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Discover sales tax compliance outsourcing for business startups. TaxHero simplifies multistate filing, reduces risk, and saves you time.

Sales tax compliance outsourcing for business startups has become a strategic necessity, especially for Ecommerce and CPG companies. As tax rules grow more complex across states, handling compliance in-house can drain time, create risk, and distract your team from core growth activities.

As a founder, your time—and your team’s—is most valuable when focused on building products, engaging with customers, and driving revenue growth. While struggling to keep up with sales tax compliance can distract from these priorities, it doesn’t mean it isn’t important. More than ever, states aggressively pursue audits and impose hefty penalties, where even a small mistake can cost thousands of dollars. That’s why outsourcing sales tax compliance from day one is a smart and essential conversation for every startup.

This guide covers everything you need to know about sales tax compliance outsourcing for business startups, what to look for in a partner, and how TaxHero makes the entire process seamless.

Ready to skip to the solution? Book a free TaxHero strategy call today

What is Sales Tax Compliance, and Why Is It Important?

Sales tax compliance is the process of:

Determining where you have sales tax nexus (where you’re obligated to collect tax)
Calculating and charging the correct sales tax on each transaction
Registering with the appropriate state tax authorities
Filing monthly/quarterly/semi-annually tax returns
Remitting payments to multiple jurisdictions
Storing documentation in case of an audit

As your business grows, so does the complexity. More products, more states, more rules. Non-compliance can lead to fines, penalties, and audits—not to mention damage to your reputation with investors and customers.

What are Sales Tax Compliance Services?

While many sales tax solutions offer tools for self-management, true sales tax compliance outsourcing for business startups provides end-to-end solutions, managing your tax obligations from start to finish.

They typically include:

Nexus analysis to determine where you owe tax
State registrations
Automated tax calculation
Return preparation and filing
Audit assistance
Ongoing compliance support

All of these are designed to alleviate the entire compliance burden for companies.

Sales Tax Compliance services encompass a complete spectrum of support where businesses get to transfer the administrative load of managing sales tax compliance.

The real value of a sales tax compliance service does not only lie with using a transactional software tool but in getting easy access to sales tax experts and accountants who provide a dedicated service and specialized knowledge on sales tax compliance.

When to outsource sales tax?

If you’re a startup, the right time to outsource your sales tax compliance is as soon as you start your business.

Embracing proactive outsourcing as early as the inception of your business ensures you continuously adhere to the ever-evolving regulations as your business grows.

The goal is to build a strong foundation of robust sales compliance early on.

But, what if you have not outsourced your sales tax compliance as soon as your business started?

In this case, the next best time for you to outsource is as soon as your business begins crossing multiple sales thresholds or expands your operations into various new states.

This can be triggered by:

Hitting specific revenue benchmarks (e.g., $100,000 in sales in states with economic nexus laws) or
By hiring remote workers across state lines, which can instantly create new nexus obligations for your business

If you want to learn more about this, you can read our guide to economic nexus.

Just to give you a better idea, the “right time” to outsource your sales tax compliance is fundamentally driven by the rate and nature of your business growth and geographic expansion.

It doesn’t solely rely on your specific revenue milestone.

Say, your business grows really quickly and you end up doing transactions in 10-20 states.

This simply means that you’re also bound to manage sales tax compliance in these 10-20 states, making manual processes unsustainable and potentially at risk of errors.

This only suggests that as you scale your transaction volume and your geographic reach, your sales tax compliance becomes more complicated.

Benefits of Outsourcing Sales Tax Compliance

Why handle sales tax yourselves? Why outsource? Why bring in a third-party sales tax provider? Beyond knowing the right time to outsource, it’s important to understand the benefits of outsourcing sales tax compliance to your business.

Here’s the magnitude of strategic advantages that sales tax compliance outsourcing for business startups can bring:

Prevent Penalties

Outsourcing your sales tax compliance empowers your business to stay meticulously updated on the constantly changing sales tax laws and regulations across different jurisdictions.

A proactive approach like this prevents you from missing deadlines or even incorrect payments that can lead to penalties, interest charges, and dreaded sales tax audits.

Reallocate Resources

While compliance with sales tax is non-optional, it can notoriously be time-consuming.

Outsourcing your sales tax compliance services can liberate your business to focus on revenue-generating activities and initiatives that can benefit your bottom line. This is especially advantageous to startups where employees often wear multiple hats.

With compliance outsourcing solution, you eliminate the need to allocate time for sales tax compliance tasks and focus on sales or product development.

Minimize Non-Compliance Risk

Entrusting your sales tax compliance to specialized providers and dedicated tools reduces your risks of costly mistakes, underpayments, or even missed filings.

Specialized providers possess a deep expertise and knowledge of tax laws and regulations, making them the perfect people to monitor your sales tax compliance.

Other Additional Benefits

Cost Efficiency: Outsourcing gives you access to specialized tax expertise at a more cost-effective price than maintaining an in-house team. As a result, you gain long-term savings and unlock a greater growth potential in the long run.
Scalability: Outsourcing makes it easier for you to adapt to the increasing complexity of sales tax compliance as your business grows into new markets, increasing your transaction volumes.
Audit Preparedness: Outsourcing your sales tax compliance ensures that your business is always prepared for sales tax audits, ensuring all your documentation and records are available and ready.

The risks and complexities of sales tax are real, but they don’t have to be your problem. By outsourcing to TaxHero, you gain peace of mind and strategic advantages. Discover how seamless sales tax compliance can be with TaxHero. Contact us today!

How to Outsource Sales Tax Compliance

Discover why fast-growing startups outsource sales tax compliance. TaxHero simplifies multistate filing, reduces risk, and saves you time.

Achieving a successful sales tax compliance outsourcing with your chosen provider requires an actively managed partnership rather than a passive one.

Sales tax compliance outsourcing cannot just be a “set it and forget it” solution or a plug-and-play system. Here’s how you can create a collaborative relationship between your business and your provider:

Initial Assessment

Collaborate closely with your chosen sales tax compliance outsourcing provider to thoroughly assess your current compliance status, existing internal processes, and specific business needs.

Integration and Setup

Work with your provider to integrate your systems with their process and technology.

Communication

Establish clear communication protocols and provide training for your internal team on effectively working with your outsourcing partner. This ensures a smooth transition and an ongoing positive collaboration.

Ongoing Management and Review

Implement a schedule of regular updates and reviews with your outsourcing provider so you can address any changes in your business operations, tax laws, etc.

How TaxHero provides Sales Tax Compliance Outsourcing for Business Startups

TaxHero is purpose-built to solve the real-world challenges startups face, not just automate filings. Our approach goes beyond technical compliance to provide strategic, human-first support that grows with your business.

Real Human Expertise: While many solutions rely solely on automation, TaxHero gives you access to a dedicated team of accountants and sales tax experts. Whether you need strategic advice or day-to-day help, we’re here to guide you through every nuance of sales tax compliance.
Round-the-Clock Support: Your business doesn’t stop at 5 PM, nor do we. Our team is available around the clock to support founders operating in multiple time zones and under tight deadlines.
Help with Past-Due Taxes: Already behind on filings? We’ve got you covered. TaxHero doesn’t just help you stay compliant going forward—we specialize in cleaning up past-due returns, resolving penalties, and bringing your business back into good standing.
One Transparent Price: No hidden fees. No surprise invoices. Just one clear, all-inclusive pricing package tailored for fast-moving startups.
Seamless Integration: TaxHero connects with the tools you already use—whether it’s Shopify, Stripe, QuickBooks, or others—making compliance frictionless from day one.
Actionable, Real-Time Reporting: Gain instant visibility into your tax obligations with a real-time dashboard that keeps you informed, in control, and audit-ready.

Let TaxHero handle your Sales Tax Compliance

How do you future-proof your business?

The answer lies in your ability to secure your business’s growth trajectory. As your business grows in different states, so will your transaction volumes. As a result, sales tax compliance will only grow more complex.

But with a robust sales tax compliance team, you can:

Secure significant time savings
Reduce compliance risk and
Gain peace of mind while expanding your business further

Don’t DIY Your Taxes. Delegate to TaxHero. Startup life is chaotic enough. Let us take this off your plate. TaxHero handles compliance while you build your business. Get started today with a free consultation.

FAQs

What is the main difference between in-house and sales tax compliance outsourcing for business startups?

An in-house sales tax compliance might be challenging for startups because of the constantly changing tax laws, multi-state complexities, and the potential lack of specialized internal expertise, which may lead to errors and even burnout.

Outsourcing sales tax compliance allows a startup’s internal team to focus on core business initiatives instead.

What key factors should be considered in sales tax compliance outsourcing for business startups?

Here’s what to look for in sales tax outsourcing services:

All-In-One Sales Tax Management Solution
Fully Managed Sales Tax Service
Multistate coverage
Transparent pricing
Integration with your ecommerce/finance stack
Use of innovative tools
Live support, a dedicated team, and sales tax professionals
Proven track record with startups

Choosing a partner that ensures timely, accurate filings, offers audit support, follows strong data security practices, and provides responsive customer service is essential.

What common pitfalls should businesses avoid when outsourcing sales tax compliance?

Businesses should avoid choosing a provider solely based on the lowest cost or the most popular (they were simply there first!). Startups should also consider the outsourcing provider’s systems and processes, which include data migration, system testing, and transition.

What are sales tax compliance services?

Sales tax compliance services are third-party providers that manage your end-to-end sales tax responsibilities—from nexus tracking to return filing—so you stay compliant and avoid costly penalties.

Is TaxHero secure?

Absolutely. TaxHero uses industry-standard encryption and secure data practices to protect your business information at every step.

I am a startup, but I don’t have sufficient funds to outsource sales tax compliance. How much does TaxHero cost?

Every dollar counts for a startup. That’s why TaxHero offers a transparent, startup-friendly pricing tailored to fit your budget. Our all-inclusive service starts as low as $10/month, based on your order volume—no hidden fees, no onboarding costs, and no long-term contracts! Plus, we cap your maximum monthly expense to keep costs predictable. New clients receive a free nexus analysis, and we guarantee error-free service—if any penalties or interest arise due to our mistake, we cover them.

Isn’t that great? Don’t just take our word for it—talk to our CEO today! And remember, if you have fewer than 50 orders a month, our service is free!

Sales Tax on Drop Shipping: All You Need to Know | TaxHero

Drop shipping has become a hot trend in ecommerce, letting sellers run their businesses without stocking any inventory. While this model cuts down on upfront costs and enables you to focus on sales and customer service, it does come with its own challenges—especially regarding sales taxes.

Are you wondering how sales tax works in the world of drop shipping? This ultimate guide is here to help. We’ll break down the basics and give you the tools to handle your sales tax responsibilities like a pro.

What is Drop Shipping?

Drop shipping is an ecommerce model where an online store sells products to consumers without keeping them in stock. Instead, when a store sells a product, it purchases the item from a third-party vendor, who then ships it directly to the customer. In essence, the seller never sees or handles the product.

Imagine this: You’re the retailer, but instead of having a warehouse stacked with products, your role is more of an intermediary. When a customer orders on your website, you forward the details to a third-party supplier, and that supplier then handles packing and shipping the product directly to the customer’s doorstep. Pretty neat, huh?

This fantastic setup means you don’t have to deal with the nitty-gritty of inventory management or shipping logistics. It’s like being a curator for an art gallery; you select what goes on display and how to present it, while someone else handles the behind-the-scenes details.

The Three Point-of-Views of Drop Shipping

The Customer

From the customer’s viewpoint, it’s business as usual—just like any other online shopping experience. They scroll through the online catalog, pick out what they like, and pay the retailer, including any relevant taxes. Then, they simply wait for their package to arrive, hopefully within the estimated delivery time frame.

The Seller

When an order and payment come in from a customer, the seller springs into action. For any products not sitting in a warehouse—because we’re talking drop shipping here—the seller quickly places an order with their trusty supplier. Along with the payment, the seller shares the customer’s shipping details with the supplier, ensuring the package goes to the right destination.

The Supplier

Once the supplier gets the order and payment from the seller, it’s their turn to take action. They locate the ordered items within their inventory, neatly package them, and then ship them to the customer’s doorstep. It’s a streamlined process that cuts out the middleman for shipping, making the whole transaction as efficient as possible.

Who Should Pay Sales Taxes in Drop Shipping?

The question of who is responsible for collecting and remitting sales tax in a drop shipping scenario can be complex. Sales tax is regulated at the state level, and each state has its own rules. Generally, the seller (the retailer) should collect sales tax from the customer and then remit it to the appropriate tax jurisdiction.

However, in drop shipping, since the product goes directly from the supplier to the customer, three potential parties are involved: the customer, the seller, and the supplier.

If the seller (retailer) has a business presence (sales tax nexus) in the same state as the customer, then the seller is responsible for collecting and remitting sales tax.
If the seller (retailer) doesn’t have nexus in the customer’s state, but the supplier does have nexus, the supplier may be required to collect and remit sales tax in the state where the customer resides.
If neither the seller (retailer) nor the supplier has nexus in the customer’s state, generally, no sales tax needs to be collected and remitted.

Sales Tax Exemption Certificates in Drop Shipping

Sales tax exemption certificates can make the already complex world of drop shipping even trickier. Here’s the deal: when a retailer buys items for resale, they can often avoid paying sales tax by providing a resale certificate to their supplier. However, it’s important for both parties, the retailer and the supplier, to be well-versed in the rules governing these certificates in the states where they operate. Mishandling the documentation of a tax-exempt sale may result in fines or other headaches. Therefore, it’s crucial to maintain accurate records to prevent potential issues down the road.

Preparing for Sales Tax Compliance

Here are some steps to help you prepare for sales tax compliance:

Identify Nexus: First, determine where you must pay sales tax and which states your business has a presence. This might include states where you have physical locations, employees, or even a high sales volume.
Register for Sales Tax Permits: Before collecting sales tax, you’ll need a permit from each state where you have nexus.
Calculate and Collect Sales Tax: Use automated tools or consult with tax professionals to ensure you charge the correct rate.
File and Remit Sales Tax: Depending on your sales volume, you’ll need to file and remit sales tax on a monthly, quarterly, semi-annually, or annual basis.
Document Exemption Certificates: If you’re using resale certificates, keep accurate records showing that you comply with the law.

Let TaxHero Guide You!

Navigating sales tax while running a drop shipping business can be complex, but it doesn’t have to be a roadblock. With TaxHero by your side, you’ll have a clear roadmap and a hands-on guide to help you navigate your sales tax responsibilities. We handle everything for you, from figuring out which states to collect sales tax to filing your sales tax returns.

Still scratching your head about sales tax rules? Why not schedule a call with our CEO? We’re committed to simplifying the confusing parts and walking you through each process. Don’t let the complexities of sales tax hold you back from your e-commerce dreams.

Tax guide for marketplace facilitator laws by state | TaxHero

Do you sell your products on marketplaces like Amazon, eBay, Facebook, and Instagram? Online shopping has boomed since the pandemic and has caused a rise in various online marketplaces and marketplace facilitators.

A marketplace facilitator is a business that forms contracts with third parties and sells any services or goods. You can understand a marketplace facilitator as a retailer, facilitating third-party sales of goods and services. They promote sales by listing products, keeping track of sales, and sometimes helping with the shipment. Amazon.com is a famous example where customers can discover and shop multiple products from different brands and sellers.

The marketplace facilitator contracts with businesses to facilitate retail sales. Marketplace sales are subject to sales tax regulations implemented under marketplace facilitator laws.

It can get complicated, especially with the legal compliance requirements and regulations. So, here we are, explaining what marketplace facilitators are and how they affect sales tax collection for sellers.

What are Marketplace Facilitator Laws?

The USA has implemented marketplace facilitator laws so that the states can simplify sales tax collection by collecting it from one entity rather than several sellers.

For instance, if you sell your products through Etsy or eBay and have a sales tax nexus, you are not responsible for collecting and remitting tax on your sales. Instead, the concerned marketplace facilitator (i.e., eBay or Etsy) is accountable and will do it on your behalf.

Marketplace facilitators are responsible for gathering and paying sales tax to the state where they do business or have customers. Marketplace facilitator laws enable states to collect sales tax from consumers while simplifying the tax collection process for states and businesses.

Marketplace facilitator laws include legislation surrounding the sales tax responsibilities of marketplace facilitators. They aim to increase sales tax compliance while reducing the time consumption and complexity of sales tax collection.

How do Marketplace Facilitator Laws Affect Sellers?

States have different legislatures about what constitutes a marketplace facilitator and when marketplace facilitator tax applies to your business. Taxes are easier for states and businesses with the marketplace facilitators’ laws. However, understanding how it works for your business can get complicated.

Although your marketplace facilitator is responsible for collecting and remitting sales tax, you may have to register for sales tax if you sell your products on your website in a state with marketplace facilitator laws. If you don’t sell outside the marketplace facilitators’ states, you may have to register for non-reporting tax status.

Marketplace Facilitator Tax Laws in Different States

Here is how marketplace facilitator law applies in different states and affects your business.

STATE	SALES THRESHOLD	MARKETPLACE ADOPTION
Alabama	$250,000 revenue	Amazon eBay Etsy Walmart
Alaska	$100,000 gross revenue	Amazon eBay Etsy
Arizona	$100,000 gross revenue	eBay Etsy Walmart
Arkansas	$100,000 gross revenue or 200 retail transactions	Amazon eBay Etsy Walmart
California	$500,000 revenue	Amazon eBay Etsy Walmart
Colorado	$100,000 gross revenue	eBay Etsy Walmart
Connecticut	$250,000 revenue	Amazon eBay Etsy Walmart
Florida	$100,000 gross revenue	Amazon eBay Etsy Walmart
Georgia	$100,000 gross revenue	Amazon eBay Etsy Walmart
Hawaii	$100,000 gross revenue or 200 retail transactions	Amazon eBay Etsy Walmart
Idaho	$100,000 gross revenue	Amazon eBay Etsy Walmart
Indiana	$100,000 gross revenue or 200 retail transactions	Amazon eBay Walmart
Illinois	$100,000 gross revenue or 200 retail transactions	Amazon eBay Etsy Walmart
Iowa	$100,000 gross revenue or 200 retail transactions	Amazon eBay Etsy Walmart
Kansas	$100,000 gross revenue	Amazon eBay Etsy Walmart
Kentucky	$100,000 gross revenue or 200 retail transactions	Amazon eBay Etsy Walmart
Louisiana	$100,000 gross revenue or 200 retail transactions	n/a
Maine	$100,000 gross revenue or 200 retail transactions	eBay Etsy Walmart
Maryland	$100,000 gross revenue or 200 retail transactions	eBay Etsy Walmart
Massachusetts	$100,000 gross revenue	Amazon eBay Etsy Walmart
Michigan	$100,000 gross revenue or 200 direct and facilitated sales transactions	Amazon eBay Etsy Walmart
Minnesota	$100,000 gross revenue or 200 retail transactions	Amazon eBay Etsy Walmart
Mississippi	$250,000 revenue	Amazon eBay Etsy Walmart
Missouri	$100,000 gross revenue	Amazon eBay
Nebraska	$100,000 gross revenue or 200 separate sales transactions	Amazon eBay Etsy Walmart
Nevada	$100,000 gross revenue or 200 separate sales transactions	Amazon eBay Etsy Walmart
New Jersey	$100,000 gross revenue or 200 sales transactions	Amazon eBay Etsy Walmart
New Mexico	$100,000 revenue	Amazon eBay Etsy Walmart
New York	$500,000 revenue or 100 in-state transactions	Amazon eBay Etsy Walmart
North Carolina	$100,000 revenue	eBay Etsy
North Dakota	$100,000 revenue	Amazon eBay Etsy
Ohio	$100,000 revenue or 200 sales transactions	Amazon eBay Etsy Walmart
Oklahoma	$10,000 revenue	Amazon eBay Etsy Walmart
Pennsylvania	$10,000 revenue	Amazon eBay Etsy Walmart
Puerto Rico	All mail-order sales of goods and services	Amazon eBay Etsy Walmart
Rhode Island	$100,000 revenue or 200 sales transactions	Amazon eBay Etsy Walmart
South Carolina	$100,000 revenue	Amazon eBay Etsy Walmart
South Dakota	$100,000 revenue or 200 sales transactions	Amazon eBay Etsy Walmart
Tennessee	$500,000 revenue	Amazon eBay Etsy
Texas	$500,000 revenue	eBay Etsy Walmart
Utah	$100,000 revenue or 200 in-state sales transactions	eBay Etsy Walmart
Vermont	$100,000 revenue or 200 in-state sales transactions	Amazon eBay Etsy Walmart
Virginia	$100,000 revenue or 200 in-state sales transactions	Amazon eBay Etsy Walmart
Washington	$100,000 revenue	Amazon eBay Etsy Walmart
West Virginia	$100,000 revenue or 200 in-state facilitated sales transactions	Amazon eBay Etsy Walmart
Wisconsin	$100,000 revenue or 200 transactions	Amazon eBay Etsy Walmart
Wyoming	$100,000 revenue or 200 transactions a year	Amazon eBay Etsy Walmart

Need Help with Marketplace Facilitator Tax Laws in your State?

It is important to know the details about marketplace facilitator laws in your state to ensure compliance with all legal requirements. Book a call with TaxHero and let experts take care of your state’s latest compliance laws and requirements.

Learn to calculate sales tax: Multiply purchase cost by state & local rates. Discover the sales tax formula in our blog.

Sales tax calculation is essential to financial transactions, whether you’re running a business or making personal purchases. Understanding how to calculate sales tax accurately is crucial to ensure proper budgeting and compliance with tax regulations. By utilizing a sales tax calculator and formula, individuals and businesses can swiftly determine the correct amount of sales tax to be paid, enabling them to make informed financial decisions and avoid any potential errors.

This blog will delve into the fundamentals of sales tax calculation, explore the formula for determining sales tax, and provide practical examples to illustrate its application in various scenarios.

Why do you need to calculate sales tax?

Before you start collecting sales tax from your customer, you must know how to calculate it. Since sales tax laws vary in all states, you might need help figuring out how much sales tax to collect from customers.

The states use the tax you collect for various projects of public interest. Learn more about what sales tax is used for in our earlier blog.

If you fail to collect the due amount from the customers, you must pay it out of pocket. So, it is crucial to determine the amount of sales tax you must collect as a business.

You might not need to calculate and collect sales tax in the following conditions.

Your business is based in a state with no sales tax, or you don’t meet economic nexus in any other state.
The product or service you offer is not taxable in that state
You sell products to resellers (i.e., wholesalers or distributors)
You sell products to tax-exempt organizations
There is a sales tax holiday

How is sales tax determined?

The state government administers sales tax, but the local government also imposes its own sales tax in some states. Thirty-eight states impose local sales tax along with state sales tax. For example, Alaska has no statewide sales tax but imposes a local sales tax of up to 7%.

To get the combined sales tax rate for your calculation, you must add all sales tax rates for the state, county, and city if the location has local sales tax rates.

The sales tax rate is also given as a percentage, but converting the rate into a decimal format is easier for calculation purposes. To do this, you will need to remove the % and divide the sales tax rate by 100 and move the decimal two places to the left. For example, a 7% sales tax rate will be 0.07 in decimals.

Calculating sales tax doesn’t need to be stressful. The first step is to find the sales tax rates in your state. Once you know the sales tax rates, you can calculate how much to collect from customers.

Sales Tax Formula

Below is the formula to calculate the sales tax amount for purchasing any taxable item or service:

Sales Tax Amount = Price of item x [State sales tax rate in decimals + Local sales tax rate in decimals]

How to Calculate Sales Tax?

To calculate sales tax, follow these steps:

Determine the selling price of the item or service you intend to purchase.
Add all sales tax rates applicable at the point of sale. Add all state, county, and city tax rates. See the sales tax rates in different states here. If you buy something online, your shipping address would be the location used for sales tax at the point of sale.
Convert the sales tax rate into decimal format.
Calculate the sales tax amount using the formula mentioned above.
Add the sales tax amount to the selling price of the item or service. This amount is the total that the customer will pay for your item or service.

Example of how to calculate sales tax

Let’s walk through a real-life example of calculating the sales tax amount.

Kyle Cosmetics sells skincare products online to customers throughout the US. The business and all employees are located in California. All inventory is also stored in a warehouse in California. The business has no secondary location and only meets economic nexus requirements in Florida, which they already have a sales tax permit for.

A customer purchases a Vitamin C serum for $28. The order is placed to be shipped to Miami, Florida.

As of February 2025, Florida’s current state sales tax rate is 6%, the county sales tax rate (Miami-Dade County) is 1%, and the city’s sales tax rate (Miami Beach) is 0%. Therefore, the combined sales tax rate for 3120 Collins Avenue, ZIP code 33140 in Florida is 7.00%.

Let’s convert it into decimal format: 7% = 0.07.
Now, let’s use the formula to calculate the sales tax amount.
The price of the item x sales tax rate in decimals = Sales tax amount
$28.00 x 0.07 = $1.96
The sales tax amount that will need to be collected for this order is $1.96, as shown in the screenshot. This amount will need to be remitted to the state.
To calculate the total cost before adding the shipping cost, you can add the sales tax amount to the item’s price:
$28.00 + $1.96 = $29.96

Ecommerce platforms, such as Amazon and Shopify, can automatically calculate and collect the sales tax amounts from customers once additional steps are taken to configure your tax settings. As part of our all-inclusive, full-stack sales tax solution, TaxHero will help configure your tax settings in your ecommerce platforms to ensure you’re collecting the right amount for every order.

TaxHero Sales Tax Calculator

Use the TaxHero calculator for a straightforward way to apply the sales tax formula.

Item Cost (USD)

Street Address

City

ZIP Code*

State

SALES TAX CALCULATOR

Your Combined Sales Tax Rate is

0.00%

Sales tax amount = N/A

State 0.00%

County 0.00%

City 0.00%

District(s) 0.00%

The TaxHero sales tax calculator provides a combined sales tax rate based on a full address lookup. A complete address ensures precision since ZIP codes may cross different tax jurisdictions. Results are for reference and may need additional context for compliance. Contact us today for a demo and learn how TaxHero can support your business.

Need help calculating sales tax? Connect with TaxHero

As an online business, calculating sales tax for every transaction and ensuring you get all sales tax due can get complicated. TaxHero offers an all-inclusive, full-stack sales tax solution to this by taking care of your sales tax calculation, collection, filling, and all other functions. Talk to our CEO to see how we can help transform your sales tax compliance.

Ultimate Guide to Understanding Economic Nexus | TaxHero

Diving into the ecommerce world is exciting, but sometimes the jargon can be a bit much. One term you’ll hear is “economic nexus.” Think of it like a signpost in the world of sales taxes, guiding businesses where they stand.

Here at TaxHero, we want to make things simple. We’ll break down this term, explain why it matters, and help you understand how it affects your ecommerce business. Ready to get started?

What is Economic Nexus?

Economic nexus is a set of criteria determining if your ecommerce business has a significant presence in a particular state. This idea became well-known because of the South Dakota v. Wayfair case in 2018. If your ecommerce business meets these criteria, you must follow that state’s tax rules, which means collecting and remitting sales tax.

Simply put, if your ecommerce business has a notable footprint in a state – through sales, transactions, or physical presence – it triggers economic nexus in that jurisdiction.

The importance of understanding economic nexus in ecommerce lies in avoiding legal issues and planning finances wisely, helping you expand your business smoothly without unexpected tax problems. It acts as a guide to navigating potential tax obligations when entering new markets by ensuring compliance and strategic growth.

Criteria for Establishing Economic Nexus

When establishing an economic nexus for your ecommerce business, states generally consider a few key factors. Here’s what you need to keep an eye on:

Sales Revenue: Refers to the total sales you’ve made in a particular state. If your sales revenue in a state crosses a certain threshold, you have established a nexus there.
Transaction Volume: Besides the amount you earn, the number of transactions you conduct in a state also counts. If you have a high volume of sales transactions in a state, it establishes an economic nexus.
Keeping Up with Changes: State laws regarding economic nexus can change. Make it a practice to regularly check for updates to avoid surprises and ensure you’re meeting all necessary criteria.

State-by-State Variations in Economic Nexus Laws

When managing an ecommerce business that spans across different states, it’s vital to be aware of the variations in economic nexus laws that exist from state to state. Here’s why it matters:

Different Thresholds

Each state sets its thresholds for establishing economic nexus based on sales revenue or transaction volume. It’s essential to be aware of these individual thresholds to remain compliant and avoid unnecessary complications.

Refer to the table below to find out the thresholds in each state:

STATE	EFFECTIVE DATE	SALES THRESHOLD
Alabama	October 1, 2018	$250,000 in sales during the previous calendar year
Alaska	January 1, 2025	$100,000 in sales during the previous or current calendar year
Arizona	2021	$100,000 in sales during the previous or current calendar year
Arkansas	July 1, 2019	$100,000 in sales OR 200 transactions during the previous or current calendar year
California	April 1, 2019	$500,000 in sales during the preceding or current calendar year
Colorado	December 1, 2018	$100,000 in sales during the previous or current calendar year
Connecticut	December 1, 2018	$100,000 in sales OR 200 transactions during the 12-month period ending on September 30
Delaware	not applicable
District of Columbia	July 1, 2021	$100,000 in sales OR 200 transactions during the previous calendar year
Florida	July 1, 2021	$100,000 in sales during the previous calendar year
Georgia	January 1, 2020	$100,000 in sales OR 200 transactions during the previous or current calendar year
Hawaii	July 1, 2018	$100,000 in sales OR 200 transactions during the current or immediately preceding calendar year
Idaho	June 1, 2019	$100,000 in sales during the previous or current calendar year
Illinois	October 1, 2018	$100,000 in sales OR 200 transactions during the preceding 12-month period
Indiana	January 1, 2024	$100,000 in sales in the current or prior calendar year
Iowa	January 1, 2019	$100,000 in sales during the current or immediately preceding calendar year
Kansas	July 1, 2021	$100,000 in sales during the current year or the year immediately prior
Kentucky	October 1, 2018	$100,000 in sales OR 200 transactions during the previous or current calendar year
Louisiana	August 1, 2023	$100,000 in sales during the previous or current calendar year
Maine	January 1, 2022	Maine will no longer require 200 transactions as part of the state’s economic nexus threshold. Remote sellers will now only be required to register and collect the state’s sales tax if they surpass the $100,000 gross sales threshold.
Maryland	October 1, 2018	$100,000 in sales OR 200 transactions during the previous or current calendar year
Massachusetts	October 1, 2019	$100,000 in sales during the previous or current calendar year
Michigan	October 1, 2018	$100,000 in sales OR 200 transactions during the previous calendar year
Minnesota	October 1, 2019	$100,000 in sales OR 200 transactions during the twelve-month period ending on the last day of the most recently completed calendar quarter
Mississippi	September 1, 2018	$250,000 in sales prior to the twelve-month period
Missouri	January 1, 2023	$100,000 in sales during the previous twelve-month period reviewed quarterly
Montana	not applicable
Nebraska	April 1, 2019	$100,000 in sales OR 200 transactions during the previous or current calendar year
Nevada	November 1, 2018	$100,000 in sales OR 200 transactions during the previous or current calendar year
New Hampshire	not applicable
New Jersey	November 1, 2018	$100,000 in sales OR 200 transactions during the previous or current calendar year
New Mexico	July 1, 2019	$100,000 in sales during the previous calendar year
New York	June 21, 2018	$500,000 in sales AND 100 transactions during the preceding four sales tax quarters.
North Carolina	November 1, 2018	$100,000 in sales OR 200 transactions during the previous or current calendar year
North Dakota	October 1, 2018	$100,000 in sales during the previous or current calendar year
Ohio	August 1, 2019	$100,000 in sales OR 200 transactions during the previous or current calendar year
Oklahoma	November 1, 2019	$100,000 in sales during the preceding or current calendar year
Oregon	not applicable
Pennsylvania	April 1, 2018	$100,000 in sales during the previous 12-month period.
Rhode Island	July 1, 2019	$100,000 in sales OR 200 transactions during the previous calendar year
South Carolina	November 1, 2018	$100,000 in sales during the previous or current calendar year
South Dakota	July 1, 2023	$100,000 in sales during the previous or current calendar year
Tennessee	October 1, 2019	$100,000 in sales during the previous 12-month
Texas	October 1, 2019	$500,000 in sales on the preceding twelve calendar months
Utah	January 1, 2019	$100,000 in sales OR 200 transactions during the previous or current calendar year
Vermont	July 1, 2018	$100,000 in sales OR 200 transactions in the previous four calendar quarters
Virginia	July 1, 2019	$100,000 in sales OR 200 transactions during the previous or current calendar year
Washington	October 1, 2018	$100,000 in sales during the current or preceding calendar year
West Virginia	January 1, 2019	$100,000 in sales OR 200 transactions during the preceding or current calendar year
Wisconsin	January 1, 2019	$100,000 in sales during the previous or current calendar year
Wyoming	July 1, 2024	Wyoming will no longer require 200 transactions as part of the state’s economic nexus threshold. Remote sellers will now only be required to register and collect the state’s 4% sales tax if they surpass the $100,000 gross sales threshold.

Varied Definitions

Not all states define economic nexus in the same way. Some focus more on sales revenue, while others prioritize transaction volumes or physical presence. Keeping tabs on these variations helps in strategizing your ecommerce business operations effectively.

Seeking Expert Advice

Given the complexities, seeking advice from ecommerce sales tax professionals like TaxHero can be the best action. We can help you navigate the maze of state laws, ensuring your ecommerce business remains compliant and thrives.

Frequently Asked Questions About Economic Nexus

How do economic nexus laws apply to me if I run a seasonal business?

Seasonal businesses are not exempt from these laws. It’s crucial to calculate your sales and transactions during your operational months accurately to comply with the respective state’s thresholds and criteria.

How does economic nexus relate to other forms like click-through or affiliate nexus?

Economic nexus focuses on sales and transaction thresholds, whereas click-through and affiliate nexus revolve around relationships with affiliates in a state. Depending on your business model, you might need to comply with one or more nexus regulations.

What actions should I take if I realize my business has unknowingly established an economic nexus in a state?

Suppose you find out that you’ve established an economic nexus unknowingly. In that case, it’s recommended to consult with a tax expert promptly to understand the necessary steps for compliance and rectify any past discrepancies.

Ready to Navigate Economic Nexus Waters with Ease?

With all these regulations and variations, you’ll need a sales expert to check which states your business has established economic nexus. You can schedule a call with our CEO, who will personally onboard and explain how TaxHero conducts nexus checks.

Furthermore, we’ve got you covered with our comprehensive services, ensuring you understand the basics and adapt to state-specific laws. Let’s embark on this journey together for a successful and compliant ecommerce business adventure.

Download Economic Nexus Chart

TaxHero’s Sales Tax Economic Nexus Chart includes essential information such as each state’s thresholds, effective dates, sales inclusion criteria, tax rates, and filing deadlines. With direct contact information for state revenue offices, you’ll have everything you need in one convenient resource. Don’t miss out on this invaluable tool for staying compliant and informed!
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What is sales tax, and how does it work? | TaxHero

Are you a newly established ecommerce business owner looking to learn about the ins and outs of the sales tax? Then, understanding what sales is tax and how it works should be your utmost priority.

You’re probably intimidated by the amount of information you have to learn at once. But once you get the hang of it, with the help of TaxHero, you have nothing to worry about.

To easily understand, we have broken down below what you need to know about the topic.

What is Sales Tax?

The first thing you need to learn is what sales tax is. In a nutshell, it is a consumption tax collected whenever a purchase of products or goods and services is made. It is also generally added to the sales price and remitted to the state government to be used to fund its programs and projects.

It is essential to understand that the Federal Government does not collect a federal or national sales tax. Instead, it is regulated at the state and local level, including cities, counties, and other special districts. That’s the reason why sales tax varies from one state and territory to another.

How Does It Work?

Sales tax is computed based on the percentage of the sales price, with the rate varying from one jurisdiction to another, with some local governments also collecting their own.

Think about it this way: Suppose you are selling apparel online at $50, and a customer from Glendale, California, wants to buy from you. You would have to charge your customer an additional $5.13 for sales tax, with the total order amounting to $55.13, as the minimum combined 2025 sales tax rate in the area is 10.25%.

The breakdown is as follows:

JURISDICTION		SALES TAX RATE
State	California	7.25%
County	Los Angeles County	2.25%
City	Glendale	0.75%
Combined Sales Tax Rate		10.25%

The combined sales tax rate is the combined state and local (i.e., County, City, District) sales tax rates. Use our sales tax calculator to determine the sales tax rate applicable to a specific address with breakdown by jurisdiction.

You must also understand that the collection and remittance are the sole responsibility of the seller. This means you are responsible for reporting and remitting the collected 10.25% or $5.13 to the California Department of Tax and Fee Administration and in other states where you also have nexus.

Which States Collect and Do Not Collect?

To date, a total of 45 states, including the District of Columbia, collect state-wide sales tax. On top of this, most local governments within the states also collect their own, except the following:

Connecticut
District of Columbia
Indiana
Kentucky
Maine
Maryland
Massachusetts
Michigan
New Jersey
Rhode Island

Meanwhile, the states that do not collect are:

Alaska
Delaware
Montana
New Hampshire
Oregon

It is also worth noting that although these states do not have a state-wide sales tax, some local governments within their jurisdiction collect separately, or they just tax certain transactions. For instance, Alaska does not collect state-wide, but they have more than 100 local jurisdictions that collect local sales tax.

What are the Sales Tax Rates in each State?

Check out the table below to know what the rates are in each state:

STATE	SALES TAX RATE
Alabama	4%
Alaska	0%
Arizona	5.60%
Arkansas	6.50%
California	7.25%
Colorado	2.90%
Connecticut	6.35%
Delaware	0%
District of Columbia	6%
Florida	6%
Georgia	4%
Hawaii	4%
Idaho	6%
Illinois	6.25%
Indiana	7%
Iowa	6%
Kansas	6.50%
Kentucky	6%
Louisiana	5.00%
Maine	5.50%
Maryland	6%
Massachusetts	6.25%
Michigan	6%
Minnesota	6.875%
Mississippi	7%
Missouri	4.225%
Montana	0%
Nebraska	5.50%
Nevada	6.85%
New Hampshire	0%
New Jersey	6.625%
New Mexico	4.875%
New York	4%
North Carolina	4.75%
North Dakota	5%
Ohio	5.75%
Oklahoma	4.50%
Oregon	0%
Pennsylvania	6%
Rhode Island	7%
South Carolina	6%
South Dakota	4.50%
Tennessee	7%
Texas	6.25%
Utah	4.85%
Vermont	6%
Virginia	4.30%
Washington	6.50%
West Virginia	6%
Wisconsin	5%
Wyoming	4%

Frequently Asked Questions (FAQs)

I am an online seller. Do I have to collect sales tax on all the sales I make?

Yes, you do. At the minimum, you are required to collect tax on sales made in your home state and in states where you have nexus.

What does sales tax holidays mean?

A sales tax holiday is a limited time when states allow a tax-free purchase of specific items. States typically offer this to encourage consumer spending.

Are products like food, clothing, SaaS, and shipping taxable?

Although food is generally not taxable, some states impose sales tax on it, especially grocery items bought online. Although clothing is considered a tangible property, some states provide partial exemptions from sales tax, especially those deemed necessary. For SaaS, although non-tangible, some states impose sales tax on electronically-acquired software.

Sales tax on shipping differs by state as some states impose sales tax while others don’t.

Do tourists also pay sales tax in the United States?

Yes. Although some countries exempt foreign travelers from it, the US does not. Travelers will have to pay just like ordinary American citizens. However, some states let visitors request refunds on specific products.

Looking for help with your business’s needs? TaxHero got you!

We understand that it could be a lot for online businesses, especially the newly established ones, to do their sales taxes. But worry not, for TaxHero’s team of experts and certified public accountants are here to take the stress of doing your taxes off your list so you can focus on building and expanding your business.

You may book a time with our CEO. TaxHero is eager to contribute to your success by helping streamline your sales tax matters.

Suppose you are a new ecommerce business hoping to become successful by selling products to your customers. One of your main concerns is how to save money when buying the products or raw materials you need. That’s where the multijurisdiction resale certificate comes in handy.

With this certificate, you can purchase products without the additional hassle of paying sales tax, especially if your vendors are located in different states.

To learn more about how this certificate can help your business, read this article.

How is a Resale Certificate Utilized?

Resale certificates are typically used to exempt registered businesses from paying sales tax on items intended for resale. Essentially, it’s a way for businesses to avoid double taxation – paying sales tax when purchasing products and then charging sales tax when selling them to customers.

One of the primary ways businesses use resale certificates is when buying inventory or raw materials for their products. For instance, imagine you run an online store selling custom clothes. With a resale certificate, you can buy the clothes and materials needed to make them without getting hit with sales tax on those items, helping you save money and maintain competitive pricing.

When dealing with wholesale suppliers or distributors, providing a resale certificate is often a standard procedure. It simplifies transactions and ensures you’re not charged sales tax on items you intend to resell. This also helps establish a professional relationship with your suppliers.

A resale certificate is almost interchangeably called a reseller’s permit. It is also typically provided in a “blanket” form, which applies to all items purchased from the vendor.

A resale certificate is interchangeably called a reseller’s permit. It is also typically provided in a “blanket” form, which applies to all items purchased from the vendor. Different states have different rules concerning resale certificates. While some states only take a state-issued certificate, others accept a multi-state certificate, also known as the multijurisdiction resale certificate.

What is a Multijurisdiction Resale Certificate?

A multijurisdiction resale certificate, also known as a uniform sales tax certificate, is a more streamlined process that allows businesses to get sales tax exemption for multiple states simultaneously. There are two options for this:

Streamlined Sales Tax (SST) Exemption Certificate
Multistate Tax Commission (MTC) Uniform Sales and Use Tax

If you have vendors and suppliers in multiple states, applying for the multijurisdiction resale certificate might be the way to go.

It’s essential to know that not all states accept the certificate. The Streamlined Sales Tax Exemption Certificate only works in the 24 states that are members of the Streamlined Sales Tax Governing Board. The Uniform Sales & Use Tax Exemption Certificate only works in 36 states. For states that do not allow nor obtain multijurisdiction resale certificates, you have to do the painstaking work of applying for a resale certificate for each state.

If you need help with your resale certificates or have any questions, book a call with our CEO at TaxHero.

Which States Do Not Accept a Multijurisdiction Resale Certificate?

Although many states allow the use of an out-of-state resale certificate for sales tax exemption documentation, the following 12 states, including Washington D.C., require a sales tax permit registration before qualifying for a resale certificate:

Alabama
California
Florida
Hawaii
Illinois
Louisiana
Maryland
Massachusetts
Vermont
Virginia
Washington

What Should I Keep in Mind When I Use a Multi-state Resale Certificate?

Here are some of the tips you may want to remember when using the multijurisdiction resale certificate:

Use the document for its intended purposes only – Multijurisdiction resale certificates are to be used as a “blanket” resale certificate and for other similar purposes only, and not as a way to circumvent different exemption types on goods.

Recheck if the state accepts the form – As we’ve established above, some states don’t accept the multijurisdiction resale certificate, so make sure you only use it in states that accept it.

Read the document’s fine print diligently – Although some states accept the form, some have caveats or attached conditions. So make sure you are aware of all of this before using it.

Frequently Asked Questions

What should I do if my supplier won’t accept my multijurisdiction resale certificate?

Unfortunately, accepting a resale certificate is at the discretion of suppliers, as they are the ones running the risk of doing so. One recourse you may take is to comply with their requirements, which might be time-consuming and complicated. Alternatively, you can sign up for TaxHero as this is part of our all-inclusive, full-stack services, and we will handle everything for you!

Who is responsible for covering the cost of a resale certificate?

Sellers are responsible for paying for the resale certificate at the time of the application.

Let Us Help You With Your Resale Certificate Concerns

If you operate an ecommerce business and are looking to save money through sales tax exemption on products you plan to resell, TaxHero is here to assist you with your resale certificate. Schedule a time with our CEO, who will personally guide you through your questions or concerns.

You don’t have to handle everything all on your own. We’ve got your back.

Your Complete Guide to Understanding Sales Tax Nexus | TaxHero

In the ever-evolving world of ecommerce, one term that continually pops up is “Sales Tax Nexus.” But what exactly is it, and why is it garnering so much attention? Grasping the ins and outs of nexus regulations is vital to building and running a successful venture.

This guide is designed to simplify this concept, spotlighting its critical role in today’s ecommerce environment. Together, we’ll navigate the essentials of managing compliance effectively, setting the stage for your business to thrive. Let’s start, shall we?

What is Sales Tax Nexus?

A sales tax nexus is a connection between a business and a state, which dictates whether or not the business must collect sales tax from customers in that state. Imagine it as an invisible bridge connecting your business to places where you have many customers. Being aware of this connection helps you conduct your business correctly and stay on the right side of the law regarding sales tax collection, fostering a smooth and successful operation.

Different Ways to Establish Nexus

Sales tax nexus becomes considerably more straightforward once you clearly understand the primary routes that can establish a nexus. There are two main ways you can establish nexus: physical and economic. Now, let’s dive into both of those categories.

1. Physical Nexus

Let’s visualize for a moment – perhaps you have a welcoming storefront, a bustling warehouse, or even an employee based in a specific state. Any of these scenarios create a physical nexus. It forms a concrete bridge between your business and the geographical boundaries of that state, a link that comes with its set of responsibilities.
Here are the main ways you can have physical nexus:
- Storing inventory in a location, like a third-party fulfillment center (3PL), or maintaining a warehouse of your own
- Employing staff or sales representatives in the state.
- Regular physical presence through business activities such as meetings or providing services.
Remember that the specifics can vary between states, but these are common ways a physical nexus is established.

2. Economic Nexus

This is the other way you can establish nexus within a state. This targets more out-of-state/ remote online sellers and the digital realm. Have your sales in a particular state hit a remarkable milestone, either in the number of transactions or the total sales volume? If yes, you might have entered the territory of economic nexus. Each state has its own economic nexus laws, which means the threshold for the number of transactions and total sales in the state varies from state to state. States continue to change these thresholds, so it’s important to keep an eye on the compliance requirements for each state.
It’s important to keep a close eye on these sales thresholds, as exceeding the thresholds means your business has created a physicalconnection with that state, introducing new sales tax responsibilities to fulfill.
But why did these thresholds come into play, and what changed that we need to watch out for?

Historical Context: The Wayfair Case

Need help understanding sales taxes for online sales? You’re not alone. A significant change came with the South Dakota v. Wayfair, Inc. case in 2018. This landmark case changed the game by setting new standards for establishing nexus, significantly affecting online businesses.

What Was the Norm?

Before this case, businesses only needed to collect sales taxes in states with physical nexus,such as having a brick-and-mortar store or office. This approach was more straightforward but didn’t consider the growth of online sales, where businesses could make significant sales in states without any physical presence.

What Changed?

This case marked a shift in how sales tax liability was determined. Now, states can require businesses to collect sales taxes if they have considerable sales or transactions in that particular state, even without a brick-and-mortar store. This new rule considers the volume of online sales, making it a fairer system for both states and brick-and-mortar businesses.

Why should you care? Because it means you’ll need to track your sales carefully in each state and keep up with the regulations for the economic nexus threshold. Understanding this rule will help you plan better and avoid unexpected tax bills at the end of the year, letting you focus on growing your business instead of dealing with tax headaches.

Importance of Sales Tax Nexus

Much like having a well-oiled machine at the heart of your operations, understanding the crucial role of the sales nexus keeps the gears of your ecommerce business turning seamlessly. Recognizing its importance serves as a roadmap in several vital areas:

Dodging Legal Hurdles: By getting a clear grasp on sales tax nexus, you can steer clear of legal potholes that might appear due to non-compliance with state laws.
Smart Financial Planning: A solid understanding of these rules is like having a reliable compass, guiding you in planning your finances adeptly and avoiding unforeseen tax complications.
Smooth Business Expansion: When you are gearing up to expand your ecommerce business into new states, knowing about economic nexus is your trustworthy guide, helping you identify potential tax obligations and strategize accordingly.

Frequently Asked Questions About Sales Tax Nexus

How do I determine if I have an economic nexus in a state?

To determine if you have an economic nexus in a state, you’ll need to examine that state’s specific sales and transaction thresholds. These criteria may vary between states. At TaxHero, we offer services such as nexus checking to guide you smoothly through this process, ensuring you stay on the right side of the law.

What are the penalties for not complying with sales tax nexus regulations?

Non-compliance can result in various penalties, including fines and interest on unpaid taxes. In extreme cases, it might lead to legal action. The specifics can depend on the state’s regulations.

Are there certain states that do not impose a sales tax?

Yes, there are a few states, specifically Delaware, Montana, New Hampshire, and Oregon, where no state sales tax is collected. While Alaska doesn’t impose a state sales tax, it allows local governments to charge a local sales tax. It’s essential, though, to note that these states may have other forms of business taxes in place.

Navigate Sales Tax Nexus with Confidence!

Feeling overwhelmed with sales tax nexus intricacies? You’re not alone. At TaxHero, we’re committed to guiding entrepreneurs and small businesses through the maze of sales tax regulations. Simplify your compliance journey, avoid pitfalls, and focus on what you do best: growing your business.

Sales Tax vs Other Taxes: A Tax Comparison Guide | TaxHero

Sales tax is often the most talked about tax for US remote sellers. However, there are several other taxes that sellers may need clarification on. Tax compliance around remote sellers involves other taxes, such as use, excise, and value-added (VAT) taxes.

People often face difficulty differentiating them and consider them as the same thing. If you are one of them, this blog is for you. It discusses the difference between sales tax and other types of taxes.

What is Sales Tax?

A sales tax is a consumption tax assessed on the sale of taxable goods or service. It is usually added to the selling price of an item, so the seller collects it when a customer makes a taxable purchase.

The customer pays sales tax in addition to the cost of the purchased product or service to the seller, who collects and remits it to the US federal government. The seller is responsible for sales tax collection, remittance, filing, and reporting. As a seller, you must have an economic or physical nexus to become eligible to collect and remit sales tax to the state.

Each state has its regulations and rates for sales tax. Glimpse and learn about various sales tax facts in each state in our earlier blog. Lastly, some key points to remember about sales tax are:

- Sales tax is imposed on tangible personal property, including furniture, toys, clothing, and other goods.
- It is collected at the point of sale from the buyer.
- The sales tax rate is usually calculated as a percentage of the transaction price.
- If the seller fails to collect the due sales tax, they must pay it out of their pockets.

What is Use Tax?

Use tax is the tax on the use, consumption, or storage of taxable products and services. It is imposed on items where no sales tax has been paid earlier. If the sales tax is imposed on some products or services, use tax does not apply to such items.

Use tax serves as a way to ensure that buyers who purchase items from online or out-of-state sales, where sales tax was not collected, still contribute to tax collection.

Use tax is also called consumer use tax, as the buyer or consumer pays sales tax. Consumers directly pay use tax to the state’s Department of Revenue and file separate use tax returns.

Example of Use Tax

If your business is based in any state that charges sales tax, such as Florida, and sells to local customers there, you must collect and remit sales tax.

If a buyer purchases a taxable item from some state that does not impose a sales tax and uses it in another state, they must pay use tax as a consumer if they don’t plan on reselling the item.

Key Differences between Sales Tax vs. Use Tax

Use tax and sales tax are often considered the same, but the two have some differences. Here are some of the critical differences between use tax and sales tax.

Use tax rates can be different from sales tax rates. It is complementary to sales tax.
It is only applicable on the purchase of taxable products where no sales tax was paid at the time of purchasing.
It may apply to items exempt from sales tax.
In consumer use tax, the purchaser is responsible for remitting the tax to their respective taxing jurisdiction.

What is Excise Tax?

The government imposes an excise tax to generate revenue that could be used to fund state programs. Excise tax refers to the tax imposed on specific items, mainly luxury goods or non-essential activities. The tax is usually included in the price of the taxable product or service.

Understanding excise tax implementation is relatively simple. It entails that all businesses pay excise tax on certain goods and services. However, goods used for a specific purpose, for instance, alcohol used in medicines, might be tax-exempt.

Example of Excise Tax

Excise tax is usually imposed on fuel, alcohol, tobacco, airline tickets, and wagering. If a buyer visits a gas station to fill up their vehicle, a portion of the price includes excise tax. The seller collects and pays this tax to the government.

In contrast, sales tax is imposed on a wide range of tangible goods, including furniture, toys, packaged food, and clothing.

Key Differences between Sales Tax vs. Excise Tax

Here are some critical differences between excise tax and sales tax.

Excise tax only applies to specific goods and services.
Excise tax is determined based on the volume of the taxable goods sold.
The calculation for excise tax can be more complex than sales tax.
Some excise taxes are known as sin taxes because they discourage certain activities harmful to society (such as cigarette production).

What is Sales Tax vs. Value-Added Tax?

Value Added Tax, commonly known as VAT, is a consumption tax on goods and services imposed throughout all phases of the supply chain where value is added: from sourcing, manufacturing, packaging, and order fulfillment until the point of sale VAT is imposed.

Around 170 countries impose a value-added tax, but the US is an exemption. The United States does not have VAT; we impose excise, sales, and use taxes.

Ready to navigate the complex world of Sales Tax? TaxHero can help.

Understanding the differences between sales tax and use tax, excise tax, and VAT reveals that handling sales tax is complicated yet crucial for the business. Discuss sales tax and explore TaxHero services with our CEO for your business’s growth.

What is streamlined sales tax for your business | TaxHero

Thanks to globalization and the World Wide Web, businesses can now sell their products across the United States and worldwide, leading to opportunities for growth. However, complying with various rules and regulations can be challenging. Fortunately, the Streamlined Sales Tax Program (SSTP) offers a solution.

Sales tax can be a complicated matter due to constantly evolving rules and requirements regarding its collection and remittance. To ensure businesses can properly understand and comply with these regulations, seeking professional assistance is often the best course of action.

The SSTP is an initiative by the state and local governments to reduce the complexity of tax collection for retailers. This article provides everything you need to know about Streamlined Sales Tax.

What is Streamlined Sales Tax?

Streamlined Sales Tax (SST) is a program designed and run by states to simplify sales and use tax compliance for retailers by developing an organized sales and use tax system. It was formed in 1999 – 2000 to streamline sales tax compliance with retailers responsible for collecting and remitting sales tax.

The Streamlined Sales Tax Project (SSTP) is a collective national effort of the states to modernize the collection and remittance system of sales and use tax. States that become program members enter the Streamlined Sales and Use Tax Agreement (SSUTA). It requires them to comply with the policies and take measures to achieve the objectives of this initiative.

The project benefits brick-and-mortar and ecommerce sellers alike. You can talk to a sales tax expert at TaxHero to determine if you qualify for SST or need registration.

The Objectives of the SSTP

The following are the main objectives of the Streamlined Sales Tax Program.

To minimize administrative costs and responsibility for the retailers.
To modernize the sales and use tax collection system.
To offer a fair, competitive environment to remote sellers and brick-and-mortar stores.
To develop a simple and business-friendly tax collection system

How Does the Streamlined Sales Tax Project Work?

Besides modernizing the sales tax collection system and simplifying it for businesses, the SSTP aims to provide a comprehensive plan to the states to streamline sales tax collection.

This program simplifies tax administration by offering state-level tax collection administration. In addition, it provides uniformity in tax base definitions and state and local sales tax bases. Under this program, all member states have a central electronic registration system.

It establishes uniform sales tax collection standards and provides the latest technology systems to facilitate the whole process. All these measures encourage more businesses to register and collect sales tax promptly. It benefits both the government and businesses.

How does SSTP Benefit Businesses?

As discussed earlier, the primary aim of the SSTP is to reduce the complexities of sales tax collection to encourage businesses to collect and remit sales tax to the concerned authorities voluntarily.

Small businesses can maximize this program to get worthwhile tax collection incentives. The following are the compelling benefits of SST registration.

If you conduct business in multiple states, you only need to register once, which applies to all SSTP member states. The registration process is simple and quick and occurs through the Streamlined Sales Tax Registration System.
There is no need to update information separately in each state. One update applies to all states.
You can use the same filing forms and exemption certificates for all streamlined sales tax states.
Tracking one identification number is enough for tax payment and filing in all member states.
You can reduce the burden of sales tax collection and filing by using certified sales tax administration software.
You can benefit from the uniform sourcing rules across all member SST states.
Volunteer sellers get free access to sales tax calculation and reporting services from a Certified Service Provider.
Businesses can save their cost by collecting, filing, reporting, and paying sales tax for all jurisdictions at one location.

What are Streamlined Sales Tax States?

The Streamlined Sales Tax Project currently has 23 full member states and one associate member state. Let’s call them the Streamlined Sales Tax States. The list exempts the states with no sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.

The full member states change their sales tax laws according to Streamlined Sales and Use Tax agreement requirements. On the other hand, the associate member states do not change their laws but comply with SSUTA requirements.

The following states have full SSTP membership.

Arkansas
Georgia
Indiana
Iowa
Kansas
Kentucky
Michigan
Minnesota
Nebraska
Nevada
New Jersey
North Carolina
North Dakota
Ohio
Oklahoma
Pennsylvania
Rhode Island
South Dakota
Utah
Vermont
Washington
West Virginia
Wisconsin
Wyoming

Tennessee is an associate member of the project.

Conditions to Qualify in SSTP

You need a sales tax permit or license to collect and remit sales tax in a state where you have your economic or physical nexus. If you have nexus in any of the SSUTA member states, you can benefit from the streamlined sales tax program by registering as a volunteer seller.

You must meet the following conditions to qualify and register as a volunteer seller in the Streamlined Sales Tax Program. These conditions must be fulfilled over 12 months.

You must not have a fixed place of business for more than a month in a member state.
The value of your property in the member state must be less than $50,000.
Your payroll in the member state must be less than $50,000.
Your total property or payroll in the member state must not exceed 25%.

Besides these, there might be some additional conditions that you must check before registering.

Want to Learn More?

SST can be a game changer for your business. It is not only time-saving but also cost-effective. Connect with TaxHero to get in touch with sales tax experts and get an in-depth understanding of your qualification, the need for registration, and the proceeding compliance requirements.

Learn what sales taxes pay for in your state | TaxHero

Sales tax is a crucial source of revenue for governments at different levels, and understanding what sales tax pays for is essential to comprehend public services and infrastructure funding. Sales taxes are vital in financing various aspects of society, including education, healthcare, transportation, public safety, and more.

Where does the collected sales tax go? What is sales tax used for? This blog sheds light on how paying sales tax improves communities and provides citizens with necessary resources.

What is Sales Tax?

Sales tax is a consumption tax the government imposes on retail or online sales. Every business, including ecommerce retailers, is responsible for collecting and remitting sales tax to the government.

State or local governments can impose a sales tax in their respective jurisdictions, and businesses must comply with the relevant requirements. The definition of taxable items and sales tax rates vary among states, so you must understand them before beginning your business.

Importance of Sales Tax

Sales tax is an important component of government revenue. Usually, people are reluctant to pay income or wealth taxes and try to hide their finances. At the same time, they pay sales tax indirectly and find it comparatively more straightforward than other types of taxes.

The sales tax collected from the consumers is used for the betterment of the citizens. States with well-managed tax collection systems grow their economy exponentially. For instance, Florida’s robust sales tax collection system generates steady economic growth.

What do Sales Taxes Pay for?

Most states imply a variety of taxes besides sales tax, such as income tax, use tax, wealth tax, and others. Governments usually collect the revenue from all taxes and use it collectively to finance different projects. It serves as the backbone of state and local government budgets.

Here is how states usually spend sales tax.

The General Fund

Many states create a general fund, pooling the funds collected through sales tax and other taxes. A significant amount of sales tax goes into the general fund. The government uses this fund to finance various developmental projects in the state. Every state has a different plan for the allocation of the general fund. Usually, they spend this fund on the following:

Infrastructure improvement: Infrastructure improvement includes projects related to building and repairing roads, transit systems, water pipes, waste facilities, and others. It results in ease of transit and mobility for the people.
Betterment of transportation facilities: Public transport makes life easier for people. The general fund is spent on enhancing transportation facilities and their affordability for the general public.
Recreational facilities: The government can spend general funds on improving recreational facilities such as public parks. As a result, people can strengthen their community relations.
Fire department development: The fire department plays a significant role in protecting the lives and properties of people through firefighting. The tax is spent on getting the latest equipment, providing training, and improving the services of this department.
Police department development: The police department aims to provide a safe and secure environment to the public. The government uses the sales tax revenue to develop the police department to provide better public security services.
Public schools: Education is one of the most important concerns of governments, and they use tax revenue to improve public education facilities. The development of new schools and the improvement of existing schools are the focus of the general fund.
Provision of healthcare facilities: Local and state governments ensure that the citizens get the best healthcare facilities when needed. They use tax revenue to improve emergency healthcare and other medical care projects. It includes the provision of free or subsidized healthcare facilities and health insurance.
Sustainability projects: Another vital area is environmental safety. The government spends the general fund on projects that promote environmental sustainability. They may run awareness campaigns, conduct training programs and seminars, or provide alternative products that create environmental carbon footprints.

Besides these projects, the government may spend the sales tax on other activities promoting individuals’ social and economic security. Mass awareness programs, training facilities, seminars, and workshops are also a part of government expenditures.

Some states allocate a significant portion of the general fund for healthcare facilities while others for educational facilities. The difference in allocation depends on the specific needs of the states.

Special Allocations

Sometimes, the government may decide to spend the sales tax on projects other than the general allocations. In such a situation, they pass a bill through the legislature to allocate the sales tax for a specific project. This may result in local and state governments temporarily increasing the sales tax rate to finance special projects.

Some states have a separate fund allocated for special projects. They keep a specific percentage of the collected sales tax in that fund and use it when needed. The remaining portion of the sales tax revenue goes to the general fund.

What is Sales Tax used for? Frequently Asked Questions

1. Where does most sales tax money go?

Most sales tax money goes to the general fund. This fund is used to finance infrastructure, public health, transportation, education, and environmental safety projects.

2. What are the 3 common things taxes are used for?

The three common things taxes are used for are healthcare, education, and social security.

3. Are there any states with no sales tax?

Yes, four states, Delaware, Montana, New Hampshire, and Oregon, have no state sales tax. Additionally, Alaska has no state sales tax, but the local government charges local sales tax. However, these states might have other taxes that are imposed on businesses. You must understand the tax obligations for each state with no sales tax before setting up your business there.

4. Which states have the highest sales tax?

California, Indiana, Mississippi, Rhode Island, and Tennessee have the highest sales tax rates. You can check out the current highest and lowest sales tax rates by state here.

5. Who collects sales tax?

The retailer/seller collects sales tax directly from the consumers and remits it to the government. Even if you buy something online, you pay sales tax on it if it is taxable. Read this ecommerce sales tax guide to understand the tax collection process.

Get Complexity out of Sales Tax Compliance

Besides managing a full-fledged business, sales tax collection and remittance can get complicated, but automation can help. Connect with TaxHero by booking a call and learn how we can streamline your sales tax compliance.

Selling online? Learn about ecommerce sales tax | TaxHero

Sales tax and Ecommerce go hand in hand. Whether you like it or not, you must pay sales tax as a customer. As a seller, you must collect and remit it unless you live in a state with no sales tax. In a 2020 Statista report, 35% of tax revenue collected by the US government was from sales tax.

Whether you are collecting sales tax using Shopify or another ecommerce platform, sellers always look for ways to simplify tax collection and management. Understanding the basics of sales tax to comply with relevant legal formalities and requirements is essential.

Here is the complete sales tax guide for ecommerce sellers with a step-by-step breakdown for Shopify stores and other online businesses. Let’s begin with the definition of sales tax.

What is Sales Tax?

Sales tax is a consumption tax charged as a percentage of the taxable goods purchased during the point of sale. The sales tax goes to the state government for developmental projects.

In ecommerce sales, sales tax collection and remittance are the responsibility of the online retailer to the state. The seller is responsible for charging customers the right amount of tax, collecting it, filing, and remitting it to the state.

You are responsible for sales tax collections and remittances in the following conditions.

The product you sell or the service you offer is taxable.
Your business has a physical or economic sales tax nexus in the state.

What is Nexus?

Many sellers are curious about the term nexus and what it means. It represents a connection between a seller and the state where their business resides.

Regarding business, a sales tax nexus can be of two types.

Physical Nexus: A physical nexus refers to the physical presence of a business in a state. It can be an office, store, warehouse, inventory, employees, etc.
Economic Nexus: This was based on South Dakota v. Wayfair 2018 US Supreme Court decision. The decision resulted in the state’s ability to collect sales taxes from ecommerce and other remote transactions. The ruling eliminates the requirement that a seller must have a physical presence in the taxing state to collect and remit sales taxes to that state.
An economic nexus is formed when an online business meets a specific sales threshold or crosses a particular number of transactions. These transaction limits and sales thresholds keep changing, and economic nexus laws vary among states. Some do not set a transaction limit, while others do, along with a sales threshold.

Ecommerce sellers must check and understand the sales tax rules for each state to know if they need to collect and remit sales tax.

How to Collect Sales Tax? 5 Steps to Sales Tax Compliance.

The following are the steps you need to undertake as an ecommerce retailer to comply with sales tax laws in your state.

1. Check Taxability and Sales Tax Requirements for each State

Every state tax the products you sell or services you offer differently. For instance, if you deal with groceries or prescription drugs, you may be exempt from sales tax in many states. On the other hand, most tangible personal property is subject to sales tax. Also, some products under a specific price limit are exempt from sales tax in some states. Some other items that may not be taxable in each state include clothing, supplements, and digital items, such as Software-as-a-Service (SaaS) products.

You must check taxability by each state since every state has different sales tax rules for product taxability.

As an online seller or a service provider, you must also determine if your business meets the requirement for nexus within each state. You must collect and file sales tax when you identify that you meet these requirements. While this can be complex, sales tax solutions and services like those offered by TaxHero exist. You can contact their Sales Tax experts team, who will simplify the process for you.

2. Register for a Seller’s Permit

It is necessary to register yourself as a seller in your nexus state. You need a sales tax permit, also known as a seller’s permit, before collecting and remitting sales tax as an ecommerce seller.

Some states may allow you to collect tax without a permit, but most don’t. You must know how to get a seller’s permit before applying. Visit the website of the Department of Revenue for each state to understand the application process. You can refer to our guide to learn everything you need to know about a seller’s permit.

3. Collect Sales Tax

Now, you are all set to collect the sales tax from your customers. As you may already know, every state has a different sales tax rate.

Not only are 45 states collecting state sales tax, but 38 states also collect local sales tax. Therefore, it is essential to check the local tax rate too. As the names indicate, state sales taxes are imposed by the state, while local municipalities impose a local sales tax. In the US, state sales tax rates range between 2.9% – 7%, whereas local tax rates vary between 0.30% – 8.3%.

Some states require ecommerce sellers to collect sales tax on origin-based sourcing, while others prefer destination-based sourcing. Online sellers must correctly set up their sales tax collection on their Shopify store or other ecommerce platforms like BigCommerce and WooCommerce.

4. Report and File Sales Tax

Knowing how to collect sales tax is one part of the step, and reporting and filing it is the other.

While all states allow online sales tax filing, it is more complex than just adding up the total transactions in each state. States need to know how much sales tax you’ve collected in their revenue jurisdictions by city, county, and special tax districts. If you sell on multiple sales channels, you must combine your sales tax into one report for each state to submit the returns accurately.

What if you did not collect sales tax during the taxable period? You still need to file zero sales tax returns.

Breaking down your tax transactions may get complicated, especially with large sales volumes. You can use a full-stack sales tax solution, like TaxHero, to make it simple.

You must also ensure you file the sales tax returns timely and by the due date. Each state will have a specific due date and assign a tax filing frequency when you get your seller’s permit. Your frequency of tax remittance also varies state by state, which may be monthly, quarterly, semi-annually, or annually. You must remember to file your sales tax returns a day or two before the due date.

5. Avoid Penalties

The sales tax compliance process continues even after the collection and remittance of sales tax to the state. You must consistently improve your tax filing record to avoid penalties for unsatisfactory sales tax collections and remittances.

Knowing and remembering your sales tax due dates is essential to avoid penalties, as it can result in the revocation of your sales tax license. As mentioned, due dates and tax filing frequencies differ by state. If you conduct business in multiple states, keep track of all the due dates and filing frequencies separately.

Need Help with Sales Tax? We’ve got your Back.

Understanding sales tax is one thing; doing it is another. Book a call with TaxHero and let a certified public accountant take your sales tax woes away! Whether you have just begun your ecommerce business or are a market leader, we are eager to contribute to your success by streamlining your sales tax matters…