Sales tax management can be complicated. The United States is unique in that every state can set its own sales tax rate, and those rates can vary by product category, origin, sales volume, and nexus. Counties, cities, and other districts can also levy sales taxes.

This issue can leave a lot of businesses guessing about how to charge and remit sales tax. Below is a clear guide on US sales tax compliance, including how to register in each state and calculate the right rate.

What’s in this article?

• What is sales tax compliance?
  
• What creates sales tax nexus for your business?
  
• How do you register for sales tax in each state?
  
• Which products and services are taxable?
  
• How do you calculate the right sales tax rate?
  
• When and how should you file and remit sales tax?
  
• How can you manage unpaid sales tax issues?
  
• How Stripe Tax can help
  

What is sales tax compliance?

Sales tax compliance is the process of correctly charging, collecting, reporting, and remitting taxes to the appropriate tax authorities. In the US, sales tax is handled at the state level, and each state has its own rules regarding what’s taxed and under what conditions. If your business has a taxable presence, or nexus, in a state (determined by physical operations or sales activity), you’re expected to comply with that state’s tax laws.

Once your company is registered for sales tax, you have to collect tax on applicable sales, file tax returns monthly, quarterly, or annually, and remit the sales tax collected by the due date. You’re collecting tax on behalf of the state, and you’re obligated to get it right.

Certain buyers (e.g., resellers, nonprofits, government agencies) are exempt from sales tax but are required to collect and store valid exemption certificates.

What creates sales tax nexus for your business?

Sales tax nexus is the legal threshold that makes your business subject to a state’s tax rules. Once you have nexus in a state, you’re responsible for collecting and remitting sales tax there.

There are two major triggers for sales tax nexus.

Physical nexus

Having a physical business presence in a state is the traditional kind of nexus. This includes having an office, warehouse, or storefront in the state. It can also include having any employees, contractors, or sales reps who work in the state. Even a temporary presence, such as attending a trade show or holding inventory in a Fulfillment by Amazon warehouse, can create nexus.

Economic nexus

Economic nexus makes out-of-state businesses subject to sales tax once they exceed a certain volume of sales or transactions in the state, even without a physical presence.

The US Supreme Court decision in South Dakota v. Wayfair mandates businesses to collect and remit sales taxes for transactions in any state where they have more than 200 transactions or $100,000 in sales per year.

Each state sets its own sales tax nexus rules. You’re expected to track your own sales and register the moment you exceed an applicable threshold.

How do you register for sales tax in each state?

Sales tax compliance is managed at the state level, which means there’s no national registration. You’ll need to register in every state where you have tax obligations, and each state has its own process.

If you’re registering in 1 of the 44 states party to the Streamlined Sales and Use Tax Agreement (SSUTA), you can use a single form through the Streamlined Sales Tax Registration System to register. You’ll still need to manage accounts in each state’s portal, but it saves time up front when you handle sales and use tax compliance.

Alaska, Delaware, Montana, New Hampshire, and Oregon don’t have state-level sales tax. But in Alaska, local jurisdictions can still levy their own local sales taxes.

Head to the state’s Department of Revenue (or equivalent) website and look for “sales tax registration.” Use only an official .gov site. Plenty of third-party sites try to insert themselves into this process.

Sales tax applications typically ask for:

• Business name, address, and Employer Identification Number (EIN)

• Description of what you sell

• Start date of taxable activity in that state

• Info on owners or officers (some states require Social Security or license numbers)

Some states charge a small fee for registration, but many don’t. In most cases, you’ll get your sales tax permit number immediately or within a few days.

Which products and services are taxable?

Sales tax depends on what you sell and where you sell it. Each state sets its own rules about what counts as taxable. If you undercharge, you pay the difference. If you overcharge, you might owe refunds.

Physical goods (e.g., clothing, electronics, furniture) are usually taxable, but there are many exceptions. Most clothing is tax-exempt in Pennsylvania but fully taxed in most other states. Grocery items are often taxed at a reduced rate, or not at all.

Digital goods (e.g., music, books, software) are taxed in some states and exempt in others. Services (e.g., design, installation, consulting, repairs) and shipping are also taxed in some states and not in others.

How do you calculate the right sales tax rate?

Sales tax rates in the US are layered: a buyer might be subject to taxes from the state, county, city, and a special district. The right rate is the combined rate, which can vary from block to block.

Most states follow destination-based sourcing, which means you charge tax based on where the buyer receives the product. A few states use origin-based sourcing (i.e., you charge the rate where you’re located), but only for in-state transactions. If you’re shipping across state lines, sales taxes are based on destination almost everywhere in the US.

There are over 11,000 sales tax jurisdictions in the US. Cities and counties can each apply their own rates. If you’re delivering to a buyer in Los Angeles County, for example, the sales tax rate should include California’s base rate plus county and city-level taxes, too.

Rates change as ballot measures pass and district lines shift. If you’re managing tax rates manually, staying accurate can be a herculean task. Instead of building custom tax logic, many businesses use automated tax tools like Stripe Tax that calculate the exact rate in real time based on buyer location and product type.

When and how should you file and remit sales tax?

Filing sales tax (reporting what you collected) and remitting sales tax (sending in the money) happen on a schedule the state assigns when you register: usually monthly, quarterly, or annually, depending on your sales volume.

Every filing period, you’ll log in to the state’s tax portal and submit a return that shows your total sales, taxable sales, and the sales tax collected. Some states require filings by jurisdiction; others just want the totals. You also send payment when you file, usually via bank transfer.

Due dates vary. It might be the 15th, 20th, or end of the month after the close of a filing period. Miss the deadline and you could owe late fees, even if you didn’t collect any sales tax for that period. Many states still expect a “zero return” in that case. Skipping it can lead to penalties or audits.

The more states you’re registered in, the more calendars and formats you’ll be managing. Tools that centralize sales tax reporting and filing, like Stripe Tax, help avoid the spreadsheet sprawl that comes with doing this manually.

How can you manage unpaid sales tax issues?

Realizing you should’ve been collecting sales tax in a state you weren’t registered in is common. When it’s addressed proactively, this is fixable. Delay makes it more expensive.

Here’s a playbook for handling unpaid sales tax issues cleanly.

1. Quantify the exposure

Review when you exceeded the state’s nexus threshold. If you were supposed to collect sales tax but didn’t, you’re responsible for paying it out of pocket.

2. Look into voluntary disclosure

Many states offer a voluntary disclosure agreement (VDA): if you come forward and agree to pay what’s owed (often for up to four years back), the state reduces or waives penalties. This works only if you apply for a VDA before the state contacts you.

3. Get registered and start collecting

You can’t charge customers sales tax until your registration is official. Once it’s approved, start collecting the right amount of sales tax going forward, and file returns for prior periods if required.

4. Enlist help if needed

If you’re determining your liability over multiple states or years, a tax adviser can help you approach states, negotiate terms, and clean things up without triggering audits.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Stripe Tax helps you monitor your obligations and alerts you when you exceed a sales tax registration threshold based on your Stripe transactions. In addition, it automatically calculates and collects sales tax, value-added tax (VAT), and goods and services tax (GST) on both physical and digital goods and services—in all US states and in more than 100 countries.

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 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: Let Stripe manage your global tax registrations and benefit from a simplified process that prefills application details—saving you time and simplifying compliance with local regulations.

• 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 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.

Learn more about Stripe Tax, or get started today.