States tend to have different requirements depending on the industry you’re a part of and what you’re selling. Make sure that you register appropriately.
One of the best ways to avoid a sales tax audit is by registering in any state where you have a nexus. Raw materials purchased by a business to manufacture or make something else that will be sold may also be exempt. This may also be the case with the sale of manufacturing equipment. Some states exempt items they believe encourage activities that contribute to the public good, such as industrial development or pollution control.įor example, in many states where farming is the primary industry, the total price of products or equipment used to produce food for human or animal consumption are sales tax-exempt. Nonprofit, religious, and educational organizations are also exempt from sales tax in many states. In most states, this is also true for sales made to the state and its agencies, or to cities, counties, or local jurisdictions. law, states cannot charge sales tax on any sales made to the federal government or its agencies. Some states may not completely exempt these items but may instead assess a lower tax rate.Īccording to U.S. Therefore, things like food, clothing, and prescription medicines are often exempt from local sales tax. Some states recognize there are certain products that people must purchase to survive. Check with your state’s department of revenue to locate your sales tax rules. Remote sellers are subject to specific guidelines and thresholds that vary by state.
If you’re an online business, collecting sales tax can be equally confusing and overwhelming. This also means that they are required to collect sales tax and pay it to the state. Now, sellers with an economic presence in states where they sell online have nexus. Supreme Court upheld a South Dakota law that reversed the long-standing physical presence requirement for nexus.
The use tax rate is often the same as the sales tax rate, but the requirement to report use tax is on the purchaser, not the seller. In these states, you have to pay use tax on any purchases made online or through a catalog where sales tax was not charged.
As the business owner, you’re responsible for keeping track of the tax you collect so that you can report it to your local and state governments. This means that if you own a small business that sells clothing, any time you sell an article of clothing to a retail customer, that customer is responsible for paying the necessary sales tax amount on the total cost. Sales tax for brick-and-mortar businessesĪlmost all retail sales may be subject to sales tax.