What is a tax jurisdiction?
Tax jurisdictions are the building blocks of tax liability. They determine which rules and policies your business must follow – including when to register, what rate to charge, and when to file.
When you run a growing business, it can be hard to learn all the ins-and-outs of tax compliance, not to mention staying on top of all the rules, registrations, and deadlines as the year goes on.
That’s why we’re covering the basics with this post on what a tax jurisdiction is and how it affects your business.
This post will cover:
- What is a tax jurisdiction?
- How many sales tax jurisdictions are there in the US?
- How many tax jurisdictions are in the EU?
- How many tax jurisdictions are in Canada?
- Tax jurisdiction codes
- Tax jurisdiction by zip code
- What is my jurisdiction code?
- How to manage tax jurisdictions
- How to configure jurisdictions in Quaderno
Let’s get started!
What is a tax jurisdiction?
A tax jurisdiction is a legally defined area that writes its own tax policies for businesses that operate within its borders. Basically, it’s a geographic area that has its own rules.
Tax jurisdictions can set their own rules about:
- Registration thresholds
- Which products are taxable, tax-free, or zero-rated supply
- Tax rates
- Filing frequency and deadlines
In most places around the world, tax jurisdictions for consumption tax (sales tax, VAT and GST) are determined by country. There is a national or federal tax jurisdiction, and that’s it.
In other places – namely the United States, the European Union and Canada – jurisdictions could be a country, region, group of countries, province, state, city, county, district or other local authorities. These jurisdictions can be layered, and sometimes your business must answer to multiple levels of government at once!
Learn about tax jurisdictions in the US, EU, and Canada below.
How many sales tax jurisdictions are there in the US?
There are more than 12,000 sales tax jurisdictions in the United States. This includes state, county, city, district, and other local-level jurisdictions. Each one can have their own regulations, which could potentially change at any time.
If this number is overwhelming to you, don’t worry! Check out our essential guide to sales tax in the US, where we take that complexity and make it simple for you.
Keep reading below to learn about US tax jurisdictions by zip code as well as tax jurisdiction codes.
How many tax jurisdictions are there in the EU?
There are at least 27 tax jurisdictions in the European Union. That’s because each of the 27 EU member states has its own tax rates and, in certain product categories, their own VAT registration thresholds.
In addition to the separate country jurisdictions, the EU members also share a region-wide jurisdiction through the EU OSS / IOSS schemes. To learn more about how jurisdictions work in these schemes, read on about EU VAT for remote sellers.
How many tax jurisdictions are there in Canada?
For Goods and Services Tax, Canada’s jurisdictions are a little complex due to the country’s several provinces.
First, there is a federal jurisdiction that applies a 5% GST to sales. Then the provinces have split into their own tax schemes:
- Four provincial jurisdictions use the federal rate plus their own Provincial Sales Tax (PST): Québec, British Columbia, Manitoba and Saskatchewan.
- Five provinces use Harmonized Sales Tax (HST): Ontario, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador.
- Alberta province simply uses the federal jurisdiction’s rule of a 5% GST rate.
To learn more about how tax jurisdictions work in Canada, read about Canada’s GST & HST on digital products.
Tax jurisdiction by zip code
In the US, each zip code belongs to at least one, and usually multiple, tax jurisdictions. But zip codes are not the most precise way to determine your jurisdiction or tax liability! It’s important to note that zip codes correspond to the postal service; they were designed for mail delivery. Zip codes do not always match up with the borders outlined in tax policies.
That said, zip codes can be a good place to start if you are gauging your tax responsibilities and looking for an idea of the tax rate you likely have to charge on sales in a certain place. For this, we have the perfect tool for you! Our online sales tax calculator.
Tax jurisdiction codes
Tax jurisdiction codes are used to identify the specific jurisdiction(s) that you belong to, particularly in bureaucratic processes such as tax returns and IRS forms.
A tax jurisdiction code is composed of smaller codes that represent the country, province, state, county, city, or district. In this way, the code captures how much tax from a single transaction should go to each tax authority.
In the US, codes are usually built in this way:
- 3 digits representing a state
- 2 digits representing a county
- 4 digits representing a city
- 3 digits representing a district
Put together, the tax jurisdiction code will be a string of numbers: State + county + city + district.
What is my jurisdiction code?
If you never received your tax jurisdiction code or cannot find it, you should check with the specific jurisdiction directly. Some places offer an online tool for finding a specific tax jurisdiction code. For example, the state of California offers this Jurisdiction Code Lookup tool on its website. New York State offers a Jurisdiction Lookup by Address as well!
How to manage tax jurisdictions
Quaderno’s tax compliance software helps you manage tax jurisdictions in three key ways:
- Track your business registrations automatically
- Monitor your sales in every jurisdiction around the world
- Alert you proactively when it’s time to register in a new place
1. Track your business registrations automatically
Keep track of the tax jurisdictions where your business is already registered. Once you set up your tax jurisdictions in Quaderno, all of your registrations are visible in one place, recorded digitally. You can easily update, edit, add or remove these registrations at any time.
Quaderno also stores your registration numbers and tax IDs digitally, then automatically stamps them on any receipts, invoices, reports, or other necessary documents.
2. Monitor your sales in every jurisdiction
As you grow, you’ll probably become liable for taxes in new places, and you need to stay on top of this to avoid fees and penalties!
As mentioned above, each tax jurisdiction might have its own tax registration threshold, including separate ones for physical or digital products. In the US, each state has its own economic nexus.
Quaderno offers automatic sales tracking in real time, no matter where you’re selling, and measures those totals against each jurisdiction’s threshold rules.
3. Alert you proactively when it’s time to register in a new jurisdiction
When you’re growing quickly, you might be making sales in a brand new country every month, week, or day. While this is super exciting, it’s a lot to keep track of, on top of everything else. Even the most hands-on business owners might not catch each new tax jurisdiction as it happens — or catch each registration threshold as it’s hit.
Thanks to Quaderno’s turnover reports and real-time data tracking, the system will alert you when:
- Your sales have hit 100% of the threshold (letting you know it might be go-time for tax compliance!)
- Your business is liable for a new tax because you’ve made a sale in a new place, where there’s no registration threshold.
You’ll receive these notifications both in the app and via email. Who doesn’t love a heads up about important info? 🙂
How to configure jurisdictions in Quaderno
Setting up your tax jurisdictions is one of the only – and most important! – tasks to complete when you get started with Quaderno.
Before we explain, please read these important tips:
- You should only set up a tax jurisdiction if your business is already registered for sales, VAT or GST in that place! You should not set up a jurisdiction where you are not registered. Collecting taxes before you are registered is illegal.
- Just because you sell in a certain jurisdiction does not necessarily mean you need to register there already. You only need to register once you’ve sold past the local threshold! Check countries’ registration thresholds in our guide to digital taxes around the world.
So, how do you configure tax jurisdictions in Quaderno? Simply go to the app’s Jurisdictions page and add your registration data, including:
- Your business tax ID (e.g. VAT number)
- The date you registered
- Whether you have a physical presence there.