How much sales tax you should charge depends on three things: whether your business has a legal connection (nexus) to the state where your customer is located, whether what you’re selling is taxable there, and the combined state and local rate that applies to the transaction. Combined rates across the U.S. run from under 5% to over 10%, and the exact percentage can shift with the buyer’s city, county, or special taxing district. There is no single national number to memorize — the rate is built for each sale.
Do You Have to Collect in That State at All
Before you worry about the rate, confirm you’re required to charge anything. You only collect sales tax in states where your business has nexus.
Physical Nexus
Physical nexus exists when your business has a tangible presence in a state. Storefronts, offices, and warehouses are the obvious cases. Less obvious ones count too: storing inventory in a third-party fulfillment center, sending employees to work in a state temporarily, or attending trade shows for several days can each trigger a collection obligation. If you have any physical footprint in a state, you almost certainly have nexus there.
Economic Nexus
You can be required to collect based on sales volume alone. The U.S. Supreme Court opened the door to this in its 2018 decision in South Dakota v. Wayfair, Inc., ruling that states can require remote sellers to collect tax when they exceed certain economic thresholds.1Cornell Law Institute. South Dakota v. Wayfair, Inc., et al. Most states set the threshold at $100,000 in gross sales; a few set it higher at $500,000. South Dakota’s original law also included a 200-transaction threshold, but many states, including South Dakota itself, have since dropped the transaction count and now rely solely on the dollar amount. Check the current threshold for each state where you sell, since these rules continue to evolve.
Trailing Nexus
Your obligation doesn’t disappear the moment you fall below a threshold or remove your physical presence. Many states enforce trailing nexus, meaning your collection and filing obligations continue for the rest of the year in which you established nexus plus the entire following year. Not every state has trailing nexus rules, so confirm each state’s policy individually. Assuming you’re free to stop collecting can leave your business liable for unpaid taxes plus interest and penalties.
Whether What You’re Selling Is Taxable
Nexus tells you a state can require collection; taxability tells you whether this particular sale is subject to tax. Most states apply sales tax to tangible personal property — physical goods like furniture, electronics, and clothing. Many exempt everyday necessities like groceries, prescription medications, and certain medical devices. The specifics vary: some states tax clothing while others exempt it, and some tax groceries at a reduced rate rather than exempting them entirely.
Services are taxed less consistently than physical goods. Professional services like legal advice and accounting are frequently exempt, while services like landscaping, dry cleaning, and repair work may be taxable depending on the state. Digital products such as software subscriptions, downloaded movies, and e-books are a fast-changing area, and the rules are updated frequently. If you sell services or digital goods, check each state’s taxability matrix for current guidance.
Resale Exemptions
Inventory you buy specifically to resell is typically exempt from sales tax at the time of purchase. You provide your supplier with a resale certificate showing you’ll collect tax when the item sells to the final customer. The Multistate Tax Commission’s Uniform Sales and Use Tax Resale Certificate is accepted in 36 states, which simplifies the process for businesses buying from multiple wholesalers.2Multistate Tax Commission. Uniform Sales and Use Tax Resale Certificate Keep copies of every certificate on file; suppliers need them, and auditors will ask for them.
Exempt Buyers
Some buyers are exempt regardless of what they buy. Sales to federal government agencies are generally exempt, and many states also exempt purchases by state and local governments and qualifying 501(c)(3) nonprofits. These buyers present an exemption certificate at the time of purchase, and you keep a copy on file just as you would with a resale certificate.
Which Location’s Rate Applies
Once a sale is taxable, you still have to pick a rate. That’s controlled by the state’s sourcing rules.
Origin-Based Sourcing
A minority of states use origin-based sourcing: you charge the rate where your business is located or where the order ships from. If your warehouse sits in a jurisdiction with an 8% combined rate, you charge 8% on every in-state sale regardless of where the buyer lives. It simplifies compliance because you only track one rate for in-state transactions.
Destination-Based Sourcing
The majority of states use destination-based sourcing: you charge the rate at the buyer’s delivery address. If your customer lives in a city with a 9.5% combined rate, you collect 9.5% even if your warehouse is in a lower-tax area. This ensures the local government where the product is consumed receives the revenue, but it means you may need to manage thousands of different rates. Most online sellers use automated tax software to handle destination-based calculations.
Shipping and Handling
Whether you charge sales tax on shipping depends on the state, and the rules fall into three broad patterns. Some states treat delivery charges as part of the sale price and always tax them when the product itself is taxable. Others exempt shipping only if it’s listed as a separate line item on the invoice; bundle it into the product price and it becomes taxable. A third group exempts shipping when delivery is handled by a common carrier or the postal service but taxes deliveries made in the seller’s own vehicle. Handling charges are more frequently taxable than pure shipping, even in states that otherwise exempt delivery fees. Check each state’s guidance before deciding how to list shipping on your invoices.
Building the Combined Rate
The rate your customer pays is rarely a single flat percentage from one government. It’s an aggregate of several overlapping layers: state, county, city, and sometimes special taxing districts. A state might impose a base rate of 4%, a county might add 2%, a city might add another 1%, and a special transit or stadium district might tack on an additional fraction of a percent. All of these combine into the single rate that shows up at checkout.
Combined rates change often, frequently at the start of a new calendar quarter, so outdated rate tables create discrepancies you’ll have to cover out of pocket. Most state revenue departments offer online lookup tools where you enter an address or zip code to find the current combined rate. Many businesses use integrated point-of-sale systems or automated tax software that update rates in real time and record the state and local portions separately for filing.
Small rate errors add up. Charging half a percentage point too little across thousands of transactions can create a meaningful liability over the course of a year, and the business, not the customer, has to make up the shortfall.
Sales Tax Holidays
Many states offer temporary sales tax holidays during which certain purchases are exempt. Holidays typically last a few days and target specific categories like back-to-school supplies, clothing, computers, or emergency preparedness items. Most apply only to items below a set price cap, for example clothing priced at $100 or less per item or computers priced at $1,500 or less. Eligible items, price thresholds, and dates vary by state and can change from year to year.
If you sell products that commonly qualify, program your register or e-commerce platform to stop collecting tax on those items during the holiday window and resume afterward. State revenue department websites publish the specific dates and eligible categories in advance.
When the Marketplace Charges Instead of You
If you sell through an online marketplace like Amazon, Etsy, or Walmart Marketplace, the platform is likely responsible for collecting and remitting sales tax on those transactions rather than you. Nearly every state with a sales tax has enacted marketplace facilitator laws requiring the platform to handle tax collection when it processes payment on behalf of third-party sellers. These laws typically apply the same economic nexus thresholds to the marketplace itself.
For marketplace sellers this simplifies obligations on platform sales, but it doesn’t eliminate them. If you also sell through your own website or at a physical location, you’re still responsible for collecting and remitting tax on those direct sales. Some states require marketplace sellers who exceed the economic nexus threshold to register for a sales tax permit even when the marketplace handles all their collection, though the seller can often request to be placed on a non-reporting basis for returns. Keep records of the tax collected by each marketplace, since you may need to account for those amounts when filing.
What Happens If You Charge Too Little or Don’t Remit
Sales tax you collect from customers is not your money. States treat it as a trust fund; you hold it temporarily on behalf of the government and are required to turn it over. If your business fails to remit collected sales tax, the consequences reach beyond penalties on the business.
Most states can hold individual business owners, corporate officers, and anyone else with authority over the company’s finances personally liable for the unpaid amount. Personal liability generally requires two things: that the individual was a responsible person, meaning they had the power to direct the company’s financial decisions, and that their failure to pay was willful. “Willful” doesn’t require intentional fraud. It can include reckless disregard, such as knowing taxes were owed but using the money for other business expenses instead. You can’t avoid this liability by delegating tax duties to an employee or accountant. If you had the authority to ensure the taxes were paid and didn’t, you can be held personally responsible for the full amount owed plus interest and penalties.
The same logic applies when you charge the wrong rate. If you undercharge, the shortfall is still owed to the state, and the business absorbs the difference. That’s why the sequence matters: confirm nexus, confirm taxability, apply the correct sourcing rule, and pull the current combined rate for the exact address. Get those four right and the number you charge takes care of itself.