Frequently Asked Questions
Sales Tax Essentials
Yes. Sales tax is a tax on the sale, transfer, or exchange of a taxable item or service at the point of sale. Sales tax is added to the price of the item and charged to the consumer.
There is also “sellers use tax”, which is another term for sales tax, and applies to remote (out-of-state) sellers.
Use Tax is a tax on the storage, use, or consumption of a taxable item or service on which no sales tax has been paid. Use tax is mutually exclusive with sales tax. They often share the same rate, but not always.
Sourcing rules can be origin or destination based on the state for intra-state commerce, whereas inter-state sourcing rules are always based on destination.
Sellers should collect tax for the state where the property is delivered to the customer.
For example, if the item is shipped to the customer, then tax would be calculated and collected on behalf of the delivery state, whether that is the same state where the seller is located or a different state.
But 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.
Note: Sellers should collect sales tax only if they are registered to collect sales tax in that state.
The statute of limitations for a sales tax audit varies by state, usually three to six years. This means that most state tax statutes have the right to go back and review your records for up to six years.
In some states, 3-6 years assumes you’ve been filing your sales tax returns. For example, California can increase the look back period to 8 years if a company has failed to file their sales tax returns. In Texas, there is no limit on how far they can look back.
Therefore, it is important to keep accurate records to expedite the audit process and avoid potential penalties for non-compliance.
In some states, sales tax holidays are mandatory but other states allow retailers to opt-in or out. Most states won’t penalize you for giving them more money.
However, it’s worth considering that you could potentially lose customers to competitors who are honoring the sales tax holiday, which can have other long term ramifications.