Understanding Small Business Sales Tax

Katie Fleming

Katie Fleming

Co-founder and COO of Owner Actions

A person at a cash register studies her small business sales tax requirements

The United States doesn’t levy a federal sales tax, but many of its states do. And within those states, various sales tax rates may be charged based on the county in which the seller is located. With all of these variances, it’s important that you take time to determine your small business sales tax liabilities.

But first…

 

What is sales tax?

Sales tax is a tax many states choose to levy on customers when buying a product or service. Business owners must collect and report that tax to the state’s taxation authority and, often, to their city or county tax administrator.

 

Which states collect sales tax?

Currently, 45 states and the District of Columbia collect a statewide sales tax, and local sales taxes are collected in 38 states. As of early 2020, the following states collected state or local sales tax:

At the time this chart was created, every state but Alaska, Delaware, Montana, New Hampshire, and Oregon have state sales tax requirements. Connecticut, Delaware, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, Montana, New Hampshire, New Jersey, Oregon, Rhode Island, and Washington, D.C. are some of the locations without a local sales tax.

*Salem County, New Jersey, collects a local tax and is not subject to the statewide sales tax.

 

Important note: Tax laws change. Please connect with your state and local taxing authority to learn about current tax obligations.

 

Is my business required to collect sales tax?

Small business sales tax rules can be a bit complicated, but if you sell goods or services to an end consumer or end user (rather than to a distributor) from a physical storefront, you are generally required to collect sales tax. It’s also likely you’ll collect sales tax in states in which your business has a “nexus, which usually means your business has a physical presence or exceeds a certain sales threshold within the state.

Physical presence may include a storefront, office space, distribution hub, sample room, storage site, or other facilities that are integral to your operations, but it can also include having a representative or salesperson working in the state on a permanent or temporary basis.

Sales thresholds can be measured in terms of dollars or transactions occurring within the state. Many states have agreed to thresholds of $100,000 in gross sales or 200 individual transactions.

 

Specific nexus regulations vary by state. You can find an overview of legislation at salestaxinstitute.com.

In most circumstances, if you do not meet the requirements for having a nexus in a state, you won't have to collect and remit sales taxes to that state’s tax authority. However, some states are making moves to ensure that sales taxes are charged in every sale. If you make sales in multiple states, you should contact those states taxing authorities and learn about the requirements you must fulfill.

 

How can I learn about my state's sales tax rules?

You’ll need to contact your state’s tax authority—and often, your city or county tax department—to learn about your tax obligations.

If you plan to make sales or have a presence in multiple states, pay close attention to the discrepancies between tax authorities, which may include any of these important points:

  •  Whether the specific products or services you offer are subject to that state’s sales tax (and whether shipping costs are also subject to the tax)
  • The sales tax rates you must charge
  • How frequently you must remit the sales tax you collect
  • Whether your state honors any sales tax holidays

.

You can connect with each state’s tax authority through the links or phone numbers provided below:

Alabama

(334) 242-9600

Hawaii

(800) 222-3229

Massachusetts

(617) 887-6367

New Mexico

(505) 827-0700

South Dakota

(605) 773-3311

Alaska

(907) 465-2500

Idaho

(800) 377-3529

Michigan

(517) 636-6925

New York

(518) 485-2639

Tennessee

(615) 253-0600

Arizona

(602) 255-3381

Illinois

(217) 785-3707

Minnesota

(800) 657-3605

North Carolina

(877) 252-3052

Texas

(800) 252-5555

Arkansas

(501) 682-4775

Indiana

(317) 232-2240

Mississippi

(601) 359-1633

North Dakota

(701) 328-1241

Utah

(800) 662-4335

California

(916) 845-4669

Iowa

(800) 367-3388

Missouri

(573) 751-2836

Ohio

(855) 995-4422

Vermont

(802) 828-2865

Colorado

(303) 238-7378

Kansas

(785) 368-8222

Montana

(406) 444-6900

Oklahoma

(405) 521-3160

Virginia

(804) 367-8037

Connecticut

(860) 509-6000

Kentucky

(502) 564-2694

Nebraska

(402) 471-4079

Oregon

(844) 469-5512

Washington

(360) 705-6705

Delaware

(302) 739-3073

Louisiana

(855) 307-3893

Nevada

(775) 684-5708

Pennsylvania

(833) 722-6778

West Virginia

(866) 767-8683

Florida

(850) 488-6800

Maine

(207) 624-9670

New Hampshire

(603) 230-5000

Rhode Island

(401) 574-8484

Wisconsin

(608) 266-2776

Georgia

(877) 423-6711

Maryland

(410) 260-7314

New Jersey

(609) 292-6400

South Carolina

(844) 898-8542

Wyoming

(307) 777-5200

.

To contact the sales tax department in Washington, D.C., visit mytax.dc.gov or call (202) 727-4829.

 

Where can I go if I need more help?

There are some groups that can help you determine where you have established a nexus and walk you through your sales tax obligations. These groups include:

 

 

 

What's next?

Log into your owner’s portal for articles and advice that can help you navigate your tax obligations, manage risk, and take on the everyday challenges of running your business.

Want to take on other tasks?

Come see the free step-by-step guide business owners love.

Share:

Facebook
Twitter
Pinterest
LinkedIn

Leave a Reply

Related Posts