Most states in the US require vendors to obtain a sales tax license, so if you are looking to sell goods or services online or in a physical storefront, you will likely need to register to start collecting sales tax from your buyers. This guide will look into sales tax licenses across all US states.
What is Sales Tax?
Sales tax is a tax that businesses are obliged to collect from their clients and then remit to the relevant state across an array of different goods and services sold across the US. Each state has their own guidelines regarding the tax, and there are five that do not have any state-wide sales tax regulations, these are Alaska, Delaware, Montana, New Hampshire, and Oregon. Be mindful that some of these states allow cities or counties to decide whether or not sales tax is required or not.
What is a Sales Tax License?
Businesses that make sales of tangible goods or services might be required to apply for a sales tax license to then ask their clients to pay sales tax. Once you have obtained the license, you will have the responsibility of collecting the appropriate sales tax from each sale and then remitting it to your local state tax authority.
How Do eCommerce and Sales Tax Work?
If you are selling goods online, it is very likely that your buyers are spread across multiple states and therefore making sales tax complicated to figure out. Sellers must register in each state that they have made sales in, however, only if they meet the minimum thresholds. Each state will have a minimum threshold of either a certain amount of money made or processed sales made (whichever one comes first) and this is called Nexus.
What Is Nexus?
Nexus is the connection a vendor has with a state, which means that if your business has a physical storefront, office or even employees working remotely in a state, you might have to register for sales tax. You will have to find out if your state requires you to register for a sales tax license through their local government tax agency website. For example, Colorado’s minimum threshold is $100,000 in sales or 200 transactions, whereas California’s nexus threshold is $500,000 in annual sales.
Does My Business Need a Sales Tax License?
Your business may need a sales tax license, but this depends on whether or not your business operates in a state that requires you to pay sales tax or not. Generally, businesses that sell taxable goods or services are to collect sales tax on each sale and forward it to the state tax authority. Often this includes the following:
Businesses that sell rather small quantities of goods to clients for use or consumption and not intended for resale. This can be through a physical storefront or via eCommerce.
Contractors are classified as people who provide a tool or their labor to complete a service on a contracted basis.
Wholesalers are considered to be companies or businesses that sell goods in bulk, often at a lower price to retailers or other businesses.
Some services that require sales tax to be collected are categorised as:
- Business Services: Advertising, computer services or lobby and consulting.
- Personal Services: Hair salons/ hair care, dry cleaning or tattoo clinics.
- Professional Services: Accountants, architects or attorneys.
- Maintenance and Repair Services: Services provided for tangible personal property or landscaping.
Businesses that are located out-of-state refer to when a business makes sales within a state, although it is not physically located there. Your business might be required to collect sales tax if you have a nexus with that state.
What States Don’t Collect Sales Tax?
There are five states, commonly referred to as the NOMAD states that do not require the collection of sales tax. They are New Hampshire, Oregon, Montana, Alaska and Delaware. Although they do not have a state-wide sales tax, some cities within a couple of states are allowed to choose if they want to implement sales tax. It is important to refer to your state’s sales tax laws and regulations to know if your business is required to apply for a sales tax license.