Here’s What You Need to Know About When and Where You Should Collect Sales Tax

Each state has its own sales tax rules and requirements, and within each state, multiple cities and municipalities have their own sales tax rules, for a total of more than 13,000 sales tax jurisdictions.

Luckily the answer to “Do I need to collect sales tax in every state or jurisdiction” is likely no.

So when do you need to collect sales tax, and more importantly, how do you know that you need to collect sales tax? We’ll break it down for you.

Do I Need to Collect Sales Tax in Every State?

Your business doesn’t need to collect sales in tax in every state because not every state collects sales tax.

5 US states are sales-tax-free:

1. Alaska
2. Delaware
3. Montana
4. New Hampshire
5. Oregon

The remaining 45 states, plus Washington, DC, collect sales tax. Of those 45 states, 38 allow cities, counties, and municipalities to collect tax, too.

How to Figure Out If You Need to Collect Sales Tax in the Other States

You can determine if you need to collect sales tax in a state based on your business’s connection to that state. Before 2018 and South Dakota v. Wayfair, your business needed to have a physical presence in a state before it had to collect sales tax.

After South Dakota v. Wayfair, businesses with an economic nexus in a state can be required to collect tax.

Physical Presence

It can be easy enough to figure out if your business has a physical presence in a state. If your main office is in a particular state, your company has a physical presence there.

But physical presence can be more nuanced in a few states. In some cases, your business may have a physical presence if it stores inventory in a particular state, has a remote employee who lives in a particular state, or if you attend a trade show in a state.

In those cases, your company could have a physical presence and be required to collect sales tax from customers in those states.

Economic Nexus

South Dakota v. Wayfair kicked the door to economic nexus wide open. Now your business only needs to have a financial or transaction connection with a state to collect sales tax.

What that connection looks like varies by state. You may need to start collecting sales tax once your company surpasses a certain sales amount, such as $100,000 or $500,000, during a 12-month period.

Or, you may need to start collecting tax once your business has a certain number of sales, such as 200.

In a few states, it’s an either/or situation, meaning you can either have $X sales or X number of sales to trigger nexus.

No Nexus, No Tax Collection Required

There may be a few states where your business doesn’t have a physical presence and doesn’t reach the economic nexus threshold.

You’re not required to collect sales tax in those states. Your customers may have to pay the tax themselves, though.

Even though you’re not required to collect sales tax in states where you don’t have nexus, you can still choose to do so. Collecting the tax eases the burden on your customers in those states. Plus, if you use sales tax software, deciding to collect tax in states where you don’t have nexus is simple.

TL;DR: Do I Need to Collect Sales Tax in Every State?

In short: No.

Not all states collect sales tax and those that do require you to have a physical or economic connection, aka nexus.

How do you figure out where you need to collect sales tax? Our sales tax state guides can help. In each guide, we break down the nexus thresholds and let you know what items are always taxed and which are tax-exempt.

TaxCloud keeps your business sales tax compliant. Our software keeps track of your nexus status and collects sales tax once triggered.

We know sales tax is complicated, and you’ve got better things to think about. Trust us to handle your sales tax so you can focus on growing your business. Get in touch today!

The 1-2-3’s of Multi-Jurisdictional Resale Certificates

Sales tax is part of life when you sell or buy online but there are always exceptions. Buyers that purchase items from you that they plan to resell often don’t have to pay sales tax online. Similarly, you may not have to pay sales tax when you buy items for resale. A multi-jurisdictional resale certificate acts as your ‘get out of sales tax-free’ card.

Here’s how it works and what you need to know about accepting and presenting it.

1. What Is a Multi-Jurisdictional Resale Certificate?

A multi-jurisdictional resale certificate, aka a uniform sales tax certificate, is a form that exempts a buyer from paying sales tax when they purchase items for resale. Two types of resale exemption certificates are available: the Streamlined Sales Tax Exemption Certificate and the Uniform Sales & Use Tax Exemption Certificate.

The Streamlined Sales Tax Exemption Certificate is valid for use in the 24 states that are members of the Streamlined Sales Tax Governing Board. The Uniform Sales & Use Tax Exemption Certificate is valid in 36 states.

Thanks to a multi-jurisdictional resale certificate, you only need to complete one form to get sales tax exemption in multiple states.

2. Which Resale Certificate Do You Need For Multi-Jurisdictional Sales Tax?

Which resale certificate you need depends on your state. You can use the Uniform Sales & Use Tax Exemption certificate in the 36 states that accept the form or the Streamlined Sales Tax Governing Board’s form in the 24 member states.

Some states may also have their own sales tax exemption forms, which you can use instead. Additionally, some states require you to register before using a resale certificate.

You need a resale certificate for each state in which you have nexus.

3. To Whom Do You Give a Multi-Jurisdictional Resale Certificate?

If you’re a buyer purchasing items for resale, you present your certificate to the vendor. The vendor won’t charge you sales tax if everything is in order.

If you’re a vendor who receives a resale certificate from a buyer, you must verify that the certificate is valid. Using sales tax software that includes automated compliance support helps you avoid accepting phony certificates (and the tax headache that can ensue).

4. How Do You Know If You’re Eligible?

A key way to know if you’re eligible for a resale certificate is to know why you’re buying certain items. Let’s say you run a business that sells custom-decorated notebooks. You buy a lot of 100 notebooks from an online seller. Since you plan on reselling them, you can use the resale certificate.

But let’s say you run a non-profit and want to buy 100 notebooks to give away at an upcoming fundraiser. Even though you may be exempt from paying sales tax, since you aren’t going to resell those notebooks, you can’t use the multi-jurisdictional resale certificate.

As a seller, how can you ensure a buyer uses the resale certificate for legitimate reasons? One thing to do is confirm that they’ll be reselling the items they buy. It also helps to read the fine print on the form since each state has its own unique rules and details concerning certificate acceptance.

Worried about using a multi-jurisdictional resale certificate incorrectly? TaxCloud has you covered. Talk to us today to learn more about our compliance support.

Certification: What It Is, How It Works, Why It Matters

Tim Bennett is the Director of Sales and Use Tax for the Kentucky of Revenue since March 1, 2018. Prior to that, he served in various other positions within the Division of Sales and Use Tax from 2005-2018. Overall, he has worked in different areas of the Kentucky Department of Revenue for 33 years beginning in July 1989. He served as the chairperson of the Streamlined Sales Tax Certification Committee from 2013 until June 2022. Tim earned a Bachelor of Business Administration (BBA) from the University of Kentucky in 1988 and a Master of Business Administration (MBA) from the University of Kentucky in 1995.

Tim, thanks for joining us today to examine the certification process in some detail.

Russ: What was your role in the development and deployment of certification?

Tim: I have been on the Certification Committee representing Kentucky since 2006. When I joined, the committee had just recently completed establishing the certification process and had entered contracts with the first group of Certified Service Providers (CSPs). In 2013, I was asked to serve in the capacity of chairperson of the Certification committee and during my time as chairperson we have certified 2 additional CSPs. In that role I get to observe the process of Certification from the point of receiving an application from an interested CSP candidate to the final approval of a contract with the CSP by the Governing Board. The process of approving a CSP is a very detailed process for a good reason. The companies that are approved by the Certification Committee and who enter contracts with the Governing Board need to prove that they can provide full CSP services and that they can do so in an accurate manner.

Russ: What is the role of the Certification Committee and the states in the Certification Process?

Tim: Each Streamlined Sales Tax (SST) state is represented on the Certification committee and must participate in the process of certifying the CSPs. For a new CSP, that means being involved in testing the CSP’s ability to transmit Simplified Electronic Returns (SERS) to each state through their webservice and working with the CSP to review any applicable tax rules contained in the CSP’s tax engine that the CSP needs certified on behalf of their customers. Also, the Certification Process involves reviewing the applicants’ internal controls, security processes and financial capabilities.

Once a CSP is approved or certified, the Certification Committee works to make sure that CSP remains able to provide the CSP services described below to their customers. That includes processes such as reviewing the quarterly test decks to make sure the CSP is still properly handling the taxability of products listed on the SST taxability matrix and monitoring the monthly filings and remittance from the CSPs, as well as participating in the Certification meetings with the CSPs to discuss and resolve any issues that may come up.

Russ: What are the services CSPs must be able to provide to sellers? (registration, tax calculation, return preparation, remittances, record retention – anything else?)

Tim: The CSP must be able to provide all the services listed above and as outlined in the contract each CSP enters with the Streamlined Sales Tax Governing Board. For a CSP-compensated seller, the CSP must provide the software and services necessary to:

1. set-up and integrate their tax calculation software with the seller’s system
2. calculate the amount of tax due on a transaction at the time of the sale
3. generate and file the required sales and use tax returns for each of the states
4. make the required remittances to each of the states
5. respond to notices and audits; and
6. protect the privacy of the seller’s information

In the event an audit is conducted by one or more of the SST states, the CSP essentially serves in place of the taxpayer in dealing with the state(s) in those instances. The business may also enlist the CSP to assist in the SST registration process but that is a decision made by the business.

Russ: How do the states certify that a CSP meets these requirements?

Tim: The Certification Committee, with each state participating in the process, determines if a CSP can register taxpayers, file the SER, and provide required Appendix F information. This is done through the Certification process when the CSP is approved and then on an ongoing basis through processes such as the quarterly test deck process. All the requirements of a CSP are laid out in Appendices A, C, E, F and G of the Streamlined Sales Tax Governing Board Rules, which can be found at the SST website. The Certification Committee also reviews the CSPs at the end of every contract period and then must vote to recommend recertification of each CSP to the Governing Board. If a CSP fails to continue to meet the requirements found in the agreement,then they will not be recommended for recertification.

Russ: The Test Decks seem crucial since accurate return preparation is at the heart of the entire service. How do the test decks work for initial certification? What are all the things the test decks test for? How well does the CSP have to perform on the test decks to get certified?

Tim: They are certainly crucial. The test deck uses the items on the taxability matrix to test to see if the CSP candidate has the correct taxability for all these items. States also use the test deck to make sure the CSP candidate is correctly using the SST rates and boundary databases to return accurate sourcing results based on the addresses provided in the test deck. To get approved, a CSP applicant must return the test deck with a 100% accuracy. Once a CSP has a contract with the SST Governing Board, they must run the test decks every quarter to assure they are still returning an accurate result.

Russ: The ability to file accurate returns timely, while central, is not the only requirement for certification. What else must a CSP be able to demonstrate?

Tim: Again, there are many aspects to Certification in addition to the ability to submit a SER. The CSP candidate must be able to return the accurate result (taxable vs exempt) for all items in the taxability matrix. The CSP must also return the correct tax rate based on the address given to the seller by the purchaser. Also as important are factors such as financial stability, security of data and internal controls. All of these are reviewed as part of the CSP application and recertification processes.

Russ: What benefits stem from certification?

For Taxpayers

Tim: There are many benefits for businesses. First, the states are compensating the CSPs for their services so that reduces the cost to individual businesses. Businesses who use a CSP know they are getting reliable tax results for their sales transactions. If selected for audit, they get the benefit of a single state audit for SST states and of having the CSP handle any potential audit issues. They get the confidence that their returns will be filed and the funds they collected will be remitted in an accurate and timely manner. They also receive relief from liability from states for inaccurate tax calculations for transactions that are handled by the CSP if the business has provided complete and accurate information to the CSP. Without CSPs, businesses would haveto navigate registration, calculating tax, filing returns, and remitting the sales tax with the possibility that they may not do things correctly. Also, they are dealing with one CSP instead ofhaving to deal with 24 individual states.

For States

Tim: States get the same benefits as the businesses that are using CSPs. In addition, the Certification process also allows states to get taxpayers to register and remit sales tax that might otherwise have been hesitant to register and voluntarily collect a state’s sales tax. The CSPs and the states work in partnership together throughout the process to ensure secure, accurate and timely filing of returns and remittance of tax.

For Certified Service Providers: For the certified providers – Being certified by SST allows CSPs to provide a “seal of approval” to any potential customers. While it is certainly possible for other companies to file and remit sales tax to the SST states, it is certainly a benefit to be able to assure potential customers that the CSP’s system has been tested and approved and is doing things in the correct manner.

Russ: What has been the effect on the CSP Certification process because of the US Supreme Court’s Wayfair decision?

Tim: The Wayfair decision elevated the importance of the CSP certification process. The Supreme Court mentioned the importance of SST in their decision and because of the decision there are now many more remote sellers who now meet the state’s requirements to have to collect and remit sales tax across the country. These businesses often don’t have the time, money, or expertise to take on these duties on their own. Having a functional CSP certification process has helped these businesses to be able to meet their new requirements under Wayfair in aneconomical manner and to be assured that their collection responsibilities are being met. They do not have to go it alone.

Note: The certified services provider process was developed for the Streamlined States, but the certified providers file returns for taxpayers in all sales tax states. Pennsylvania also has a contract with certified service providers, and more states are working on certification. For those states where certified service providers do not yet have a contract and are not compensated (by the state) the providers charge clients directly for their services.

State Sales Taxes – Where do I need to collect?

If you are a small to medium sized retailer, and you are concerned about your obligations for collecting sales taxes, this article will help you sort through your potential collection obligations so you can confidently address the complexity and expense of collecting for multiple states with differing collection requirements.

Where do I have to collect sales taxes?

This has always been a very difficult question, but thankfully it may be getting a little clearer.

Physical Presence – the standard has traditionally been that a retailer is required to collect sales tax for sales made into any state where the retailer has a physical presence. It is not always easy to know if you have a legal presence in a state as state definitions of a physical presence are not consistent. Obviously, a retail outlet in a state creates a physical presence (or nexus in tax terminology). This presence can also be created by making deliveries, doing installations or repairs, or having inventory or payroll in a state.

The 24 states that are part of the Streamlined Sales and Use Tax Agreement (List of Streamlined States) have all adopted a uniform standard for what constitutes a physical presence for the purposes of making collection services free for remote merchants. (Explanation of Streamlined Services). These services include audit support. Other states offer online guidance on what activities can create this collection obligation.

Economic Nexus – with the U.S. Supreme Court decision in Wayfair states can now compel the collection of sales taxes from retailers that have sufficient economic activity (sales delivered to residents of that state). Individual states set the level of economic activity, by the dollar volume of sales or the number of transactions, that triggers a collection obligation. For additional information on economic nexus go to Economic Nexus and Your Business. You can view the collection obligation thresholds for each state here (TaxCloud State Guides). Many states have adopted the same guidelines.

No Presence – In a state where you don’t have a physical presence and you are below the economic nexus threshold; you are not required to collect sales taxes on sales delivered into that state. Keep in mind that your customers are likely to have a legal requirement to self-pay taxes owed on their purchases if you don’t collect them. Also, just because you don’t have a legal requirement to charge sales tax, it can be worthwhile to do so. The states in the Streamlined Sales Tax Agreement and Pennsylvania will pay TaxCloud to manage you sales tax collections so that it is free to you. Yes, free. TaxCloud offers pricing incentives to retailers that collect for all these states. Our services are available in all states that have a sales tax.

NY – Sales Tax Collection Requirement for Marketplace Providers

New guidance affecting businesses that sell items on behalf of third parties.

New York State Department of Taxation and Finance

Sales Tax Collection Requirement for Marketplace Providers

The Tax Department has issued new guidance affecting the sales tax requirements for certain businesses that sell items on behalf of third parties.

See TSB-M-19(2.1)S, Sales Tax Collection Requirement for Marketplace Providers. This TSB-M supersedes TSB-M-19(2)S, Sales Tax Collection Requirement for Marketplace Providers.

On June 24, 2019, the Tax Law was further amended to change the annual sales threshold dollar amount requiring a marketplace provider with no physical presence in the state to register for sales tax from $300,000 to $500,000. This change is effective retroactive to June 1, 2019.

Visit https://www.tax.ny.gov/ for more information.

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Press Contact

TaxCloud:
Patrick Riley
Vice President, Business Development
+1 203-803-2048
priley@taxcloud.com

Help! My Small Business Is Required To Collect Sales Tax!

Find your safe harbor

Have you found yourself suddenly required to collect sales tax?

Following the Supreme Court’s Wayfair decision in June 2018 and subsequent legislation on economic nexus, many small business owners found themselves required to collect tax and file returns in additional states.

TaxCloud offers special services for your small business at a friendly price. Our Small Business Safe Harbor provision allows qualifying businesses the ability to use TaxCloud for free.

To qualify you must:

1. Collect sales tax in our 25 Member states
2. Generate less than $50,000 in monthly sales
3. Have nexus in only one state
4. Have sales in more than one state

We pass the savings to you!

We can offer our services for free because the states pay us a small commission for the taxes we remit on merchants’ behalf. Other tax services may receive this commission too, but they charge merchants in addition to receiving state compensation. Not TaxCloud. We pass the savings to you!

What if you don’t qualify for our Small Business Safe Harbor provision? TaxCloud never charges for registering merchants and filing their returns to our 25 Member states.

TaxCloud has an answer for your small business.

Credits

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Press Contact

TaxCloud:
Patrick Riley
Vice President, Business Development
+1 203-803-2048
priley@taxcloud.com