Sales Tax Fundamentals

Sales tax is a type of indirect tax. Indirect taxes are applied to retail sales of certain tangible personal property and services, paid by the consumer, and remitted to the appropriate tax authority by the business.

States and local governments use sales tax to pay for budget items like schools, roads and public safety. Sales tax is governed at the state level, which means each state gets to make its own rules and laws when it comes to administering sales tax. This is part of the reason sales tax compliance can be so complex. For a business selling in multiple states, they have to be aware of all the different sales tax laws and keep up with when sales tax is due in each state.

Forty-six US states and Washington D.C. all have a state sales tax.

You only need to collect and remit sales tax for states in which you have nexus. (You can learn more about nexus in this FAQ or in this blog post.)

As a general rule of thumb, the more revenue you generate in a state, the more often they want you to file sales tax. For example, you could start out filing quarterly in a state, but if you hit a revenue threshold, the state may decide you need to file monthly. If you need to register for a sales tax permit, we’ve compiled all the info here. And here’s a primer on how to file online and by mail for every state.

We understand that keeping up with filing can be a headache, so our AutoFile product can file automatically on your behalf, ensuring you never have to worry about missing a deadline.

Every state has different thresholds that trigger tax obligations for your business – it’s important to understand where you are in relation to those thresholds to know whether you have obligations in a particular state.

If you have offices, warehouses and employees in a state, you may have physical nexus, which means you’ll need to remit and file in that state. When you use TaxJar, it’s easy to track where you have (and where you may soon have) economic nexus using our Economic Nexus Insights dashboard. In the meantime, you can see if you meet the threshold for economic nexus by using this helpful guide.

Most states have passed marketplace facilitator laws. These require marketplaces like Fulfillment by Amazon (FBA), Etsy, and other marketplaces to collect and remit sales tax on your behalf. Each state has different laws so for marketplace facilitator laws by state, take a look at this guide. Even with these laws in place, your business isn’t off the hook for sales tax.

For instance, if Amazon is collecting sales tax on your behalf in Washington, but you’re located in Washington and you also sell items through your website, you still need to collect, remit, and file in the state on your own. To do that, you must have a current license. In most states, if you don’t have sales outside of those with the facilitator, you’re still required to file a simple “zero return” saying so, or register for non-reporting sales tax status.

Radical new business models are a hallmark of the e-commerce revolution, with companies now offering everything from monthly subscription boxes to SaaS. In the past, many states only required sales tax to be charged for “tangible personal property”, or physical goods. That left many digital goods untaxed. Now, some of those same states have updated the definition of “tangible personal property” to include digital goods, and are now requiring them to be taxed. Learn which states are requiring sales tax on digital goods here.

This does not have a simple answer, because sales tax can vary from product to product. The sales tax rate also depends on which state and local jurisdiction you’re selling the product in. For more information on how to calculate a sales tax rate, this post will give you more information. Keep in mind that sales tax rates (and laws) are always changing, so the best way to stay on top of things is to use TaxJar, which will help you charge the right amount of sales tax every time.

We’ve laid out a four-step process for registering here, should you choose to do it yourself. If you’d like to streamline your compliance, TaxJar can handle the registration process for you. Visit our registration page to request our team of experts manage your sales tax registration on your behalf.

In almost all cases, we highly recommend that you register for a sales tax permit in your home state before you start doing business. Even if your products are not taxable in your state, many states want every in-state retailer to possess a sales tax permit. States consider having a sales tax permit a vital part of doing any type of business where you sell taxable products to another person.

If you’re selling primarily via a marketplace, some states do not have marketplace facilitator laws and may still require you to register for a permit. This post on the intricacies of when to register for a sales tax permit can provide you with more details, but it may also be beneficial to consult a tax expert.

Shipping is taxable in some states and not taxable in others. This post will fill you in on the specific states that tax shipping and which do not, though keep in mind that it will primarily be helpful for e-commerce sellers shipping taxable items to customers within your state. Another option is to use TaxJar’s platform, which can accurately collect sales tax at checkout and take the guesswork out of whether or not to tax shipping.