To file and pay sales and use tax, register for a seller’s permit in every state where you have a collection obligation, file a return by your state’s deadline showing gross receipts minus exempt sales multiplied by the applicable rate, and remit the tax electronically through the state’s online portal. Individuals who owe use tax on untaxed purchases skip the permit step and report the amount on their state income tax return. The rest is detail, and the detail matters, because sales tax you collect from customers is money you hold in trust for the state.
Do You Need to Collect Sales Tax in a State
Your obligation to collect in a given state depends on whether you have nexus there. Nexus is the legal connection that triggers the duty to collect, and it comes in two forms.
Physical nexus exists when your business has a tangible presence in the state: an office, a warehouse, inventory sitting in a fulfillment center, employees working there, or even a temporary presence like a trade show booth.
Economic nexus is triggered by sales volume alone. After the Supreme Court’s 2018 decision in South Dakota v. Wayfair, states can require out-of-state sellers to collect based purely on how much they sell into the state, even with no physical presence.1Supreme Court of the United States. South Dakota v. Wayfair, Inc. Every state that imposes sales tax now has an economic nexus law. The most common threshold is $100,000 in annual sales into the state, though some set the bar higher and some also look at transaction counts such as 200 or more separate sales in a year. Once you cross the threshold, your obligation begins going forward; it isn’t retroactive. Ignoring nexus can result in the state assessing back taxes, interest, and penalties, so monitor your sales by state.
One boundary worth naming: if you sell through Amazon, eBay, Etsy, Walmart Marketplace, or a similar platform, the marketplace itself calculates, collects, and remits the tax on those transactions under state marketplace facilitator laws. You don’t collect on those sales. But if you also sell through your own website or at craft fairs, you’re still responsible for those channels, and many states require you to keep a permit active and file returns even when everything runs through a marketplace, sometimes reporting zero tax due.
Getting Your Seller’s Permit
Before you collect a dollar of sales tax, get a seller’s permit (sometimes called a sales tax license or certificate of authority) from every state where you have nexus. Most states let you register online through the revenue department’s website, and registration is free in the majority of states, though a handful charge fees ranging from about $5 to $100.
You’ll provide your federal employer identification number or Social Security number, your business structure, estimated gross sales, and the physical locations where you operate. The state uses those estimates to assign a filing frequency. Once approved, you receive the permit and can legally begin collecting.
If you operate in several states, the Streamlined Sales and Use Tax Agreement offers a centralized registration system covering 24 full member states through a single application.2Streamlined Sales Tax Governing Board. Streamlined Sales Tax Governing Board You still file separate returns and payments to each state.
When Your Return Is Due
Your state assigns a filing frequency based on expected tax volume. High-volume businesses file monthly, mid-range businesses file quarterly, and small-volume sellers may file annually. The assignment can change if your sales shift significantly.
The most common due date for monthly filers is the 20th of the month following the reporting period. Quarterly and annual deadlines vary by state but follow a similar pattern. Some states require very high-volume sellers to prepay a portion of the next month’s expected liability along with the current month’s return.
Late-filing penalties vary widely. Some states charge a flat fee for a late return even when no tax is due; others impose a percentage of the unpaid tax that grows the longer you wait. Interest accrues on unpaid balances from the original due date. Most state portals will send email or text reminders if you opt in.
How to Fill Out the Return
The return itself is a math exercise: total gross receipts for the period, minus exempt sales, times the applicable tax rate.
Gross receipts include every dollar your business took in during the period, before any expense deductions. From that, subtract exempt sales. Common exemptions include sales to tax-exempt organizations, sales of items purchased for resale, and categories your state doesn’t tax at all (groceries and prescription drugs are the frequent examples). You need valid documentation on file for every exempt sale you deduct.
The rate you apply is the combined rate for your business location, which typically includes a base state rate plus local rates for the county, city, or special taxing district. If you ship goods to customers in other jurisdictions, some states require the destination rate instead of your own. This is one of the trickier parts of compliance for sellers who ship across a state.
Most states provide the form through an online portal where you log in with your taxpayer ID. These systems often pre-populate fields and flag obvious errors. Cross-reference your point-of-sale reports and bank deposits against the figures before submitting. Discrepancies are one of the fastest ways to draw a closer look.
Resale Certificates for Inventory Purchases
If you buy inventory to resell, you shouldn’t pay sales tax on those purchases. You provide the supplier with a resale certificate documenting that the items are for resale, and sales tax gets collected when you eventually sell to the end consumer.
The Multistate Tax Commission has a Uniform Sales and Use Tax Resale Certificate accepted by 36 states.3Multistate Tax Commission. Uniform Sales and Use Tax Resale Certificate States that don’t accept the uniform certificate require their own version, usually downloadable from the revenue department’s website.
A resale certificate only covers items you actually resell or items that become a physical component of something you sell. If you buy tax-free with a resale certificate but end up using the item in your business or keeping it, you owe use tax on it and must report it on your next return. Fraudulent use of resale certificates carries civil and criminal penalties in most states.
How to Pay the Tax You Owe
Most states strongly encourage, and some require, electronic payment through the online portal. Typical options include ACH debit (the state pulls funds using your routing and account numbers) or electronic funds transfer initiated through your bank. Some portals accept credit cards, though a third-party processing fee usually applies, commonly between 1.85% and 2.5% of the payment.
If you mail a paper check, include the payment voucher generated by the filing system. The mailing address on the voucher is usually a dedicated processing center, not the department’s main office. Payments by mail need to be postmarked by the due date.
After the transaction processes, save the confirmation number. That’s your proof of timely payment if a dispute arises. Many portals let you schedule payments in advance.
If a payment bounces due to insufficient funds, expect a returned-payment penalty. At the federal level, the IRS charges $25 or the payment amount (whichever is less) for dishonored payments under $1,250, and 2% of the payment for amounts of $1,250 or more.4Internal Revenue Service. Dishonored Check or Other Form of Payment Penalty State penalties for bounced sales tax payments follow a similar structure.
Take the Vendor Discount if You Qualify
Roughly half the states offer a vendor discount (also called a collection allowance) that lets you keep a small percentage of the tax you collect as compensation for acting as the state’s tax collector. The discount typically ranges from about 0.5% to 5% of the tax due, with a monthly or annual cap. You don’t apply separately; you deduct it on the return when you file and pay on time. Even one day late forfeits the discount for that period in most states, and some states limit it to electronic filers.
If You Can’t Pay in Full
File the return on time even if you can’t pay. Most states assess separate penalties for failing to file and failing to pay, and the filing penalty is often steeper. Filing on time eliminates one of those charges.
Many state revenue departments offer payment plans or installment agreements. Some let you set up a plan online below a certain balance; larger debts may require a call to the collections department. A down payment of around 20% is common. Interest continues to accrue during the installment period, but a formal agreement typically prevents more aggressive collection actions like bank levies or permit revocations.
One point that catches business owners off guard: sales tax you collect is trust fund money. It belongs to the state, not to you. Using it for operating expenses and then being unable to remit is treated far more seriously than falling behind on income taxes. Some states impose personal liability on owners and officers for unpaid trust fund taxes even when the business is a corporation or LLC.
How Individuals Pay Consumer Use Tax
Use tax isn’t just a business issue. If you buy from an out-of-state retailer, an online seller, or while traveling and no sales tax was collected, you owe use tax to your home state at the same rate you would have paid locally. The most common scenario is an online purchase where the seller didn’t collect.
Most states let individuals report use tax directly on the state income tax return through a dedicated line. You review your receipts for the year, total the untaxed purchases, and apply your local sales tax rate. Some states provide a lookup table based on income so you can estimate a reasonable amount without tracking every receipt. If you don’t file an income tax return, states typically offer a separate Consumer Use Tax Return form.
You don’t need a permit or business registration to pay consumer use tax. It’s reported and paid either annually with your income tax return or on a standalone form.
Digital purchases work the same way. More than 30 states tax at least some categories of digital products (digital audio, video, books, periodicals, streaming services, software delivered electronically), though which categories are taxed varies. If a digital seller didn’t charge you sales tax and your state taxes that category, you owe use tax on it.
Keeping Records in Case of an Audit
The IRS recommends keeping tax records for at least three years from the date you filed or two years from the date you paid, whichever is later.5Internal Revenue Service. How Long Should I Keep Records Most states follow a similar three- to four-year window for sales tax audits, though some allow longer lookback periods in cases of fraud or substantial underreporting.
Keep everything that supports your returns: point-of-sale reports, bank statements, invoices, resale and exemption certificates received from buyers, and purchase records showing tax paid to your own suppliers. Digital copies are fine in most states, but they need to be organized well enough to produce on request.
Penalties for Not Paying
Late payment penalties in most states start at 5% to 10% of the unpaid tax and grow the longer you wait. Some states add a flat fee on top of the percentage, even for returns where no tax is due. Interest compounds from the original due date.
Willful tax evasion at the federal level is a felony punishable by up to five years in prison and fines of up to $100,000 for individuals or $500,000 for corporations.6Cornell Law Institute. Tax Evasion At the state level, sales and use tax violations are commonly treated as misdemeanors carrying fines and up to a year in county jail, though states often bump the charge to a felony when the unpaid amount exceeds a set dollar threshold within a 12-month period. Criminal penalties apply to intentional evasion, not honest mistakes on a return.