Sales tax is a type of indirect tax levied on the majority of goods and services in the US, and it’s managed at the state and sometimes city levels. Each state has a different sales tax rate and different product taxability rules. It can be difficult to determine when you need to charge sales tax.

Below, we’ll discuss when you need to charge sales tax in the US.

Note that this is general sales tax information, and you should consult an expert for advice specific to your business.

What’s in this article?

• Do I need to charge sales tax?
  
• How do I know whether what I’m selling is taxable?
  
• How to register for a sales tax permit
  
• Is there a simple way to register in multiple states?
  
• What if I already missed the registration deadline?
  
• How Stripe Tax can help
  

Do I need to charge sales tax?

In the US, businesses are required to collect sales tax from customers when they exceed certain thresholds of total revenue, transaction amount, or both. These thresholds are referred to as economic nexus thresholds. Because sales tax is governed at the state level, the numbers for economic nexus vary across the country.

For example, in Ohio, businesses need to collect sales tax from customers only if they have exceeded $100,000 in revenue or 200 transactions from customers in the state. Certain states have only revenue thresholds or require businesses to exceed the revenue and transaction thresholds before they collect sales tax. New York businesses, for example, need to collect sales tax once they exceed $500,000 and 100 sales delivered in the state.

Businesses can also trigger sales tax obligations by having a physical presence or physical nexus in a state. Here are some examples of business activities that can create physical nexus:

• Location: An office, warehouse, store, or other physical place of business. Storing inventory often creates physical nexus.

• Employees: Having an employee, contractor, salesperson, installer, or other person who does work for your business in a state.

• Events: Selling products at a trade show or other event.

If you sell through a marketplace platform, confirm whether it collects sales tax for you. Many marketplaces like Amazon and Etsy automatically collect and remit sales tax for sellers.

How do I know whether what I’m selling is taxable?

Not all goods and services are taxable. If the items you’re selling aren’t taxable, then you’re not required to collect sales tax on those items. That’s true even if you’ve exceeded a nexus threshold in a state, but you might still have an obligation to register. Here are some items that are commonly tax-exempt, depending on the state:

• Grocery food

• Clothing

• Certain books (e.g., textbooks, religious books)

• Prescription and nonprescription medicine

• Professional services

That’s not a complete list, and some states might exempt other items.

To avoid double taxation, many B2B purchases are tax-exempt. If a business purchases an item to resell it, it can use a resale certificate to avoid paying sales tax on the item because the business will charge sales tax to the end customer.

How to register for a sales tax permit

If your business has exceeded a physical or economic nexus threshold in a state and your product or service is taxable, you must register for a sales tax permit and begin collecting sales tax from your customers in that state.

Typically, these are the steps to register with a state to collect sales tax:

• Gather business and contact information.

• Visit the website of your state’s department of revenue.

• Go to the “sales and use tax” section of the website to register your business.

You must register to collect sales tax in each state where you have met tax registration requirements. That involves going to the state tax authority’s website. You can find the link for each state here.

Is there a simple way to register in multiple states?

If you need to register in several states at once, you can do so via the Streamlined Sales Tax Registration System (SSTRS). This allows businesses to register in all participating states of the Streamlined Sales and Use Tax Agreement (SSUTA) through a single application. This agreement was created to simplify the sales tax registration process.

There are 24 member states, which have passed legislation to conform to the SSUTA: Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming.

Sellers can register through the SSTRS here. Once they’re registered, they’ll need to set up accounts individually with each state. Sellers will need to register separately in any state that doesn’t conform to the SSUTA if they have sales tax obligations there.

What if I already missed the registration deadline?

If you met the tax registration requirement in a state but didn’t register, you have a few options. If a few months have passed since you triggered the sales tax obligation, consult sales tax experts to determine the best way forward for your business. Most states have a voluntary disclosure program to help sellers resolve sales tax liabilities, and you might be eligible to participate in a state’s amnesty program to come into compliance.

You’ll want to hold off on collecting tax until you’ve properly registered with the state or local tax authority. Your local tax authority will also assign a sales tax filing frequency for your business—typically monthly, quarterly, or annually—based on factors such as taxable sales volume.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful application programming interface (API).

Stripe Tax helps you monitor your obligations and alerts you when you exceed a tax registration threshold based on your Stripe transactions. It can also register to collect tax on your behalf in the US, automate US filings in the Dashboard, and manage global filings through trusted partners. Stripe Tax automatically calculates and collects sales tax, value-added tax (VAT), and goods and services tax (GST) on:

• Digital goods and services in all US states and over 100 countries

• Physical goods in all US states and 42 countries

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration, or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: If you need to register for a sales tax in the US, let Stripe manage your tax registrations. You’ll benefit from a simplified process that prefills application details—saving you time and simplifying compliance with local regulations. If you need help registering outside of the US, Stripe partners with Taxually to help you register with local tax authorities.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax automates US filings in the Dashboard, powered by TaxJar. For global filings, Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business. US tax filings can be automated in the Stripe Dashboard, powered by TaxJar.

Learn more about Stripe Tax, or get started today.