Understanding sales tax rate determination can be one of the most complex hurdles for online businesses. At the heart of this challenge is a concept called “sourcing,” which dictates how you identify your tax obligations by state. To accurately collect from your customers, you must first determine if your business is operating under an origin-based sales tax or a destination-based sales tax system.

For origin-based sales tax states, the tax rate is determined by where your business is located. Some states, such as Florida, New York, and California use destination-based sales tax, which determines the rate by the destination, or the location of the buyer. This distinction raises critical questions for your business strategy, such as whether or not origin-based tax rates can impact pricing, or whether your business is prepared for the administrative shift when selling across state borders.

Below, we’ll outline some of the key differences between origin-based sales tax and destination-based sales tax, and how they can impact ecommerce businesses.

What’s in this article?

• What is sales tax sourcing?
  
• Which states are origin-based and which are destination-based?
  
• How to charge sales tax in your home state
  
• What to do if you have sales tax nexus in another state
  
• Examples of states with unique sales tax sourcing requirements
  
• How Stripe Tax can help
  

What is sales tax sourcing?

In the United States, sales tax can be classified as either origin-based or destination-based. The sales tax rate you charge customers will depend on which sales tax nexus your business triggers.

Origin-based sales tax means that the tax rate applied is based on the location of the seller's business. On the other hand, destination-based sales tax requires sellers to charge tax based on the buyer's shipping address. This means the tax rate can differ depending on where the customer is located, as states and localities impose varying tax rates.

Understanding these distinctions is crucial for ensuring compliance and accuracy in tax collection.

How origin-based sales tax works

In an origin-based sales tax system, the source of the sale is your own place of business. If your home base is in one of the few origin-based states, such as Arizona, Ohio, or Pennsylvania, your sales tax rate determination is relatively straightforward. You charge every customer within that state the same rate based on your business's physical location.

This “combined rate” includes the state-level tax plus any applicable local, county, or district taxes for your specific address. For instance, an Arizona seller based in Phoenix would charge a customer in Tucson the Phoenix-area rate, not the Tucson rate. This is often considered the most efficient form of tax obligations by state because it allows you to maintain a single, static tax rate for all in-state transactions.

For many sellers, the administrative ease of origin-based sourcing is a major advantage, but it requires a “one-size-fits-all” approach that contrasts sharply with the granular requirements of destination-based states.

How destination-based sales tax works

In contrast to the simplicity of origin-based rules, destination-based sales tax sourcing requires a much more granular approach to sales tax rate determination. Under this system, your tax obligations by state are tied directly to where your customer receives the product. This means the source of the sale is the buyer's shipping address rather than your storefront or warehouse.

For sellers based in states like Washington, New York, or Florida, this creates a significant administrative hurdle. Because these states are home to hundreds of unique local tax jurisdictions, the combined rate—which includes state, county, city, and special district taxes—can fluctuate from one street block to the next.

Which states are origin-based and which are destination-based?

Here’s a look at which states use origin-based vs. destination-based sales tax.

How to charge sales tax in your home state

When selling to customers within your own state, your collection process depends entirely on your state’s sourcing logic.

• Identify your state’s rule: If you are in an origin-based state, you apply the “combined rate” of your business location to every sale. In a destination-based state, you must look up the specific rate for the customer’s address for every order.
  
• Calculate the combined rate: This is the sum of the state sales tax plus any local, county, or special district taxes.
  
• Locate official guidance: Sourcing rules can be found on your state’s department of revenue or comptroller website. Look for “sourcing rules for tangible personal property” or search the state's tax code for “sales tax sourcing.”
  

What to do if you have sales tax nexus in another state

If your business has expanded to the point where you have a certain number of sales in a state beyond your home base, your tax obligations will increase. In the world of ecommerce, this is usually triggered by “economic nexus,” which typically occurs once you cross a certain sales threshold.

If you realize you’ve crossed a threshold in a new state, follow these steps immediately.

• Register for a permit: Do not collect a cent of sales tax until you have registered with that state’s Department of Revenue. Collecting tax without a permit is illegal.

• Update your shopping cart: Once registered, configure your checkout software to apply the correct destination-based rates for that state.

• Collect and remit: Start collecting the tax on all taxable sales and file your returns according to the state's assigned frequency (monthly, quarterly, or annually).

Because tax laws are updated frequently, you need reliable sources for your sales tax rate determination. Some resources for determining sales tax rate include state department of revenue websites, tax automation or payments platform, or the Streamlined Sales Tax website for states that have worked to standardize rules for remote sellers.

Examples of states with unique sales tax sourcing requirements

Here’s an example of how the correct sales tax rate is calculated in an origin-based state. This business is located in Irving, Texas.

• Texas state rate: 6.25%
  
• Irving sales tax rate: 1.00%
  
• Dallas MTA (Metropolitan Transit Authority that imposes a sales tax): 1.00%
  
• Combined sales tax rate: 8.25%
  

This business should charge all customers in Texas 8.25%, even if they are located outside of Irving.

Here’s how destination-based sales tax sourcing works for a business located in New York City, New York.

The business made a sale to a customer located in Buffalo, New York.

• New York state rate: 4.00%
  
• Erie County rate: 4.75%
  
• Combined sales tax rate: 8.75%
  

This is what the business would charge the customer in Buffalo.

However, they make another sale to a customer located in Rochester, New York.

• New York state rate: 4.00%
  
• Monroe County rate: 4.00%
  
• Combined sales tax rate: 8.00%
  

This is the rate the business would charge this customer in Rochester.

These examples only apply to selling to customers in the state where your business is located. If you have sales to customers located in other states, then you may need to follow different rules when charging sales tax. In general, you would charge sales tax at the rate where your customer is located (destination-based sourcing for interstate transactions).

Several states employ hybrid systems that can challenge even seasoned sellers. These states don't fit neatly into one category, making them the most complex places to manage sales tax:

• California: California is unique because it uses a hybrid system. Generally, state, city, and county taxes are sourced to the origin (your business location), but district taxes are sourced to the destination (the buyer's location). This mixed sourcing means your tax rate might stay the same for some components but shift for others.

• Illinois: As of January 1, 2026, Illinois has a complex structure. If you have “predominant selling activities” in-state, you use origin rules. However, remote sellers must use destination rules. Furthermore, Illinois recently implemented a 15% tax rate penalty for sellers who fail to provide the exact destination information required on their ST-2 forms.

• Colorado: While Colorado uses destination sourcing, it also imposes a retail delivery fee on any sale delivered by motor vehicle. Additionally, as of 2026, Colorado has eliminated the “vendor fee” (a discount sellers used to keep for filing on time) at the state level, meaning you must now remit 100% of the collected state tax.

• Florida: Florida generally follows destination-based rules, meaning you charge the 6% state rate plus the local discretionary sales surtax of the buyer’s county. However, Florida has a unique bracket rule: for sales of a single item of tangible personal property, the local county surtax only applies to the first $5,000 of the purchase price. Anything above that amount is only subject to the 6% state rate.

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 API.

Stripe Tax helps you monitor your obligations and alerts you when you exceed a sales tax registration threshold based on your Stripe transactions. It can also register to collect tax on your behalf in the US and manage filings through trusted partners. Stripe Tax automatically calculates and collects sales tax, VAT, and 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 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.