Learn the basics about collecting sales tax.
Collecting and calculating sales tax can be confusing for anyone. In this article, we break down the basics for you.
QuickBooks Online uses three components to calculate your sales tax rate:
- The state where you're registered to collect sales tax.
- The physical address of your business.
- The physical address listed on sales receipts or invoices.
Basic things to know about collecting sales tax:
- The amount of sales tax you collect varies from state to state and location to location.
- Each state sets a sales tax rate.
- Counties, cities, other localities and even special taxing districts can set their own rates.
Selling to customers in different states is a common situation for e-commerce and online business owners.
When your customers are located in other states, your tax situation will vary depending on what state you're located in and where you're selling. The general rules are:
- If you don't have a presence in a state, then you aren't required to collect sales taxes.
- Every state defines sales tax rules differently so never assume what happens in one state applies to another. Always double check.
|Note: We advise you to contact your state tax authority, or your accountant, to get information for your specific situation.|
While you should check with your individual state tax authority as to which goods and services sold in your state are subject to sales tax, generally you aren't required to collect sales tax for the following items and transactions:
- Resold items: Retailers don't typically have to pay sales tax on wholesale purchases. It's assumed that the end consumer will pay sales tax on these items at the point of purchase.
- Raw materials: If you produce and sell goods that will be used as raw material for other goods, these items are typically considered sales tax exempt.
- Transactions with non-profit organizations: Sales made to non-profit organizations are normally exempted from sales tax. If you are involved in these types of transactions, you'll need to get a copy of the buyer's tax-exempt certificate or number (issued by the state they're in).