Sales tax in the United States is one of those administrative hassles that every product seller deals with. Because sales tax is governed at the state level, and because each individual business’s sales tax liability is different, there are very few hard and fast rules of sales tax.
The following ten sales tax facts will school you on sales tax basics, and ensure you don’t make a costly mistake.
1. There’s no overarching IRS for sales tax
In the U.S., the Internal Revenue Service handles all income tax administration. But there’s no such service for sales tax.
Instead, each U.S. state has a taxing authority that handles sales tax. These authorities are usually called the [State] Department of Revenue, but they may go by other names. For example, California’s taxing authority is the California Board of Equalization and Texas’s is the Texas Comptroller.
If you have a question or need information about sales tax, don’t check with the IRS —contact your state’s taxing authority.
2. State sales tax due dates vary by state
Since each state makes their own sales tax rules and laws, they also set their own due dates. In most states, the sales tax due date is the 20th of the month after the taxable period.
Ben files Georgia sales tax every quarter. Georgia Q1 runs from January
1-March31st. Since Georgia’s sales tax filing due date is the 20th of the month after the taxable period, Ben’s Georgia sales tax filing is due on April 20th.
Other states, though, have other sales tax filing due dates:
- Maine’s sales tax filings are due on the 15th of the month after the taxable period
- Ohio’s are on the 23rd
- California’s are on the last day of the month.
Your state will assign you sales tax filing due dates when you register for your sales tax permit.
3. Taxable items vary from state to state
For the most part, items of tangible personal property (like toothbrushes and coffee cups) are taxable.
However, some states don’t consider necessities like food and clothing to be taxable. Other states might not consider things like medicines or textbooks to be taxable. Still other states confuse the issue.
While most clothing is entirely tax exempt in Pennsylvania, clothing items priced at $175 or under are
non-taxablein Massachusetts. And if an item of clothing is priced at more than $175 then only the portion of the price above $175 is taxable. Talk about confusing!
If you are unsure whether your products are taxable, check with your state’s taxing authority.
4. Some states only have one sales tax rate
Not only do sales tax rules vary, sales tax rates vary, too.
The statewide sales tax rate in Connecticut is 6.35%. Since Connecticut only has one sales tax rate, anytime you make a purchase in Connecticut you’ll pay the 6.35% sales tax.
The other states that only have a single sales tax rate are:
- Rhode Island
The nation’s capital, Washington D.C., which is technically a district, also only has a single sales tax rate.
5. Most states have multiple sales tax rates
If a state wasn’t mentioned on the list above, that means that it allows local areas like counties, cities and other special taxing districts to also levy a sales tax. This is one reason why figuring out the correct sales tax rate to charge can be so complicated. Let’s look at the example of Yonkers, New York.
If you make a sale to a customer in the city of Yonkers, you are required to collect:
— 4% New York state sales tax rate
— 3.375% Westchester County sales tax rate
— 1.5% Yonkers city sales tax rate
On the other hand, in nearby Cold Spring, you are only required to collect the 4% New York sales tax rate and the 4.375% Putnam County sales tax rate, for a total of 8.375% in sales tax.
As you can see, multiple state sales tax rates make it more difficult to determine how much sales tax to charge to each customer.
6. How often you file a sales tax return is based on your sales volume
When you register for your sales tax permit, the state will assign you a sales tax filing frequency. This frequency is generally monthly, quarterly or annually. In general, most states want you to file and remit sales tax more often as your sales volume in the state increases.
A few states start every seller off paying monthly. They then inspect how much you remit in sales tax on average each month, and reassign you a filing frequency.
If you have sales tax nexus in South Carolina, you’ll start out filing and paying monthly. But if your sales volume in the state is low, you may be reassigned a new frequency of quarterly or annually after the state has had time to determine your correct filing frequency.
7. Retailers should file a sales tax return by every due date, no exceptions
You should file a sales tax return even if you didn’t collect a penny in sales tax over the taxable period. States consider sales tax filing a check in to let them know that you are still open for business.
If you fail to file a sales tax returns, penalties can include a monetary fine or even the revocation of your sales tax permit.
8. Some states have discounts for early or
As a retailer in a state with sales tax, you basically serve as tax collector. You collect sales tax from your buyers when they make a purchase, and remit that sales tax to the state at intervals.
Some states appreciate this more than others, and will allow you to keep a small portion of the sales tax you collected. While this portion is generally only
9. Most states allow retailers to buy items
tax-free for resale (but rules vary)
Many online sellers get their start either handcrafting items or doing retail arbitrage (i.e. buying items at retail stores at low prices in order to resell them on the internet for a profit.)
In most cases, you can avoid paying sales tax when making purchases for resale as long as you have a valid reseller’s permit.
This permit is issued by your state’s taxing authority, and is sometimes the same document as your sales tax permit. Just show this document when making a purchase for resale and you will often be allowed to make the purchase without paying tax.
Keep in mind that using a reseller’s permit for anything other than buying products to resell or components of products you intend to sell is considered tax fraud. Also, retailers can decide at their discretion whether or not they accept resale certificates. Target stores, for example, are notorious in reseller communities for not accepting resale certificates.
10. There’s a much simpler way to handle sales tax
Many online sellers consider sales tax just another one of their many administrative hassles. Fortunately, advances in technology have led to the advent of sales tax automation software.
When you automate your sales tax life, you can ensure you collect the right amount of sales tax every time, create
Today’s business owners enjoy more
I hope this post has taught you something new about sales tax. For a whole lot more about sales tax, check out our Sales Tax 101 for Online Sellers Guide, or start the conversation in the comments!