A challenge of doing business in the U.S. is the crazy quilt of tax laws we find ourselves dealing with. Each of the 50 states plus Washington, D.C. has its own unique ways of taxing businesses. An activity that’s subject to sales tax in one state may be completely tax-free in another state. Sales of tangible goods are subject to sales tax in 45 states, and each state has different exemptions. Food is exempted from sales tax wholly or partially in 36 states, while clothing has exemptions in eight states. Some states, such as Hawaii, New Mexico, South Dakota and West Virginia, also impose sales tax on services. Here’s a link to a comprehensive guide to sales tax across the U.S.
By Federal law, a business must have “substantial nexus” in a state to require a seller to collect sales tax on the sales in that state. Substantial nexus generally means a physical presence – buildings, equipment, employees, or contractors. But it can also be triggered by participation in events like art shows or expos, or storing goods in a warehouse. If you ship goods to customers in other states and don’t do anything else outside your home state, you should be exempt from sales tax in those states. But be aware that as ecommerce expands, many states are seeking ways to tax online sales.
It’s better to be in full compliance with sales tax laws than to be caught unaware by a sales tax audit from a cash-starved state. Call our office today so we can help you make sure you’re collecting and paying the correct amount of sales tax.