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Let’s talk about sales tax…

I hear a lot of similar sales tax questions ALL the time. Sales tax can be complicated – ESPECIALLY if you do any selling online.

And let’s be real…it’s 2024. Almost everyone sells something online.

What is sales tax? 

First off, it’s important to understand that it’s not YOU charging your customers a tax, it’s the STATE charging the customer. Your business simply acts as the middleman that has to collect it from your customers and pay it to the state.

If you sell taxable products, you will be using the sales tax rates of the location in which your customer receives your products.

If you have a physical brick and mortar store, your sales tax on in-store sales will always be at the state, county & city rate of your store’s location.

If you have a mobile/pop-up store, your sales tax will be calculated based on the state, county & city rate where the event is held.

If you do any online selling, the sales tax rate will be calculated based on the delivery address (state, county & city).

Do you need to charge sales tax to everyone?

You will only need to charge sales tax to customers in a state where you have either a physical or economic nexus (presence). 

Physical nexus – You either live there, your business is registered there, you have employees there, you do an event there, or you have your inventory warehoused there.

Economic nexus – you generate enough revenue in that state where the government wants you to start collecting tax. In many states, you’ll need to start charging sales tax once you’ve reached $100,000 of revenue in that state OR reached 200 individual sales/orders in a given year.

However, those limits can vary by state, so it’s important to research what the economic nexus threshold is in each state as your business grows. Here’s a helpful page by Avalara that lists the current thresholds.

Alright, I know where I have a nexus. Now what?

Once you’ve determined which states you have a nexus in, I would double-check if your product is taxable there. Not all states have the same tax laws (shocking, I know).

For example, in my home state of Minnesota, clothing is not taxable. But, if I travel 30 minutes across the border into North Dakota, clothing IS taxable.

To find out what each state considers taxable, you can search on that state’s Department of Revenue/Comptroller/Taxation Department website and find out. If your products ARE taxable there, you need to make sure you’re registered with those states to collect sales tax.

If this is still making your head spin, then I’d love to invite you to check out my self-paced course Bookkeeping Made Simple for Boutiques, where I am currently working on adding a BONUS lesson all about sales tax! Plus, with your purchase, you will get 12 month access to our private Facebook community where you can get ALL of your bookkeeping & sales tax related questions answered by a professional bookkeeper.