Sales tax can feel like a maze, especially when you’re focused on growing your product. The good news? It’s not as scary once you break it down. In the United States, each state sets its own rules, rates, and filing schedules, so you’ll deal with a different set of requirements depending on where you sell.
What Is US Sales Tax?
At its core, sales tax is a percentage added to the price of a product or service at the point of sale. The buyer pays it, but the seller is responsible for collecting and sending it to the state tax authority. Not every product is taxable—food, clothing, and digital goods can be exempt or taxed at a reduced rate depending on the state.
For example, Texas charges a 6.25% state rate plus local add‑ons, while New York’s rate ranges from 4% to over 8% when city and county taxes are added. If you sell across state lines, you’ll need to figure out where you have a "nexus" – a physical or economic presence that obligates you to collect tax in that state.
Key Things to Keep in Mind
1. Identify Nexus. Physical presence (office, warehouse, employee) automatically creates nexus. Economic nexus, introduced after the 2018 Wayfair decision, means selling a certain amount (often $100,000 or 200 transactions) in a state also triggers tax obligations.
2. Know Your Product Taxability. Digital downloads, SaaS subscriptions, and services are taxed differently across states. Some states tax software as a tangible product, others don’t. Double‑check each state’s tax code or use a reliable sales‑tax automation tool.
3. Register with State Tax Agencies. Once you have nexus, you must register for a sales‑tax permit before you collect any tax. The registration process varies – most states let you do it online in a few minutes.
4. Collect the Correct Rate. Combine state, county, city, and special district rates. Tools like TaxJar or Avalara can calculate the exact amount in real time, saving you headaches during checkout.
5. File and Remit on Time. Filing frequencies differ – monthly, quarterly, or annually – based on how much tax you collect. Missing a deadline can lead to penalties, so set reminders or automate filings.
6. Keep Good Records. Store invoices, exemption certificates, and filing confirmations for at least three years. Good records make audits painless and help you spot mistakes early.
7. Watch for Changes. Sales‑tax laws evolve. States regularly tweak rates, add new taxable categories, or change filing thresholds. Subscribe to a tax‑news feed or rely on software that updates automatically.
Getting sales tax right from day one protects your cash flow and keeps the taxman happy. If you’re just starting, consider a simple solution like a plug‑in for Shopify or WooCommerce that handles collection and filing. As your business scales, you can move to a more robust platform that integrates with your accounting software.
Remember, sales tax isn’t a one‑time checkbox – it’s an ongoing part of running a business in the US. By staying organized, using the right tools, and keeping an eye on nexus rules, you’ll avoid costly surprises and keep your focus on growth.
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