How to Collect and Remit Sales Tax as a Business Owner: A Comprehensive Guide for Business Owners

Running a business in the U.S. comes with many responsibilities, and managing sales tax is one of them. Knowing how to collect and remit sales tax helps you stay compliant, avoid penalties, and build customer trust.

But where do you start? From understanding sales tax nexus rules to learning how to register for a sales tax permit and finally managing sales tax filing and remittance, the process can feel overwhelming.

In this guide, we will walk you through everything you need to know about how to collect and remit sales tax efficiently and keep your business compliant.

What Is Sales Tax?

Sales tax is a consumption-based tax imposed by state and local governments on the sale of goods and specific services. It is calculated as a percentage of the selling price and collected by the seller at the point of sale. The seller is then responsible for remitting the collected tax to the appropriate tax authority.

Sales tax laws vary across states, and in some cases, local jurisdictions within a state may impose additional rates, making compliance a crucial responsibility for business owners.

Who Imposes Sales Tax?

Unlike income tax, which is collected at the federal level, sales tax in the United States is imposed at the state and local levels.

This means there is no single nationwide rate or rule. Instead, each state creates its tax laws, and many states allow cities, counties, and special districts to add their own sales taxes on top of the state rate.

Here is how it works:

Authority	Role in Sales Tax
State Governments	Set the base sales tax rate, e.g., 6.25% in Texas and 7.25% in California, and define taxable goods and services.
Local Governments	Cities, counties, and municipalities add extra local rates on top of the state tax.
Special Taxing Districts	Certain areas impose additional taxes for projects like transportation, schools, or infrastructure.
Marketplace Facilitators	States require online platforms like Amazon and Etsy to collect and remit sales tax on behalf of sellers.

Why Sales Tax Compliance Matters

Sales tax compliance is not just a legal box to tick; it is essential for protecting your business from financial losses, legal consequences, and reputational damage.

States take sales tax enforcement seriously, and businesses that fail to collect or remit taxes correctly risk audits, penalties, and even criminal charges. Compliance also builds trust with customers and keeps your operations running smoothly.

Reason for Compliance	Impact if ignored
Avoid Legal Penalties and Fines	States impose heavy fines, interest, and potential criminal charges for non-compliance.
Prevent Business Disruption	Audits and legal action can halt operations and consume valuable time and resources.
Protect Your Reputation	Customers lose trust if they discover incorrect tax charges or unethical practices.
Meet State and Local Regulations	Each state has unique rules, and non-compliance could lead to being barred from doing business in that state.
Avoid Personal Liability	In some states, business owners can be personally liable for unremitted sales taxes, even after the business closes.
Enable Smooth Expansion	Compliance ensures you can scale into new states without running into legal barriers or tax debt.

Do You Need to Collect Sales Tax? Understanding Your Obligations

Not every business is automatically required to collect sales tax, but most will need to comply based on where they operate and sell. Your obligation depends on sales tax nexus rules, which determine if your business has a physical or economic connection to a state.

Whether you own a local store or sell products online across multiple states, understanding these rules is crucial. Before you start collecting, ensure you know how to register for a sales tax permit and when your business becomes liable.

Understanding Sales Tax Nexus

Sales tax nexus determines whether your business has a tax obligation in a particular state. Simply put, if your business has a significant presence, physical or economic, in a state, you are required to know how to collect and remit sales tax there.

Nexus is not limited to having a physical location; it also applies to online businesses that exceed specific sales thresholds.

Understanding the two main types of nexuses—physical nexus and economic nexus—is key to staying compliant with sales tax remittance.

Type of Nexus	Definition	Examples of Triggers
Physical Nexus	A tax obligation is created when your business has a tangible presence in a state.	Owning or renting a store, office, or warehouse; employing staff; and storing inventory locally.
Economic Nexus	A tax obligation based on sales volume or transaction thresholds, even without physical presence.	Exceeding $100,000 in sales or 200+ transactions in a state (threshold varies by state).
Marketplace Nexus	When an online marketplace is required to collect and remit sales tax on behalf of sellers.	Selling on platforms like Amazon, Etsy, Walmart, or eBay in states with facilitator laws.

States Without Sales Tax: What It Means for Your Business

While most U.S. states require businesses to collect and remit sales tax, there are a few exceptions. If your business operates exclusively in these states, or sells to customers there, you will not need to collect state-level sales tax.

However, be aware that local taxes may still apply in some cases, and if you sell to other states, nexus rules can still make you liable. Here are the states that do not impose state sales tax:

State	Notes for Businesses
Alaska	There is no state sales tax, but some local jurisdictions impose taxes.
Delaware	No sales tax, but a gross receipts tax applies to businesses.
Montana	No state sales tax, though select resort areas may have a local tax.
New Hampshire	No state sales tax, however, certain services like meals may be taxed.
Oregon	No state or local sales tax applies.

How to Collect and Remit Sales Tax Step-by-Step

Collecting and remitting sales tax may seem complicated, but breaking it into clear steps makes it manageable.

Every business owner must follow a structured process, from registering for a sales tax permit to accurately filing and remitting taxes on time.

Below is a step-by-step guide to help you stay compliant and avoid penalties.

Step 1: Determine Your Sales Tax Nexus

Before you can collect or remit sales tax, you need to understand where your business has a tax obligation. This connection, called sales tax nexus, defines whether you must register, collect, and remit taxes in a state.

Nexus can be triggered by physical presence, economic activity, or even marketplace facilitator laws.

Type of Nexus	What It Means	Examples
Physical Nexus	You have a tangible presence in a state.	Office, store, warehouse, or employees in the state
Economic Nexus	Your sales exceed a state’s revenue or transaction threshold.	$100,000 in sales or 200+ transactions in a state
Marketplace Nexus	Selling through platforms that collect tax on your behalf.	Amazon, Etsy, Walmart Marketplace
Affiliate Nexus	Your affiliates or third parties in the state help you make sales.	Affiliate marketers promoting your products

Step 2: Register for a Sales Tax Permit

Once you have determined your nexus, the next step is registration. You must apply for a sales tax permit with your state before collecting any tax.

Skipping this step can lead to legal trouble and financial penalties.

How to Register with Your State’s Department of Revenue

Registering for a permit is usually quick and done online, but requirements vary by state. Here is what you need to know:

Step	Action Required
Visit the State Tax Website	Go to your state’s Department of Revenue website for official registration.
Provide Business Details	Legal name, business type (LLC, sole proprietorship), and federal EIN or SSN.
Include Nexus Information	Disclose where your business operates and why nexus applies.
Pay Applicable Fees	Some states charge a small fee for the permit; others issue it for free.
Receive Permit & ID	Once approved, you will receive a permit and sales tax ID for reporting and filing.

Why You Cannot Legally Collect Tax Without a Permit

Collecting sales tax without proper registration is illegal in every state. Here is why it is important:

Reason	Impact on Your Business
State Law Requirement	All states mandate registration before collecting sales tax.
Legal Consequences	Collecting tax without a permit can lead to fines or even criminal charges.
Customer Trust	Proper permits build credibility and protect your brand reputation.
Filing Compliance	Your permit ensures accurate tracking and remittance of collected taxes.

How Much Does It Cost to Get a Sales Tax Permit?

The cost to obtain a sales tax permit varies widely depending on the state where you register. While many states offer permits for free, some charge a registration or application fee.

Understanding these costs upfront helps businesses budget accordingly and avoid surprises during the registration process.

State	Cost to Get Sales Tax Permit	Additional Notes
California	Free	No fee for seller’s permit
Texas	Free	No fee to register
Florida	Free	No fee for sales tax certificate
New York	Free	No fee for Certificate of Authority
Illinois	$50	One-time fee for registration
Pennsylvania	Free	No fee for sales tax license
Washington	Free	No fee for business license with tax collection
Connecticut	$100	One-time fee for sales tax permit
Georgia	Free	No fee for sales tax registration
New Jersey	Free	No fee for Certificate of Authority

Step 3: Collect the Correct Sales Tax Rate

After obtaining your permit, your next task is to ensure you collect the correct sales tax rate for every transaction. Rates vary by state and locality, and getting them wrong can result in costly penalties.

How to Determine the Correct Sales Tax Rate

Use official state resources or reliable tools to calculate accurate rates. Here is what you need to check:

Requirement	Action to Take
Know Your Nexus States	Identify every state where you have sales tax obligations.
Check State Base Rate	Each state sets a standard rate, but this does not include local taxes.
Account for Local Taxes	Add county, city, or district rates on top of the state rate.
Apply Destination-Based Rules	For online sellers, tax is based on the customer’s location in most states.
Use Reliable Tools	Use tools like Avalara, TaxJar, or your state’s tax calculator for accuracy.

Step 4: File and Remit Sales Tax on Time

After collecting sales tax, your responsibility is to file returns and remit the collected tax to the appropriate state agencies. Timely and accurate filing is essential to stay compliant and avoid penalties or interest charges.

How to File and Remit Sales Tax

Filing procedures and deadlines vary by state. Here is a general overview of what you need to do:

Filing Aspect	Details and Best Practices
Filing Frequency	Monthly, quarterly, or annually, depending on your sales volume and state rules.
Return Submission	File online through your state’s Department of Revenue portal.
Payment Methods	Electronic funds transfer (EFT), credit and debit card, or check (varies by state).
Include Accurate Sales Data	Report total sales, taxable sales, and tax collected for the filing period.
Meet Deadlines	Most states require filing within 20–30 days after the reporting period ends.
Keep Records	Maintain copies of returns and payment confirmations for audit purposes.

Sales Tax Rates for U.S. States

Sales tax rates vary widely across the United States, as each state sets its base rate, and many allow local jurisdictions to add their taxes on top. Understanding these rates is crucial for accurate collection and compliance.

State	State Base Rate (%)	Average Local Rate (%)	Highest Combined Rate (%)
California	7.25	1.75	10.75
Texas	6.25	1.98	8.25
Florida	6.00	1.50	8.50
New York	4.00	4.52	8.875
Illinois	6.25	1.75	10.25
Pennsylvania	6.00	0	6.00
Washington	6.50	2.50	10.40
Georgia	4.00	4.00	9.00
Ohio	5.75	~1.75	8.00
Michigan	6.00	0	6.00
North Carolina	4.75	2.25	7.50
New Jersey	6.625	0	6.625
Virginia	4.30	1.70	7.00
Arizona	5.60	2.5	11.20
Colorado	2.90	4.00	11.20
Alabama	4.00	5.00	11.00
Tennessee	7.00	2.75	9.75
Massachusetts	6.25	0	6.25
Oregon	0.00	0	0
Delaware	0.00	0	0
Montana	0.00	0	0
New Hampshire	0.00	0	0
Alaska	0.00	Varies locally	Up to 7.5 (local)

Best Tools and Software for Sales Tax Compliance

Managing sales tax collection and remittance can quickly become complex, especially when dealing with multiple states and varying rates. Thankfully, modern tools and software simplify the process by automating calculations, filings, and record-keeping.

Using platforms like Avalara, TaxJar, and QuickBooks integration can save time, reduce errors, and ensure compliance with ever-changing tax laws.

Tool	Key Features	Benefits of Automation
Avalara	Real-time tax calculation, multi-state filing, returns management	Reduces manual errors, automates filings, and ensures compliance with up-to-date tax rates
TaxJar	Automated sales tax reporting, filing reminders, marketplace integrations	Saves time with automatic filing, tracks nexus thresholds, and handles complex tax rules
QuickBooks	Integrated accounting and sales tax tracking, automatic calculations	Streamlines bookkeeping, simplifies tax reporting, and syncs sales data seamlessly
Sovos	Comprehensive compliance, VAT and sales tax automation, audit support	Ensures full compliance, reduces risk of audits, and supports global tax needs
Vertex	Tax calculation engine, automated filing, customizable rules	Handles complex tax scenarios, integrates with ERP systems, and improves accuracy

Tips to Stay Compliant with Remitting Sales Tax and Avoid Penalties

Staying on top of sales tax obligations is vital to avoid penalties, interest, and audits that can disrupt your business.

By adopting best practices and using reliable systems, you can simplify compliance and protect your company from costly mistakes.

Here are key tips every business owner should follow to stay compliant and avoid penalties.

Tip	Importance	How to Implement
Know Your Nexus Requirements	Ensures you only collect tax where legally required	Regularly review sales thresholds and state rules
Register for All Required Permits	Legal requirement to collect and remit sales tax	Apply for permits in every state where you have nexus
Keep Detailed and Organized Records	Crucial for accurate reporting and audit preparedness	Use accounting software or cloud storage to track transactions
File and Pay on Time	Avoids late fees and interest	Set calendar reminders or automate filings
Stay Updated on Tax Law Changes	Tax laws frequently change, affecting rates and rules	Subscribe to tax updates or consult a tax professional
Use Automation Tools	Reduces human error and saves time	Integrate sales tax software with your sales platform
Train Your Team	Ensures consistent and accurate tax handling	Provide regular training on sales tax processes and tools
Maintain Proper Exemption Documentation	Prevents incorrect tax collection and potential audits	Collect and verify exemption certificates from qualified buyers
Consult a Tax Professional	Provides expert guidance tailored to your business	Schedule regular check-ins for compliance review
Conduct Periodic Internal Audits	Detects and corrects errors before official audits	Review tax filings and payments quarterly

Common Challenges in Sales Tax Compliance and How to Overcome Them

Sales tax compliance is often complicated by varying rules, frequent changes, and multi-state obligations. Many business owners face challenges that can lead to costly errors or penalties if not managed well.

Understanding these common issues and adopting effective solutions is crucial for smooth, compliant operations.

Common Challenge	Why It Is a Problem	How to Overcome It
Managing Multi-State Compliance	Different states have unique rules and filing requirements	Use automated tax software that supports multi-state filings and track nexus carefully
Understanding Sales Tax Nexus	Nexus laws vary and can be confusing, especially with economic thresholds	Regularly review sales and business activities against nexus laws. Consult experts if needed
Handling Exemptions & Resale Certificates	Accepting invalid exemptions risks audits and fines	Verify exemption certificates properly and keep detailed documentation
Keeping Up with Changing Tax Laws	Tax rates and regulations change frequently	Subscribe to tax update alerts or use tools that automatically update tax rules
Maintaining Accurate Records	Poor record-keeping complicates filing and audits	Use reliable accounting software and maintain organized documentation
Avoiding Late Filings & Payments	Missing deadlines leads to penalties and interest	Set calendar reminders or automate filing and payment processes

Conclusion

Staying compliant with sales tax collection and remittance is essential for every business owner to avoid penalties and build trust with customers.

By understanding nexus rules, registering properly, collecting the right tax, and filing on time, you can simplify compliance and focus on growing your business confidently.