Julian Drago
September 8, 2023
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Sales tax in the US is a common problem that international entrepreneurs face when starting their own e-commerce business in the country. Calculating tax rates and figuring out how to pay them to the tax authorities may seem like a daunting task, but it's not as bad as it sounds.
There is no national sales tax in the US, but 45 states and many municipalities have a sales tax. If you make any type of retail sale, you must comply with the sales tax rules of the state where the sale was made, and collect and remit the appropriate amount of tax.
Sales tax is a consumption tax imposed by state or local governments on the sale of goods and services. Businesses collect sales tax from consumers and remit it to the government. The amount of sales tax collected varies by jurisdiction and may be based on the type of goods or services sold, the location of the sale, and the value of the purchase.
Businesses that sell physical products are required to collect sales tax from their customers and remit it to the state. The sales tax rate varies depending on the state where the product is sold, the type of product, and the value of the purchase.
Businesses typically collect sales tax at the time of sale and remit it to the state on a monthly or quarterly basis.
Sales tax laws vary by state. Sellers must determine the sales tax rate for the location where the product is sold, whether it is a physical store or an online marketplace.
Some states use origin-based sourcing, which means the sales tax rate is based on the seller's location. Other states use destination-based sourcing, which means the sales tax rate is based on the location of the buyer.
In destination-based states, the seller must collect and remit sales tax to the state at the rate for the buyer's location. For example, if a seller in Florida sells a product to a buyer in Georgia, the seller must collect and remit the Georgia sales tax rate to the Georgia Department of Revenue.
In origin-based states, the seller collects and remits to the state the sales tax rate for their own location. For example, if a seller in Arizona sells a product to a buyer in Florida, the seller must collect the Arizona sales tax rate and remit it to the Arizona Department of Revenue.
California is a destination-based state, but it has a unique twist. The sales tax rate is based on the buyer's county of residence, not their physical location. This means that if a seller in California ships a product to a buyer in another county, the seller must collect the sales tax rate of the buyer's county.
There are five states with no sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. However, Alaska allows local sales tax.
Sales tax is not required if a business does not have nexus, or a connection, with a jurisdiction. A business establishes nexus when it has a physical presence in a state, such as an office, warehouse, or sales representative. Nexus may also be established based on the number of transactions or the amount of sales originating in a particular state. Each state has its own rules for defining nexus.
Businesses that purchase materials to make the product they sell are exempt from paying sales tax if they have a resale certificate. A resale certificate is a document that proves that the materials will be used to make a product that will be sold to consumers. The consumer will pay the sales tax when they purchase the final product.
Sales tax in the US can be complex and confusing, with each state having its own rates and policies. However, there are a number of tools available to help businesses comply with sales tax laws.
Marketplaces like Amazon or Etsy and payment processors like Stripe offer automated sales tax collection and compliance services. These services can help businesses calculate the correct sales tax for each sale, file the necessary paperwork, and remit the taxes to the appropriate state.
Using these automated tools can free up businesses to focus on other aspects of their operations, such as expanding their product offerings and marketing their products.
Sales tax is a consumption tax imposed by state or local governments on the sale of goods and services. Businesses collect sales tax from consumers and remit it to the government. The amount of sales tax collected varies by jurisdiction and may be based on the type of goods or services sold, the location of the sale, and the value of the purchase.
Businesses that sell physical products are required to collect sales tax from their customers and remit it to the state. The sales tax rate varies depending on the state where the product is sold, the type of product, and the value of the purchase.
Businesses typically collect sales tax at the time of sale and remit it to the state on a monthly or quarterly basis.
Sales tax laws vary by state. Sellers must determine the sales tax rate for the location where the product is sold, whether it is a physical store or an online marketplace.
Some states use origin-based sourcing, which means the sales tax rate is based on the seller's location. Other states use destination-based sourcing, which means the sales tax rate is based on the location of the buyer.
In destination-based states, the seller must collect and remit sales tax to the state at the rate for the buyer's location. For example, if a seller in Florida sells a product to a buyer in Georgia, the seller must collect and remit the Georgia sales tax rate to the Georgia Department of Revenue.
In origin-based states, the seller collects and remits to the state the sales tax rate for their own location. For example, if a seller in Arizona sells a product to a buyer in Florida, the seller must collect the Arizona sales tax rate and remit it to the Arizona Department of Revenue.
California is a destination-based state, but it has a unique twist. The sales tax rate is based on the buyer's county of residence, not their physical location. This means that if a seller in California ships a product to a buyer in another county, the seller must collect the sales tax rate of the buyer's county.
There are five states with no sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. However, Alaska allows local sales tax.
Sales tax is not required if a business does not have nexus, or a connection, with a jurisdiction. A business establishes nexus when it has a physical presence in a state, such as an office, warehouse, or sales representative. Nexus may also be established based on the number of transactions or the amount of sales originating in a particular state. Each state has its own rules for defining nexus.
Businesses that purchase materials to make the product they sell are exempt from paying sales tax if they have a resale certificate. A resale certificate is a document that proves that the materials will be used to make a product that will be sold to consumers. The consumer will pay the sales tax when they purchase the final product.
Sales tax in the US can be complex and confusing, with each state having its own rates and policies. However, there are a number of tools available to help businesses comply with sales tax laws.
Marketplaces like Amazon or Etsy and payment processors like Stripe offer automated sales tax collection and compliance services. These services can help businesses calculate the correct sales tax for each sale, file the necessary paperwork, and remit the taxes to the appropriate state.
Using these automated tools can free up businesses to focus on other aspects of their operations, such as expanding their product offerings and marketing their products.
