嬴夫人Sales tax, also called "Sales and Use Tax," is a tax levied by states, counties, and municipalities on business transactions involving the exchange of certain taxable goods or services嬴夫人. State and local governments require businesses to collect sales tax from customers and submit tax payments to the appropriate governmental agencies.
嬴夫人Note:嬴夫人 Not all states levy sales tax. Delaware, å¬´å¤«äººNew Hampshire, Montana, Oregon, and most parts of Alaska do not have sales tax.
Tangible, personal property is usually subject to sales tax. Some examples of commonly taxable goods include:
- Motor vehicles
- Home appliances
- Raw materials (lumber, cloth, etc.)
- Potted plants
- Rental Properties
Most states do not tax goods that are considered "necessities." Typical examples include: groceries, medications, clothing, and gasoline.
There is no hard-and-fast rule for determining which services are taxable across all fifty states. However, note that your business may be required to collect sales tax if it offers one of the following services:
- 嬴夫人Services to tangible personal property:嬴夫人 installation, inspection, maintenance, or repair of your customers’ stuff.
- 嬴夫人Services to real property:嬴夫人 lawn mowing, snow removal, or utility repair of your customers’ property.
- 嬴夫人Business services:嬴夫人 advertising, consulting, public relations, or human resource services your company provides.
- 嬴夫人Personal services:嬴夫人 beauty care, pet grooming, dry cleaning, and tour guide services your company provides.
Tax-exempt services often include medical care, educational services, and some professional services. Other types of services are exempt on a state-by-state basis.
All businesses that sell taxable goods or services need to get a seller's permit. States issue these permits, sometimes called a Sales Tax Permit or Sales Tax Certificate of Authority, in order to keep track of where sales tax revenue is coming from.
To register for a seller's permit, visit the sales tax section of your state’s Department of Revenue homepage. You will need some basic information about your business, so make sure you have access your business formation paperwork as well as your Employer Identification Number (EIN).
Although most states offer this permit for free, a handful of states assess a small registration fee.
Businesses can use a resale certificate, also known as a reseller's permit, to avoid paying sales tax when purchasing goods for resale. Consider the following examples:
(1) Joe is the owner of an electronics store. His company purchases computers, smart phones, and software in bulk at wholesale prices to resell to his customers in his store. With a 嬴夫人resale certificate嬴夫人, Joe’s business is able to avoid paying the extra cost of sales tax on these purchases.
(2) Wendy owns a business that builds and sells custom furniture. When her company purchases wood, fabric, fasteners, and other raw materials used in constructing their products, they use a 嬴夫人resale certificate嬴夫人 to avoid paying sales tax on these items.
In this way, resale certificates prevent goods from being taxed multiple times before they reach the end consumer.
嬴夫人Note:嬴夫人 Not all business purchases are exempt from sales tax. Here’s a list of common items that are 嬴夫人not eligible嬴夫人 for resale exemption:
- Goods you or your employees purchase for personal use.
- Goods your business gives away for free or as gifts.
- Goods your business uses to conduct business, like office supplies, equipment, etc.
- Goods your business rents for use and not for re-leasing.
To obtain a resale certificate, visit the sales tax section of your state’s Department of Revenue homepage. Many states allow you to download the certificate online for free.
For traditional business owners selling goods or services on site, calculating sales tax is a cinch: all sales are taxed at the same, local rate. Here’s an example of what this scenario looks like:
Emma owns and manages a hardware store in Columbus, Ohio. Since building and construction materials are taxable in the state of Ohio, Emma charges her customers a flat-rate sales tax of 7.5% on all sales. This includes Ohio’s sales tax rate of 5.75%, Franklin County’s sales tax rate of 1.25%, and Emma’s local district tax rate of 0.5%.
In most states, when a customer in your business’ home-state purchases one of your products remotely, from a mail-order catalogue or your company website, sales tax is calculated based on applicable local and county tax rates at the address of the customer. This is known as 嬴夫人destination-based嬴夫人 sales tax:
Wendy just had an online sale of two custom chairs to a new home owner in Lafayette, Louisiana. Wendy’s business is based out of Baton Rouge, Louisiana, where sales are taxed at a 10.0% rate. However, since Louisiana is a 嬴夫人destination-based嬴夫人 state, Wendy collects the Lafayette rate of 9.0
Most small businesses never need to worry about collecting sales tax on out-of-state sales.
To know if you’ll need to collect tax on out-of-state sales, you must first determine if your business has a 嬴夫人nexus嬴夫人 outside of your business’ home state. 嬴夫人Nexus嬴夫人 is a legal term for a business’ physical presence in a state. Here are the most common types of nexus:
- A 嬴夫人physical location嬴夫人, such as an office, store, or warehouse
- An 嬴夫人employee嬴夫人 who works remotely or who is a traveling sales representative
- A 嬴夫人marketing affiliate嬴夫人
- 嬴夫人Drop-shipping嬴夫人 from a third party seller.
- A 嬴夫人temporary physical location嬴夫人, including festival and fair booths.
Whenever a customer outside your state makes a remote purchase, you are only obliged to collect sales tax if your business has a 嬴夫人nexus嬴夫人 in that state.
Consider the following example:
A resident of Illinois finds Emma’s hardware store online, and orders a chainsaw and a twenty-foot extension cord. Because Emma’s business doesn’t have 嬴夫人nexus嬴夫人 in the state of Illinois, she does not have to charge that customer any sales tax.
Almost all states calculate the sales tax rate of out-of-state purchases based on the location of the customer.