Does the Seller Collect Tax for the State It is Located In or the State Where the Customer is Located?
For sales tax purposes, the state that has the right to tax the sale is the state where delivery occurs. The seller should collect the tax for the state where the property is delivered to the customer.
If the customer picks up the item at the seller’s location, tax should be collected for the state in which the seller is located. If the item is shipped to the customer, then tax applies for the delivery state, whether that is the same state where the seller is located or a different state.
Sellers should collect sales tax only if they are registered to collect sales tax in that state. The determination as to where you are required to register to collect and remit sales tax is based on where you have established nexus. For more information on nexus, see our What is Nexus? FAQ.
If the seller ships items into a state where it doesn’t have nexus, no tax should be charged by the seller. However, in this case, the buyer has the obligation to remit use tax to the state where it uses and consumes the items if there isn’t an exemption that applies.
If you’re selling software as a service (SaaS), sales tax is also usually billed based on the state you’re shipping to. If there’s no ship to state because you’re selling something like remotely accessed software, then you look at where the first beneficial use of the software occurred and use that as the location. If you don’t know where the first beneficial use was, the next step is to look at the billing address of the payment method to determine where your customer is located for tax purposes.
Looking for more information? Check out the following resources:
- Download our free Nexus After Wayfair – What You Need to Know whitepaper
- Visit our How do I know if I should be collecting tax in a state? FAQ
- Visit our Why doesn’t the out-of-state retailer collect the tax? FAQ
- Learn essential sales and use tax concepts with our Sales Tax 101 webinar on-demand