Accounting Quick Tip - Sales Tax Collection

“I’m a new seller. Should I just collect sales tax in every state to make sure I don’t miss collecting the correct amount?”

I get this question all the time. Unanswered, new sellers are often paralyzed in fear. After reading opinions in online groups, you may be fearful of being caught short when the tax bill comes or worse that you are breaking the law without being aware of it.

The short answer to the question is a big, “No, you should not just collect sales tax in every state.”

In fact, it is illegal to collect sales tax in any state for which you are not duly registered to do so. Once you are registered with a state to collect sales tax, you must submit a sales tax report for each reporting period as required by that particular state. If you register with every state to collect sales tax, you would have fifty reports to do each quarter, month, or year depending on the reporting schedule. Actually, the reports must be done even if you sell nothing in the state during the reporting period, once you are registered to do so. That’s a lot of reports and zero reports.

So what is a seller to do? Well, it would be a good idea to find a CPA to advise you on your specific situation. Different states have different rules. Aside from that, I would do some research on my home state. Find out which types of sales are taxable. Some states are origination states and some are destination states. What’s that mean? It has to do with the order itself and where the items are delivered or originate. It’s probably easier to give an example.

My state is a destination state. If a taxable item is delivered to a customer in my state, sales tax is due. If an item is purchased by a customer in my state but delivered to any other state, no sales tax is due.

Thankfully, back in 2017, some states got wise to the fact that they were missing out on sales tax revenue because large marketplace platforms were not collecting sales tax, except on their own sales, and a lot of the sellers on the platforms were not collecting any either. Yes, I am referring to Amazon and others. Over the last few years, many states have become wise to it as well. Over thirty states have instituted Marketplace Facilitator laws. In these states, Amazon and other large marketplaces collect and remit sales tax for sellers. That means eCommerce sellers on these platforms don’t need to register with every state in the union to collect sales tax unless advised by their CPA otherwise. Thank goodness. I’m sure state employees are happy that they aren’t required to process thousands of $5 sales tax reports per month, let alone tons of zero reports.

If you are selling on your own website or other smaller platform not required to adhere to Marketplace Facilitator laws, you may need to check further into your tax situation. Be sure to contact a CPA for advice.