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Sales tax for small businesses 

SALES TAX CALCULATOR

What is sales tax?

Simply put, sales tax is a tax that’s levied by a governing body on business transitions involving the exchange of certain taxable goods or services. Governing bodies can include states, counties or even municipalities, who require businesses to collect sales tax from customers.

There are some states however, in which you don’t have to pay any sales tax whatsoever. These include Delaware, Montana, New Hampshire, Oregon and most of Alaska.

Taxable goods and services

Each state has its own set of policies for what is taxed, and rates of taxation can vary from even one city to another. Still, there are general guidelines that can help you determine whether your good or service is taxable. 

Goods

Most states don’t tax goods that are considered vital items, such as food, medications, gasoline and clothing.

Tangible property is subject to sales tax, and some examples of this include: 

  • Furniture
  • Motor vehicles
  • Home appliances
  • Raw materials (e.g. cloth)

Services

Services have a much wider scope so there are less specific rules about which are taxed. Instead, you can look at the list below and note that you may be required to collect sales tax if any of these apply to your business:

  • Personal services
  • Business services
  • Services to current property
  • Services to tangible personal property

Some services that are often tax-exempt include medical care, educational services and some professional services.

Register for sales tax

Get a seller’s permit

When registering for sales tax this basically means applying for a seller’s permit, which helps states keep track of where sales tax revenue is coming from. 

To register for a seller’s permit, you need to visit your state’s Department of Revenue page. Make sure you have access to basic information about your business as you’ll need it.

Mostly this service is free, but a few states charge.

Get a resale certificate

A resale certificate is a very useful document that helps buyers avoid paying sales taxes when purchasing goods for resale. Conventional sales taxes are only charged to the end user of a good or service. Because the majority of goods nowadays pass through many stages of manufacturing, you need documentation to prove who will ultimately be liable for the sales tax.

For instance, if a sheep farmer sells wool to a yarn-producing company, the yarn company would get a resale certificate to clarify it isn’t the end user. Then the yarn is sold to a garment maker, that would also do the same. This keeps going till the end seller, who will charge sales tax along with the regular price of an item to customers.

Calculate your sales tax obligations

To avoid fines and expensive audits, you need to make sure you are collecting the correct amount of sales tax. So when calculating sales tax, consider these 3 things:

  • Store sales
  • In-state sales
  • Out-of-state sales

Store sales

Traditional business owners that sell goods or services on site have an easy job when working out sales tax – all sales are taxed at the same, local rate, so it’s easy to work out. You’d look at state, county and local tax rates.

In-state sales

When shipping goods in-state, you need to determine whether your state does an origin or destination-based taxing.

Destination-based: when something is brought in your business’ home-state, sales tax is calculated based on local and county tax rates at the customer’s address – not yours.

Origin-based: this is done by some states that assess sales tax according to your business’ local and county tax rates – not the buyer’s.

Out-of-state sales

This isn’t a huge worry for small businesses. To determine whether you need to collect this tax, you need to determine if your business has a nexus outside of its home state, depending on what that state says about nexuses. If you qualify, you need to collect sales tax from the customer in that state.

TRUiC has more helpful information on sales tax on this site. Visit for more information.