State-by-State Analysis: Sales Tax Compliance for Multistate Businesses

You find an envelope from a Department of Revenue in your mailbox. As you open it, you realize it's a notice that your business owes hundreds of dollars in back sales taxes, interest, and steep penalties in another state. Your heart sinks. How did this happen?

Understanding compliance for sales tax by state is so important. Rates, rules, filing procedures, and deadlines vary nationwide. Even the most careful business owners can overlook tax obligations, only to face scary notices and annoying fees.

That’s why we created this guide. We've spent the last 10 years helping online business owners simplify their tax compliance, no matter where they’re based and no matter how many places they sell. In our experience, understanding the taxability of your products and the concept of sales tax nexus are the two most important factors.

The guide will walk you through the sales tax requirements in each state, with tips to make compliance easier for your business. Read on to learn more!

Factors Affecting Sales Tax in Different States

1. Base Sales Tax Rate

As you likely know, sales tax rates may differ significantly across the many United States. Each state's base sales tax rate is one key factor driving these differences. This refers to the statewide rate for most taxable goods and services.

For example, while California has a base rate of 7.25%, Oklahoma's rate is just 4.5%. This disparity in base rates is one reason why sales tax compliance and calculations may be much more complex for your business if you sell products in multiple states.

2. Differential Rates

Some critical reasons for these differential rates across states include differences in:

• Tax bases: Some states tax more categories of goods and services than others, allowing them to charge lower rates. For example, Hawaii has the broadest sales tax base and can get away with charging just 4%.
• Revenue needs: States with lower incomes and higher spending needs tend to charge higher sales tax rates to generate sufficient revenue. For businesses, this underscores the need to manage financial reserves wisely, including seeking the highest interest rates for savings. Those relying more heavily on sales taxes also tend to set much higher rates.

3. Local Sales Taxes

Many states allow cities, counties, and other localities to impose their own sales taxes on top of the state rate. For example, while the state sales tax in California is 7.25%, local rates in some cities push the total tax rate to 9.25% and over.

Puneet Gogia, Founder at Excel Champs, advises, "As you look to sell products across many states, you'll need to account for any local tax that applies based on where your customer is located. This may require integrating the local sales tax content into your e-commerce system or working with an experienced sales tax automation software."

4. Special taxing districts

Special taxing districts can impact the sales tax you pay in specific areas of a state. These districts can levy additional sales taxes to fund local initiatives - most commonly transportation improvements, tourism promotion, or economic development projects.

Jim Pendergast, Senior Vice President at altLINE Sobanco, explains, "For example, you may encounter a Public Transportation Benefit Area with an extra 0.9% sales tax to fund the local buses and trains. Or a Tourism Promotion Area adding 1% tax aimed at drawing more visitors. As you expand into new communities in a state, be very aware some pockets apply these special district taxes atop the state and also regular local rates."

5. Exemptions

You may be pleased to know that most states provide exemptions from sales tax collection and remittance for certain types of businesses or products. Common exemptions include non-profit organizations, or sales of food, prescription drugs, manufacturing equipment, agricultural products, and some services. If you think your business qualifies, you’ll have to apply for a tax exemption certificate. Or your customers may provide you with their certificate, to prove you shouldn’t charge them sales tax!

When expanding to new states, thoroughly research any available exemptions. Working with a financial advisor can help you identify opportunities to minimize your tax liabilities while ensuring compliance with state laws.

"In the world of multistate sales tax compliance, the devil is in the details. An informed approach, combining diligent research with strategic financial planning, is key to navigating this complex terrain. Stay proactive and seek clarity on exemptions to leverage every opportunity for your business's advantage." - Anthony Martin, Founder and CEO of Choice Mutual.

6. Digital Products

Sales tax rules for digital products and services also vary across the 50 states. For example, Arizona and New York apply sales tax to Software-as-a-Service products, while California and Georgia don’t. Texas and Pennsylvania charge sales tax to online courses, while Oklahoma and Maine might not. It’s important to understand how digital products are defined in the places where you’re selling, and then understand how digital goods are taxed by state. are actually taxable there!

If you’re curious for more information on these products, check out the rules about sales tax for SaaS by state and the sales tax rules for online courses by state!

Rules for Sales Tax by state

Alabama

Alabama opens with a 4% state sales tax rate. Nevertheless, do not let such a low stay rate fool you. In Alabama, the true complexity is in its local sales tax jurisdictions that can levy taxes of up to 7.50%. This also indicates that the local sales tax will significantly impact the total tax rate your customers will pay at checkout, depending on where you are doing business in the state.

Put together the state and local rates, and you will find that the typical state and local sales tax rate combined in Alabama stands at around 9.25%. This is a significant number to remember since it puts Alabama in the country's top sales tax burden states.

Learn more about sales tax in Alabama.

Alaska

Alaska is one of the few states that do not impose a state sales tax, but that’s not the whole story.

Alaska allows local governments to impose their own sales tax. This implies that the rate of local sales taxes may not exceed 7.50%, depending on where you are doing business or making purchases within the state.

Alaska's average effective state and local sales tax rate is approximately 1.76%. This relatively low average is caused by the combination of some places with high local taxes and others with no sales tax rates at all. This highlights the need to understand the top-level state tax policies for multistate businesses and carefully examine each state's local tax terrain.

Learn more about sales tax in Alaska.

Arizona

If you're navigating the complexities of sales tax in the Grand Canyon State, here's what you need to know: Arizona's standard state sales tax rate is steady at 5.6%. That figure, however, should not delude you by thinking that everything is rosy.

Depending on where your business transactions occur, local Arizona municipalities may add their sales tax layer. This implies that the total tax rate can reach as high as 11.2%, almost doubling the state rate in some areas. Such a difference is significant, and it shows how important it is to know not only the laws of the state but the local tax code as well.

Learn more about sales tax in Arizona.

Arkansas

In Arkansas, the sales tax rate is 6.5% on the gross revenue from the sales of tangible personal property and some services. If you are a resident of Arkansas in a physical office or the cloud, then you have all sales tax nexus in the state.

Most importantly, Arkansas is a destination-based sales tax state. It means you collect sales tax depending on your customer's ship-to address, not your location.

Learn more about sales tax in Arkansas.

California

Going into details of the sales tax rules in California, one should know that the state fixed the general sales tax rate at 7.25%. It is not an all-inclusive rate but a 6% state levy with a mandatory local surcharge of 1.25% for the city, city, and county tax coffers. Depending on the local entity, this mix results in a tax hit that can escalate to 10.25%.

Understanding your sales tax nexus is crucial if you have a business in California or are selling to California customers. However, nexus, or the physical connection of your business with the state, is not confined to physical locations.

It applies to the warehousing, inventory, or even your sales team activities inside the state's borders. Remember, out-of-state sellers are not excluded; some activities create a nexus, forcing registration through the California Department of Tax and Fee Administration to handle sales tax liabilities properly.

Learn more about sales tax in California.

Colorado

In Colorado, the state sales tax rate is currently 2.9%, but local taxes can push the rate as high as 11.2%, including city, county, school, transportation, and special purpose district (SPD) taxes.

Being a "home rule" state, Colorado has an intricate local tax system, which sometimes forces businesses to register with local municipalities on top of the Colorado Department of Revenue in some cases.

Learn more about sales tax in Colorado.

Connecticut

Connecticut's state sales tax rate is 6.35%, a rate established in July 2011. This change was a component of a broader legislative initiative that involved adopting the so-called "Amazon law".

This law stipulates that e-commerce entities, primarily those with marketing affiliates in Connecticut, must collect and pay sales tax on purchases made by state residents. The duty was further solidified by establishing an Amazon fulfillment center in Connecticut, providing a physical nexus.

For local retailers, this means a clear mandate: collect and remit taxes on all sales of goods and specified services, following the state approach that taxes goods unless explicitly excluded and will tax services only if they are specifically referred to as taxable.

Learn more about sales tax in Connecticut.

Delaware

One of the business-friendly aspects of Delaware is its sales tax approach, as the state's current sales tax rate is 0%. This unique position also placed Delaware in Kiplinger's 2011 list of top 10 tax-friendly states for retirees, pointing to its popularity among other population segments.

The state sales tax-free status, a significant reason why it was included in Kiplinger's list, provides an essential benefit for consumers and businesses. Nevertheless, enterprises operating in Delaware should be aware that they must complete their registration through the One Stop Business Registration and Licensing Portal.

The simplified process indicates Delaware's endeavor to provide a business environment that is as simple as it is economically rewarding without the complications associated with state sales tax regulations.

Learn more about sales tax in Delaware.

Florida

In Florida, understanding the concept of sales tax nexus is crucial for businesses operating in the state, as it determines their tax obligations based on their physical or economic presence. Multistate businesses should adhere to state-specific sales tax regulations to ensure compliance.

Here's the scoop: Nearly all transactions, including sales, admissions, storage, or rentals, are subject to sales tax unless expressly excluded. Still, the general state sales tax rate is only 6%, but do not forget the exceptions! Are you buying a new mobile home? That's taxed at 3%. Fancy some arcade fun? Receipts from gaming machines are taxed at 4%.

Learn more about sales tax in Florida.

Georgia

The Peach State has a state sales tax rate of 4.00%, which might seem reasonable. However, once you add in the local sales tax rates, which can go up to 5%, the average state and local sales tax rates settle at 7.4%.

This blend of state and local taxes also highlights the need for careful compliance and accounting practices to guarantee your business complies with Georgia's taxes and effectively manages the operational costs within this system.

Learn more about sales tax in Georgia.

Hawaii

Hawaii's state sales tax rate is 4%, but when local municipalities are factored in, this rate can go up to 4.5%. The remarkable aspect of Hawaii is the intricate network of local-level tax rates, which are more complex than those in many states.

These rates cut across city, county, school, transportation, and special purpose district (SPD) tiers, necessitating businesses to continuously monitor and ensure compliance from many jurisdictions.

Registration with Hawaii and the obligation to collect and remit sales tax is compulsory for any business sale, transfer, barter, license, lease, rent, utilization, consumption, or employment of taxable tangible personal assets within the state.

Plus, anyone who provides services that are facilitate the sale of taxable tangible personal property are also on the hook for sales tax in the Aloha State!

Learn more about sales tax in Hawaii.

Idaho

The Gem State has a flat sales tax rate of 6%. However, local municipalities can increase that total rate to 9% depending on where you transact business within its boundaries. The other version originates from extra fees charged at city, county, school, transportation, and special purpose district (SPD) levels.

Understanding your sales tax nexus is fundamental for business people who sell, rent, or lease physical personal properties in Idaho, as it affects your tax collection and remittance duties across various local jurisdictions.

Securing a seller's permit is a must-do. This calls attention to knowing and complying with the multiple taxes required when operating across Idaho's diversified regions.

Learn more about sales tax in Idaho.

Illinois

The state sales tax rate is 6.25%; however, local municipalities can drive that total rate to a whopping 11%, depending on where you conduct business. The local-level taxes imposed in Illinois are many and diverse, consisting of home rule, non-home rule, and others targeted at specific sectors such as public safety and mass transit.

Establishing whether your business has a sales tax nexus in Illinois is fundamental to navigating the state's complex tax environment and ensuring compliance. For companies dealing in physical personal property at retail, registering with the Illinois Department of Revenue is a compulsion.

Such a problematic cocktail of state and local taxes necessitates a comprehensive understanding of the tax burden for businesses operating within the Prairies State. They must optimize their tax strategies to meet all the regulatory compliance.

Learn more about sales tax in Illinois.

Indiana

If you are running a business in Indiana, knowing the sales tax regulations specific to that state is very important to maintain your compliance. So here, the magic figure to remember is 7% — the general taxable sales rate you must use and apply while selling merchandise within the state.

It is your responsibility as a retailer to collect this tax for Indiana, and it is essential to know that you are liable for it even if it goes unnoticed at the point of sale.

To avoid violating the law, always collect sales tax unless you have an exemption certificate in hand from your purchaser or if you are shipping merchandise out of Indiana. And here's a pro tip: Utilize the direct payment of use tax to the Department of Revenue if the sales tax is not paid to the suppliers for any reason. Following these guidelines will help you carefully and successfully sail through the Indiana sales tax labyrinth.

Learn more about sales tax in Indiana.

Iowa

Iowa's state sales tax stands at 6%, but you should not forget about local sales taxes and special district taxes, which can add up to 2% to payment. This implies that the overall sales tax rate you are dealing with can be as low as 6% or as high as 8%, depending on the area in which you work.

As a business owner, you are a central figure in this system, collecting taxes for the state and making sure they go to the Iowa Department of Revenue (DOR).

Remember that sales taxes collected are not your money; they belong to the state, and all mishandling of these funds can result in penalties and interest charges. Keeping up with these duties is more than just a best practice; complying with Iowa's tax laws is necessary.

Learn more about sales tax in Iowa.

Kansas

When the base state rate is 6.5%, you can end up paying the total tax rate of up to 10.6% when the local municipalities are factored in. The complexity becomes evident at the local level, with Kansas being unique in many tax rates per city, county, school, transportation, and special purpose districts (SPD).

However, tracking these changes is overwhelming and requires continuous monitoring and a proactive approach to adhere to the regulations. With the complex web of jurisdictions, sales tax administration in Kansas calls for attention to detail and a systematic approach, making it different from many other states.

Learn more about sales tax in Kansas.

Kentucky

Kentucky holds a flat sales and use tax rate of 6%, providing certainty you will not find in other states. Particularly, Kentucky is unique in not permitting cities or counties to add on sales taxes.

This consistency implies that regardless of where you perform business in Kentucky, be it in Louisville or Lexington, you will meet the same sales tax rate. This simplicity supports compliance and financial planning, leaving no surprises when growing to a larger footprint in the Bluegrass State.

Learn more about sales tax in Kentucky.

Louisiana

In the Pelican State, in-state businesses have a state sales tax rate of 4.45%. Nevertheless, the local sales tax environment is what really catches the eye because the rates can get as high as 7.00%.

This implies that combining state and local taxes will leave an overall rate of 9.55% on average, one of the highest among the states.

Learn more about sales tax in Louisiana.

Maine

Maine maintains a uniform state sales tax rate of 5.50%. A special mention is the absence of local sales taxes in Maine. Consequently, no matter what part of the state you are conducting business in, whether it is the lively streets of Portland or the tranquil scenes of Acadia National Park, the sales tax rate you should apply is a uniform 5.50%.

Learn more about sales tax in Maine.

Maryland

As a business owner in Maryland, you must charge a 6% sales tax on most taxable tangible goods and services. This also applies to a 9% alcohol purchasing tax on the relevant items.

You should remember that when your customers buy any taxable goods outside Maryland, whether in person, over the phone, or online, they are offered a 6% use tax or a 9% use tax for alcoholic beverages if the goods are used in Maryland.

In contrast to most other states, Maryland makes the process easier by not requiring sales tax collection at the local level, so you won't have to deal with different rates for city, county, or ZIP code.

Learn more about sales tax in Maryland.

Massachusetts

In Massachusetts, any tangible personal property, including utilities such as gas, electricity, steam, and telecommunications services, is subject to a 6.25% sales tax on the sales price or rental charge. As a Massachusetts business, you must collect this tax from your customers at the point of sale and remit it to the state.

A simple process, a value-adding layer to the purchase price, is integrated into the transactions. As for motor vehicles and trailers, the process changes a little where buyers directly pay the sales tax to the state, therefore bypassing the seller.

Such subtlety in the sales tax on certain goods emphasizes the need to familiarize oneself with local requirements to be safe and avoid misunderstandings in Massachusetts.

Learn more about sales tax in Massachusetts.

Michigan

In Michigan, if you are selling tangible personal property to the ultimate consumer, you are required to collect a 6% sales tax on the total price of your taxable retail sales and remit it to the state.

A 4% rate applies to those dealing in utilities such as electricity, natural or artificial gas, and home heating fuels used for residential purposes.

Critical to mention is that Michigan is unique in prohibiting city or local units from imposing their sales taxes, thus making the compliance landscape of multistate businesses operating within its borders easier.

Learn more about sales tax in Michigan.

Minnesota

Minnesota charges a 6.875% state sales tax rate, which ensures that one aspect of tax compliance in the North Star State is relatively straightforward. But don't let that number go to the end of your calculations; local jurisdictions may add up to 2.00% in sales taxes.

This implies the average total state and local sales tax rate that one would meet in Minnesota is about 7.49%. This helps you stay compliant with your obligations, leaving no room for surprises heading into the tax-paying process in Minnesota.

Learn more about sales tax in Minnesota.

Mississippi

In Mississippi, all sales of tangible personal property are taxed at the average retail rate of 7% unless otherwise exempted or provided for by law. This tax is based on gross sales proceeds or gross receipts and is designed to suit the nature of the business.

If you intend to start a venture in Mississippi that deals with sales tax, getting authorization or registration granted by the Department of Revenue should be your first action. Note that this is an online process requirement, and in the case of several business locations, each of them should be covered by their permit.

However, one good thing about these permits is that once you have them, they never expire or need to be renewed, as long as you keep the same business at the same place. This simple approach highlights that Mississippi does not want to complicate the business owners' sales tax compliance process.

Learn more about sales tax in Mississippi.

Missouri

The base sales tax rate of the Show-Me State is 4.225%, but with local municipalities adding to it, you can end up seeing rates as high as 10.1%. What is distinctive here is Missouri's approach towards tax remittance.

When it comes to state or local taxes, you send everything straight to the Department of Revenue, which quickly funnels the money to the various localities. One should understand that Missouri is a Transaction Privilege Tax (TPT), not just a regular sales tax state.

That is, engaging in any business venture in the state brings extra considerations, such as administrative or auction fees, which also fall under the taxable category.

Learn more about sales tax in Missouri.

Montana

Montana is unique as it does not have a state sales tax and restricts local jurisdictions from imposing sales taxes. Thus, if your business is located within Montana or sells to customers there, you're spared the obligation to collect sales tax!

Learn more about sales tax in Montana.

Nebraska

The state of Nebraska charges a sales tax rate of 5.5%, but the total rate can go up to 7.5% in local municipalities. However, some comfort exists as food and prescription drugs are exempt from sales tax. If you're operating a business that deals in taxable goods or services within Nebraska, you must register with the state for sales tax collection and remittance.

For out-of-state businesses considering their sales tax duties, Nebraska's participation in the Streamlined Sales Tax initiative means they will have a streamlined registration process that will promote compliance without the regular nexus of the sales tax.

Learn more about sales tax in Nebraska.

Nevada

Nevada has a sales tax rate of 6.85%, combined with the chance of facing local sales taxes up to a maximum of 1.53% leaves you with an average combined state and local rate of 8.23%.

This particular aspect means that choosing Nevada as a place to conduct business would introduce significant variations in total sales tax, thus influencing pricing and accounting practices.

Learn more about sales tax in Nevada.

New Hampshire

If you're managing or planning to expand your business into New Hampshire, you'll be pleased to know that this state offers a significant advantage: there is no state sales tax or local-level sales tax!

Learn more about sales tax in New Hampshire.

New Jersey

In New Jersey, you will see that most tangible personal property, certain digital products, and certain services are subjected to a sales tax rate of 6.625%. Significantly, this rate is flat statewide with no additional local sales taxes – somewhat rare for tax compliance.

Learn more about sales tax in New Jersey.

New Mexico

Unlike the customary sales tax found in most states, tax New Mexico uses gross receipts. Such tax is levied on businesses operating in the state over various transactions and services. Although this seems quite technical, what it really comes down to for a consumer is quite similar to a sales tax.

This tax is usually passed onto you by businesses- either included in the stated price or added on at the time of sale. In New Mexico, the rate you are charged varies a lot, from 5.125% to a whopping 8.8675%, depending on where you are in the state.

Learn more about sales tax in New Mexico.

New York

Although the state sales tax rate is 4% in New York, with the local municipalities adding their taxes, the total rate can reach up to 8.875%. This variation is not merely a quirk but a manifestation of New York's convoluted local-level tax structure, comprising city, county, school, transportation, and special purpose districts (SPD).

For any business beginning retail sale in New York State, where the sale of taxable tangible personal property or services becomes subject to taxation, to register with the New York Tax Department, you should do that at least 20 days before the commencement of taxable sales.

Learn more about sales tax in New York.

North Carolina

In North Carolina, the base state sales tax rate is 4.75%, but you can end up with total tax rates of up to 7.5% after you factor in county and local levies—most areas clock in at about 6.75% to 7%.

One must remember that North Carolina also requires the remittance of use tax on goods or services consumed within the state, a fact taken into consideration on the state tax return. .

Learn more about sales tax in North Carolina.

North Dakota

In North Dakota, the base state sales tax rate is 5%, but when all local municipalities are added, the rate reaches 8.5%.

Unlike certain other states, North Dakota keeps things simple, applying local taxes in the form of city and county taxes only. However, it does not include some jurisdictional areas such as school districts or transportation zones.

Learn more about sales tax in North Dakota.

Ohio

Ohio's state sales tax rate is 5.75% if you are conducting business in Ohio or intend to extend there. However, all is not quite as it seems. Ohio permits local jurisdictions to levy additional sales taxes on top of the state rate, with a cap on local sales tax at 2.25%.

This implies that the average combined state and local sales tax rate one could be dealing with in Ohio would be about 7.24%. Properly exploring these rates also entails constant monitoring of state and local tax laws, which should help keep your business compliant.

Learn more about sales tax in Ohio.

Oklahoma

Oklahoma has a state sales tax rate of 4.5%, which appears rather conservative initially, but only if taken at face value. But the story changes dramatically when you bring in the maximum local sales tax rate of 7.00%.

Therefore, businesses based in Oklahoma could face an average state plus local combined sales tax rate of 8.98%. This mix highlights that multistate businesses must detail state and local tax obligations in their compliance strategies to successfully maneuver Oklahoma's tax terrain.

Learn more about sales tax in Oklahoma.

Oregon

There are no state or local sales taxes in Oregon. So, as a business operating in or selling to customers in the state, you don't have to track your sales here or watch out for any tax liabilities!

Learn more about sales tax in Oregon.

Pennsylvania

Pennsylvania's state sales tax rate is 6%. Although things get more complicated when local sales taxes are considered, the rate can reach 2.00%. This means that the average combined local and state sales tax will be around 6.34 %, depending on where you are doing business in the state.

The process requires you to track your transaction locations, applying these rates, and ensuring that your compliance is as transparent as your business activities.

Learn more about sales tax in Pennsylvania.

Rhode Island

The state has a sales tax rate of 7%, with a notable lack of local sales taxes. This uniformity makes compliance easy for multistate businesses operating in Rhode Island, as there is no complexity in figuring out different rates in different places.

This single-state rate means that even if a product is sold in Providence or Newport, the sales tax collected will be 7% across the state. For businesses, such simplicity can help in financial management and remove administrative overheads, allowing you to concentrate on growth rather than tax complexity.

Learn more about sales tax in Rhode Island.

South Carolina

The state imposes a 6% sales tax on the sale of goods and certain services, with an exciting twist: counties may implement an additional 1% local sales tax, but only upon voter approval.

This implies that the sales tax rate difference depends on the location of your business within a state and, thus, the cost of your final product to your customers. Generally, this tax covers all retail sales; as such, you need to be aware of the rates applicable in the different counties where your business operates.

Learn more about sales tax in South Carolina.

South Dakota

The state imposes a simple 4.50% state sales tax rate. However, local jurisdictions in South Dakota are granted the authority to tack up to another 4.50%, making the possible combined sales tax rate rather significant.

A combined average state and local sales tax rate works out to 6.40% for businesses and consumers in South Dakota.

Learn more about sales tax in South Dakota.

Tennessee

Tennessee levies a state sales tax rate of 7.00%. However, that is not all. Local jurisdictions in Tennessee can levy additional sales taxes up to 2.75%. When aggregating these rates, you get an overall average sales tax burden of 9.55% across the state.

This number positions Tennessee among the states with the highest aggregate sales tax rates in the United States.

Learn more about sales tax in Tennessee.

Texas

Texas has a baseline state sales tax rate of 6.25%. Nevertheless, the element differentiating Texas is the permission given to local taxing jurisdictions – cities, counties, special-purpose districts, and transit authorities—to add some sales taxes.

These local add-ons may reach as much as 2% each, with a maximum combined sales tax rate of 8.25%.

Learn more about sales tax in Texas.

Utah

Utah's original state sales tax rate is 4.7%, with additional tax rates added by local jurisdictions taking the figure up to as much as 8.7%. These local taxes encompass diverse taxes such as mass transit, rural hospitals, arts and zoos, highways, resort taxes, and others, totaling 17 possible tax jurisdictions.

Also, Utah's involvement in the Streamlined Sales Tax (SST) program makes it easy for businesses to do so, as it provides online filing and electronic payments.

Learn more about sales tax in Utah.

Vermont

Vermont's sales tax is set at 6%. If your business resells items from distributors to end customers, then you might be eligible for a sales tax exemption when purchasing your inventory.

Learn more about sales tax in Vermont.

Virginia

Although the basic tax rate for the whole state is set at 5.3%, one should also mention that several regions impose additional regional or local taxes, so this baseline is slightly increased in certain places.

However, for entrepreneurs, particularly for such food for home consumption or grocery items and personal essential hygiene products, there is a partial silver lining: their tax rate is reduced to a mere 1%.

Learn more about sales tax in Virginia.

Washington

Washington's standard sales tax rate on all retail sales is 6.5%. Yet what sets Washington's taxing environment apart when it comes to multistate business is the added complexity brought by local jurisdictions.

Cities and counties within Washington can tax their own "unrestricted" sales taxes to an aggregate maximum of 1.0% on top of the state's 6.5% rate. It implies that the total sales tax rate differs according to the location where you perform business within the state, affecting your pricing, accounting, and compliance strategies.

Learn more about sales tax in Washington.

West Virginia

West Virginia enforces a 6.00% state sales tax. Moreover, the state permits the local jurisdictions to add their own sales taxes, with the maximum local rate capped at 1%. This combination leads to an average combined state and local sales tax rate of 6.55%.

Learn more about sales tax in West Virginia.

Wisconsin

The state enforces a 5% sales tax on the purchase price of taxable retail sales, which is the benchmark for businesses operating within the state. But here's where it gets more localized: Wisconsin counties can add a further 0.5% local sales tax to those sales. This implies that the total sales tax rate one may come across will depend on the county where the sale occurs.

Learn more about sales tax in Wisconsin.

Wyoming

The overall sales tax rate in the state is a simple 4%. But what makes Wyoming unique is the permission for the local taxes and optional, which can be added to the state rate if their approval is through a vote by the local citizens.

This democratic tax payment system implies that you might be obliged to pay different total sales tax rates depending on where you are doing business within this state.

Learn more about sales tax in Wyoming

Sales tax compliance challenges for multistate businesses

Expanding your business across multiple states can be an exciting endeavor but also introduces compliance complexities. As a multistate business owner, staying on top of the varying sales tax laws and the rates in each state is crucial.

In addition, you need to keep up with the frequently changing sales tax rates at the state, county, and city levels. State X may increase its sales tax rate in an upcoming budget while State Y lowers its rate. Counties and also cities make periodic rate adjustments.

Stephan Baldwin, Founder of Assisted Living, adds, "Also, you have to pay attention to the filing frequencies and due dates required in each location. While State X expects monthly sales tax filings, State Y may only require the quarterly or annual tax returns. The due dates can also vary widely."

To cap it off, some states have threshold rules that dictate when out-of-state sellers must start collecting sales tax based on the volume of their business activity – this is called the economic nexus. Economic nexus thresholds are inconsistent across the states, adding another layer of multistate taxation complexity.

As you can see, multistate tax compliance for your growing business can get complicated. But don't worry! Trusted partners and solutions are available to take these tax burdens off your plate, so you can focus on your growth and customers.

5 Best Practices for Multistate Sales Tax Compliance

1. Know nexus rules on a state-by-state basis

As we mentioned above, economic nexus refers to the threshold of economic activity that triggers the sales tax collection responsibilities. This can vary by state, so you'll need to research the nexus laws specific to the states where you also have a physical presence.

2. Understand the product taxability rules

Some states exempt certain products like food and clothing from sales tax, while others tax these items. You'll need to check the taxability categories in each state relevant to the products you sell.

3. Integrate sales tax software

Integrate sales tax software, enhanced with digital tax ID verification technologies, to ensure the accuracy of tax calculations by verifying customer locations and automating the calculations, filing, and remittances for all the applicable jurisdictions.

4. Document procedures

Detail the steps your business takes to remain compliant with multistate taxation. This creates helpful institutional knowledge and also aids in the training.

5. Perform vendor due diligence

Scrutinize third-party sellers participating in your marketplace to ensure they meet the registration and collection obligations. This reduces the audit risk exposure.

How sales tax automation software can help

From our ten years of experience running our own SaaS company – and serving thousands of customers – we know running an online business involves hundreds of decisions. We also know complying with sales tax involves knowing and following hundreds (or thousands) of local policies and laws. You can’t possibly manage both! Who has the time or mental space?

That’s why we created Quaderno. It’s an all-in-one sales tax automation software that simplifies tax management for online businesses, covering the most important parts of tax compliance:

• Registration: This functionality helps you to see at what point you have tax obligations since it follows your tax liability in real-time. It gives you a heads-up of registering in another jurisdiction and provides help with the paperwork.
• Calculation: Quaderno removes the painstaking manual tax rate lookups as it automatically assigns the applicable local tax rate to every sale, covering more than 12,000 tax jurisdictions worldwide. This guarantees the correct taxation at the moment of sale.
• Reporting & Filing: Streamlines tax filing, providing clear reports on the amounts of sales tax, VAT, or GST you've collected and are due. This instrument is aimed at making tax returns less stressful and more productive.
• Invoicing: Automatically sends various types of invoices to customers after the sale. These invoices are always tax compliant, and can be customized to your brand or translated into your customer’s language and currency. This improves customer service and saves you countless hours on the administrative side!
• Quaderno Checkout: Quaderno Checkout is a one-click checkout system that enables you to comply with taxes, ensuring the correct tax amount is reflected for the customer before, during, and after the purchase process. It aims to minimize cart abandonment rates by smoothing the checkout process.
• Quaderno Connect: Quaderno Connect enables you to link effortlessly to all sorts of sales platforms and payment gateways. This concentrates all your sales information, allowing Quaderno to automate tax compliance in every channel.

Want to see how it works for you? Start a free trial today.

Thanks to Shawn Plummer from The Annuity Expert for sharing his expertise and writing this article for us!