How to calculate sales tax for your business
When you started your own business you were probably psyched to share your products with the world, create your own schedule, be your own boss and control your own destiny. One thing I’m willing to bet you were less excited about, if you thought about it at all, was the wild world of sales tax.
- Figure out which of your customers get charged sales tax
- Determine how much sales tax to charge
- Get registered with your state (or states)
- Set up all your seller channels to collect sales tax from buyers
- Report how much you’ve collected, and in which taxing jurisdictions
- Actually file a sales tax return!
If all that sounds like more trouble than you bargained for, don’t worry. I’ll break it down:

Which customers do I charge sales tax?
In a nutshell, charge sales tax to customers in states where you have sales tax nexus.
- A location – A store, office, warehouse, or other physical location.
- Personnel – An employee, contractor, salesperson or installer.
- An affiliate – In states with click-through nexus, a 3rd party affiliate can create sales tax nexus.
- A drop shipping relationship – Three-party transactions can get tricky and sometimes create nexus.
- Temporary business activities – In many states, temporarily selling at a trade show or craft fair can create sales tax nexus.
What do I do when I have sales tax nexus?
Once you’ve determined you have nexus in a state, your next step is to get registered with that state for a sales tax permit. (This is sometimes called a seller’s permit or sales tax license.) Don’t skip this step or start collecting sales tax before you have your state ID number! States consider it unlawful to collect sales tax without a permit.
How much sales tax do I charge?
Sales tax rates are usually made up of a few factors – a statewide rate and some local rates such as county, city or other “special taxing district” rates. A few states are nice and only have one flat statewide sales tax, but in most cases tax rates can vary from local area to local area. You can read more about that in “Anatomy of a Sales Tax Rate.”
Example: You live in Stamford, New York. New York is a destination state, so you are required to collect sales tax at your buyer’s address. So if you operate your business in Stamford but sell to a buyer in Buffalo, you are required to charge your buyer the Buffalo sales tax rate of 8.75%. That 8.75% tax rate is made up of New York’s base 4.0% sales tax rate, plus the Erie County sales tax rate of 4.75%.

How do I charge sales tax?
After reading that last section you may be scratching your head over how you could ever possibly collect the correct amount of sales tax. Fortunately, many online sales platforms and shopping carts you can use will collect sales tax for you, or at least allow you to set up your own sales tax rates.
Okay! I’ve charged the right amount of sales tax to the right customers. Now what?
When you registered for your sales tax permit, the state assigned you a filing frequency. This frequency could be monthly, quarterly, annually or, in rare cases, semi-annually. States have different criteria for assigning you a filing frequency, so if you have sales tax nexus in more than one state, you may find yourself paying one state monthly and another annually.
How do I file a sales tax return?
As your sales tax filing deadline approaches and you’ve reported how much sales tax you’ve collected, your next step is to actually file your return.
This article provided by TaxJar. TaxJar provides painless sales tax calculations, reporting & filing for online retailers.