Do You Need to Charge Sales Tax in Another State?
Your first order from another state arrives on a quiet Tuesday. The customer is in a place you have never visited, the payment goes through, and a small worry follows you into the evening: do you now owe that state sales tax?
Why the question exists
For a long time the answer was usually no, unless you had a physical presence in the state. That changed on June 21, 2018, when the US Supreme Court ruled in South Dakota v. Wayfair that states can require sellers to collect and remit sales or use tax on sales delivered inside their borders, whether or not the seller has a physical presence there.
The Streamlined Sales Tax Governing Board, which publishes guidance for sellers, adds a point that is easy to miss: the rules for sellers who do have a physical presence in a state did not change. If you have an office, stock or staff somewhere, ask that state's tax agency directly. It is a separate question from the one above.
The answer depends on the state, and on how it counts
There is no single national threshold. Each state sets its own. In the Board's guidance the dollar figures run from $100,000, the most common, up to $250,000 and $500,000 in some states. Many states also look at the number of transactions, often 200. Some say "or" between the two, while New York requires both. The chart is dated January 2023, so read it as a picture of how the rules are built, not as this year's numbers.
How a state counts your sales matters as much as the threshold itself. The Board gives an example: a seller with $400,000 of sales into one state, where a large part went to resellers and other buyers who claimed an exemption. Depending on whether the state counts gross sales, retail sales or taxable sales, the figure measured against the threshold is $400,000, $180,000 or $95,000. Same year, same orders, three different answers.
A routine that takes ten minutes a month
- Record where each order goes. Keep a simple sheet with the state where the order is delivered, the date and the amount, not only a grand total. This is the data every state will ask for.
- Compare it with the state's own rule. Find the page for out-of-state sellers on the state's tax agency site. Check whether it counts dollars only or transactions too, and which sales it includes.
- Check whether what you sell is taxable there. What is taxable differs from one state to the next, so the same sale can be taxed in one state and not in another.
- If you are getting close, act early. A seller may register before reaching a threshold. In the states that belong to the Streamlined system, one online application is free and covers all of them, though you still file returns in each state you register in.
If you cross a threshold, each state sets its own start date for collecting, so contact the state rather than guessing. An accountant who knows multistate sales tax can save you far more than the hour they cost.
Where Edwin fits
Edwin does not calculate, collect or file sales tax, and he is not a tax advisor. What he can do is remember the facts you ask him to remember, such as where a client is based, and keep your quotes, mailboxes and calendar in one place, so the information an accountant asks for is easier to find. See how Edwin works.
This article is general information, not tax advice. Rules and thresholds change, so check the official source of each state where you sell.