign you a filing frequency. The frequencies are either monthly, quarterly, or annually – and sometimes a combination of these. This usually depends on the income or sales volume of your business, with high-grossing businesses filing more often and small businesses filing once per year.
Due dates for each filing period are set by the local authorities. You should always double check in the states where you’re registered, to see the tax deadlines for the year ahead. Then you’re sure to have enough time to prepare your sales tax return with accurate information, then also file your sales tax return on time.
What happens if I don’t collect sales tax?
You still have to pay the tax that’s due on your sales, even if you didn’t collect it from your customers at the point of sale. That means paying out of pocket. In addition, there could potentially be penalties or fines for failing to collect the tax properly.
With a tax automation tool like Quaderno, sales tax is collected for you automatically on every sale. You never have to worry about calculating tax correctly or keeping the right records. We’ll track your tax liabilities and give you clear reports for filing season. See what it’s like with a free trial!
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