In the past, businesses typically needed a physical presence in a state before collecting and paying sales tax. Now, many states require companies with an economic nexus also to collect and pay sales tax. Companies with economic nexus are typically remote sellers. The what, where, and how of remote seller sales tax varies by state.
Not sure which states expect you to pay tax? That’s why we created this guide to remote seller sales tax by state.
What’s a Remote Seller?
Before we jump into each state’s rules for remote sales, we need to define what a remote seller is.
Remote sellers are businesses that don’t have a physical presence in a state (like an office or warehouse) but deliver services or products to customers in that state.
The exact definition of what a remote seller is varies by state. In Texas, for example, your business is considered a remote seller if you sell products or services. To qualify as a remote seller in Michigan, your business must sell tangible property.
Before the Supreme Court’s South Dakota vs. Wayfair decision, remote sellers typically didn’t need to worry about paying sales tax in states where they had no physical presence. Post-South Dakota vs. Wayfair, remote sellers can have economic nexus, meaning they may have a tax obligation.
Rules for Remote Seller Sales Tax by State: Sales vs. Transactions
Of course, states have different rules for remote sellers and sales tax. That would make things too easy.
Instead, each state has its own threshold rules for determining whether your company has economic nexus. Economic nexus can apply when your company reaches a threshold. In some states, that threshold is a sales amount, such as $100,000 in annual sales. In others, it’s a transaction number, such as 200 transactions.
A few states use an either/or rule, meaning your company triggers nexus when it passes $100,000 in sales or has 200 transactions. Others use an and rule, meaning your company triggers nexus when it has $100,000 in sales and 200 transactions.
And for good measure, a few states use one or the other, looking at transactions but not sales or sales volume but not transactions.
Rules for Remote Seller Sales Tax by State: Gross vs. Retail Sales
To complicate things, states don’t always agree on the type of sales to include in the threshold. Some states use your company’s gross sales when determining the threshold, meaning all your sales in the state, including those that would be exempt from sales tax (such as sales to resellers or tax-exempt organizations).
Some states use retail sales when determining the threshold amount, which includes any sales in the state that aren’t for resale or to wholesalers but may be for tax-exempt products (such as clothing in certain states).
Finally, a few states look at your company’s taxable sales when determining whether you meet the threshold. Taxable sales are retail sales are products where tax is due. It excludes sales of tax-exempt products.
How to Keep up With Remote Seller Sales Tax by State
Keeping track of transactions vs. sales and gross vs. retail sales gets complicated. To help you out, we created state guides and a handy threshold map that illustrates the transaction threshold requirements in each state.
To simplify things further, our sales tax software can do the heavy lifting for you. It calculates your sales tax obligations and collects the tax for each sale. We can also help you streamline your sales tax filing and payments.
Don’t get lost in all the details of remote seller tax rules. Sign up for a TaxCloud account and let us do the hard work for you.