Sales Tax Basics & Fundamentals

Can I pass sales tax costs on to customers, or must I absorb them?

Yes, passing sales tax to the customer as a line item at checkout is standard practice for virtually every retail seller. You collect it, hold it, and remit it to the state. You are not required to absorb it.

Do I automatically have nexus in my home state?

Yes. Operating a business from a state means you have physical nexus there, immediately, from your first sale. Your home state is the one sales tax obligation every seller has from day one.

If I only sell online, do I still have a sales tax obligation?

Yes. Online sellers have the same sales tax obligations as physical retailers once they have nexus in a state. Being online doesn't exempt you, it just changes which states you need to monitor.

Is sales tax the same as VAT?

No. Sales tax and VAT are both consumption taxes but work differently. US sales tax is single-stage, collected only at retail, with no input tax credit. VAT is collected at every stage of the supply chain, with businesses reclaiming tax paid on inputs.

What changed for ecommerce sellers after the 2018 Wayfair ruling?

Before Wayfair, online sellers only owed sales tax in states where they had physical presence. After Wayfair, selling enough into a state (usually $100K) creates an obligation even without a warehouse or employee there.

What does it mean when a product is tax exempt?

A tax-exempt product is one a state has specifically excluded from sales tax. Common exemptions include groceries, prescription drugs, and in some states, clothing. Exemptions vary dramatically by state.

What is a sales tax rate, and what does it include?

A sales tax rate is the percentage applied to a taxable sale to calculate the tax owed. The rate you see on a receipt is usually a combined rate, state plus county plus city plus any special district taxes, all stacked together.

What is sales tax, and how does it work for online stores?

Sales tax is a consumption tax collected at the point of sale and remitted to the state. For online stores, the obligation depends on where you have nexus. Here's how it works.

What is the difference between filing and remittance?

Filing is submitting the return: the paperwork reporting what you collected. Remittance is the payment. Both happen on the same deadline, and both are required even when you owe zero.

What is the difference between sales tax and use tax?

Sales tax is collected by the seller at the point of sale. Use tax is self-reported by the buyer when no sales tax was collected. They're two sides of the same obligation, and online sellers are responsible for one of them.

What NAICS code should I use when registering for sales tax?

Most ecommerce sellers use NAICS code 454110 (Electronic Shopping and Mail-Order Houses) when registering for sales tax. Use the code that best describes your primary business activity, states use it for classification, not for determining tax rates.

Which states have no sales tax?

Five states have no statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Alaska allows local sales taxes. Here's what that means for sellers shipping to customers in these states.

Who is responsible for collecting sales tax — the buyer or the seller?

The seller is legally responsible for collecting and remitting sales tax. If you have nexus in a state and fail to collect from the buyer, you still owe the tax to the state out of your own pocket.

Why do sales tax rules differ so dramatically by state?

Sales tax rules differ by state because the US has no national sales tax: each state has full authority to design its own system. States set their own rates, taxability rules, thresholds, and exemptions with no requirement to align with other states.

Why is sales tax compliance so complex for online businesses?

US sales tax is complex for online sellers because each of 45 states sets its own rules independently, different thresholds, rates, taxability rules, filing deadlines, and exemptions. A physical store only faces one state. An ecommerce seller faces all of them.