How to Determine Your Sales Tax Obligation as a US Small Business Owner

Sales tax rules can be confusing, especially for small business owners who sell in multiple states. Some businesses need to collect and remit sales tax, while others are exempt. So how do you determine if your business has a sales tax obligation? The key factors include where and what you sell, your revenue, and whether you have a presence—physical or economic—in a given state.

Understanding these requirements is crucial, and utilizing sales tax services can help streamline compliance. Here’s how to assess your sales tax responsibilities and stay compliant.

1. Understanding Sales Tax Obligations by Business Type

Not all businesses have the same sales tax requirements. Your obligation depends on:

• Product vs. Service-Based Businesses – Most states tax physical goods, but services are often exempt or taxed differently. Some states impose sales tax on digital products or specific service industries.
• Online vs. Brick-and-Mortar Sales – Businesses with a physical storefront generally collect sales tax at the point of sale. Online sellers may have to charge tax based on the buyer’s location.
• Wholesale vs. Retail – Wholesalers selling to resellers may not need to collect sales tax, provided the buyer presents a valid resale certificate.

2. Key Sales Tax Triggers for Small Businesses

Your business may be required to collect sales tax if any of the following apply:

• You have a physical location, warehouse, or employees in a state.
• You exceed an economic threshold for online sales. Many states require sales tax collection if you surpass $100,000 in revenue or 200 transactions.
• You sell taxable goods or services. Not all products are subject to sales tax, and exemptions vary by state.
• You participate in third-party marketplaces. Some states hold marketplace facilitators (like Amazon or eBay) responsible for collecting and remitting sales tax on your behalf.

If your business meets any of these criteria, you likely need to register for a sales tax permit and start collecting tax from customers.

✅Sales tax shouldn’t keep you up at night. Our tax team manages your compliance while you focus on growth. Learn more here.

3. Managing Multi-State Sales Tax Obligations

If you sell across state lines, it’s essential to determine whether you have sales tax obligations in multiple states. Consider:

• Which states require sales tax collection for out-of-state sellers. Some states enforce strict economic nexus laws, meaning even a few transactions can create tax liability.
• Varying tax rates and exemptions. Some states tax groceries, clothing, or digital goods, while others don’t.
• Sales tax automation tools. If you sell in multiple states, using software to track tax rates and filing deadlines can help prevent errors.

4. What to Do If Your Business Is Exempt

Some businesses are not required to collect sales tax. Common exemptions include:

• Resellers and wholesalers – Sales tax does not apply if selling to another business for resale, but you must keep proper documentation.
• Nonprofit organizations – Many 501(c)(3) organizations are exempt from sales tax.
• Sales in states with no sales tax – If you operate solely in Alaska, Delaware, Montana, New Hampshire, or Oregon, you may not have to collect sales tax.

Even if exempt, businesses should keep records proving their tax-free status to avoid potential audits.

Summary

Determining your sales tax obligation depends on what you sell, where you operate, and your total sales volume. If your business meets physical or economic nexus thresholds, you must register for a sales tax permit and comply with collection and filing requirements. However, some businesses, like wholesalers and nonprofits, may qualify for exemptions. Since tax rules vary by state, staying informed and using tax software can help ensure compliance and simplify reporting.

Expert Sales Tax Support at Your Fingertips 

Stop worrying about sales tax compliance. Our dedicated tax team handles everything—from registration to filing. Get expert support and direct access to your Customer Success Manager via SMS or phone for any questions. Let’s discuss your tax needs.  Start a conversation now or reach out at [email protected], or use our contact form.