Table of contents
Table of contents
Staying on top of your tax obligations is a fundamental part of running a healthy small business. However, the fear of getting it wrong is widespread: owners are nearly twice as likely to fear underpaying taxes as overpaying.
Knowing whether you need to charge sales tax can be complex, especially since laws can differ from state to state. Let’s look at when to charge sales tax and how much you need to collect in 2026, depending on where you do business.
Whether or not you need to charge sales tax depends on various factors, like your business location and the type of goods or services you sell.
Most of the time, sales tax will depend on what your business offers because tax obligations differ between physical goods, services, and digital products.
If you sell physical products, you’ll likely have to collect sales tax in any nonexempt state where you have a business presence. Only five states (Alaska, Delaware, Montana, New Hampshire, and Oregon) don’t have a statewide sales tax.
Even in states with sales tax, certain categories of goods are exempt to reduce the burden of essential items:
Sales tax used to only apply to tangible personal property, but Hawaii, New Mexico, South Dakota, and West Virginia now apply it to most services by default. In other states, taxability depends on the category of the service, which typically includes one of the following common areas:
Taxes will depend on the type of service they offer, so it’s best to consult an accountant for advice. States will tax those categories differently or not at all. For example, Alabama charges sales tax only for amusement and recreation services, while Virginia charges sales tax only for services to TPP.
Most religious and nonprofit organizations are exempt from sales tax. Check with an accountant or tax professional in your state to confirm whether your service-based business has a sales tax exemption.
The digital economy has moved faster than some tax laws, but in 2026, most states have established clear guidelines for digital goods. This includes:
Some states treat a digital download the same as a physical DVD or book. Others distinguish between permanently downloaded products and subscription-based services.
These laws change frequently, so check your state’s specific Revenue Department website to make sure your business is tax-compliant.
Out-of-state sellers, also called remote sellers, generally won’t need to collect taxes from their customers unless they have a nexus within that state. Literally translated as a “connection,” a nexus means that your business meets one or more of the following criteria:
So, many online sellers can ship goods out of state without charging or collecting sales tax, provided they don’t have a physical presence in that state.
However, a number of states have enacted nexus laws that require payment of sales tax when sales to that state from an out-of-state buyer exceed a specific dollar threshold or number of transactions.
There’s one more term you might come across as you research your state tax rates. Use tax is a type of excise tax imposed on the sale of specific goods or services or certain uses.
Use tax is often used for out-of-state purchases but is generally not the seller’s responsibility. In most cases, the purchaser should declare and file this tax in their home state.
State tax rates in 2026 generally range from 0% to over 7%. However, the total amount you collect is often higher because many cities, counties, and special districts add their own local taxes on top of the state rate.
When you sell to a customer in your own state, you need to know which rate to use. This depends on whether your state is origin-based or destination-based:
Origin-based states currently include:
All other states with sales tax generally follow destination-based rules.
If you sell goods in one of the 45 states with sales tax, you’re responsible for collecting and filing these taxes with your state government. Since the state tax rates fluctuate monthly, this can be a moving target.
State tax rates range from 0% to 7.25%. For example, you can determine the exact tax rate for a specific address in your state with a sales tax calculator.
As we mentioned, deciding if you need to charge sales tax will depend on the type of service or product you sell and your business location. Although some states don’t impose sales taxes, others have state and local tax rates.
Here are the 2026 sales tax rules by state and the method the state uses:
Before you can legally collect a single cent of sales tax, you’ll need a seller’s permit (sometimes called a sales tax license) from the state’s Department of Revenue. Using a permit lets the state know you’re authorized to collect funds on their behalf.
When you issue an invoice, you should list the sales tax as a separate line item to provide transparency and simplify bookkeeping. This practice is especially helpful when reconciling your Amazon seller tax data with your overall business records at year-end. Whether you need to include tax on an invoice depends on whether the item is taxable and whether you have nexus in the customer's state.
If you sell items as a hobby, you may still have to collect and remit sales tax. While the IRS treats hobbies and businesses differently for income tax purposes, state sales tax departments generally focus on the individual transactions.
If you’re selling taxable goods to the public, you likely need a permit and must collect tax, regardless of whether you intend to make a profit.
Once you have your permit, the state will assign you a filing frequency—usually monthly, quarterly, or annually. Your sales volume will typically determine this. High-volume sellers file more frequently.
Most states set payment and tax return due dates for the 20th of the month following the reporting period. However, you should confirm this with your local tax authority to avoid late fees.
Navigating the web of state and local tax laws is a significant task for any business owner. While the rules are detailed, the process becomes more manageable when you use the right tools.
Accounting software like QuickBooks helps you remain compliant as your business grows by automating sales tracking, identifying the correct tax rates based on customer location, and generating reports for your filings. If you have specific questions about your business structure, consulting with a tax professional can provide tailored advice for your unique situation.
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