Think your sales tax obligations are straightforward? Today's business environment might surprise you. Whether you're selling products online, expanding into new states, or providing services across borders, understanding your sales tax requirements has become more complex than ever.

1. Sales Tax Fundamentals 

State-by-State Variations

While most states charge sales tax, each sets its own rules. Five states - Alaska, Delaware, Montana, New Hampshire, and Oregon - don't have traditional sales tax at all. But don't celebrate too quickly if you're doing business in these states. Delaware, for instance, takes a different approach with its gross receipts tax, which can catch many businesses off guard.

Basic Rules and Exceptions

What seems like a simple concept - charging tax on sales - quickly becomes complicated when you dig into the details. Each state defines taxable sales differently, and keeping up with these variations can feel like solving a puzzle. The good news? Understanding some basic principles can help you navigate these waters more confidently.

2. Establishing Sales Tax Nexus 

Understanding Physical Presence

Having a physical presence in a state - an office, warehouse, or even traveling sales staff - typically creates an obligation to collect sales tax. Even temporary activities like setting up a pop-up shop or storing inventory in a fulfillment center can trigger these requirements.

Economic Nexus Thresholds

Since the 2018 Wayfair decision, physical presence isn't the only thing that matters. Now, if you're making enough sales into a state (typically $100,000 or 200 transactions), you might need to collect sales tax - even without setting foot there. Think of it as a virtual handshake with state tax authorities.

Common Trigger Activities

Sometimes, surprising activities can create sales tax obligations. Maybe you sent an employee to a trade show, or perhaps you're using a marketplace facilitator to sell your products. Understanding these triggers helps you stay ahead of compliance requirements.

3. Taxability Considerations 

Product-Based Rules

Generally, if you can touch it, it's probably taxable - that's the simple rule for tangible personal property. But exceptions abound, and they vary by state. What's tax-exempt in one state might be fully taxable next door. 

Service-Based Rules

Services follow the opposite rule - they're usually exempt unless specifically listed as taxable. Take Nebraska, for example. Building maintenance? Taxable. Pest control? Also taxable. Professional services? Usually exempt. Understanding these distinctions helps you charge correctly from the start. 

Industry-Specific Considerations

Different industries face different challenges. Manufacturing companies might enjoy exemptions on equipment purchases, while retailers need to master resale certificates. Your industry often determines which rules matter most for your business. 

4. Use Tax Obligations 

Common Scenarios

Ever buy something online without paying sales tax? That's where use tax comes in. It's the lesser-known cousin of sales tax, but it's just as important for compliance. 

Compliance Requirements

Tracking use tax obligations requires attention to detail. From office supplies bought online to equipment transferred between states, understanding when use tax applies helps prevent surprise tax bills later. 

Record Keeping

Good records make all the difference. Whether you're documenting exempt sales or tracking out-of-state purchases, maintaining clear records protects you during audits and makes compliance easier.

Partner with Lutz's State and Local Tax Experts 

Managing state and local tax requirements doesn't have to be overwhelming. At Lutz, our state and local tax team helps businesses stay compliant while managing risk effectively. Contact us to explore how our expertise can help simplify your sales tax management approach.