US sales tax
The United States federal government does not levy a federal sales tax on goods and services sold, but sales tax can be charged at the state, county, city, and district levels of government. This makes for a complex sales tax structure with thousands of separate jurisdictions to which tax could be owed. Which and how many of these levels of government you will owe sales tax to will depend upon where and how in the US you conduct business. Whether or not and how much sales tax you should collect will also depend upon the products that you are selling.
Sales tax can be a complex area of ecommerce, and these guides have been put together to help you with the tax features that the ShopWired platform provides to you. In explaining these features it is also necessary and helpful for you to be given an explanation of the basics of how sales tax works in the US. Please keep in mind, however, that these guides are meant for information purposes only and should not be considered as comprehensive, nor as legal or financial advice. If you have any questions or are unsure about what tax liability you hold in different jurisdictions, then you should contact a tax professional. It is your responsibility to ensure that you charge sales tax correctly to your customers.
The ShopWired support team cannot offer you tax advice or definitively state whether you should be paying sales tax within a certain location based on your business’s specific circumstances. They are only able to offer assistance about how to use the specific tax features that the ShopWired platform provides.
We strongly recommend that you read through this guidance especially if you have little to no understanding of how sales tax works in the US.
The sales tax responsibilities of a business
In states where your business has sales tax liabilities it is the responsibility of the seller to collect sales tax on behalf of the government and then send payment for that sales tax to the correct taxing jurisdiction(s). This means that you as a business have a legal responsibility to collect the correct amount of sales tax from your customers and pay it to the government within stipulated time frames. Failure to correctly collect and remit sales tax can lead to serious ramifications for your business.
When you sell on a marketplace, such as Etsy or Amazon, that marketplace is required in many (but not all) states to collect and remit the sales tax for you. Because the ShopWired platform is not a marketplace, and is a place for you to create your own website and store, we do not collect and remit sales tax for you. It is, therefore, your responsibility to ensure that you are collecting and paying sales tax appropriately. The ShopWired platform does, however, automatically calculate sales tax on all orders that are placed through your ShopWired website or entered manually in the admin system in line with the tax settings which you have configured.
How nexus creates obligation
Whether or not you should collect sales tax from customers within different states will depend upon if you have a nexus in that state. A nexus is a connection to a state in either a physical or economic way, and each state has set its own rules for what determines nexus.
A physical nexus with a state is created when you have a physical presence within that state. A physical presence can be defined by:
- Having a physical location within a state (including an office, home office, warehouse or store location)
- Having an employee, contractor or salesperson who solicits sales or works in a state
- Storing inventory within a state (including in Fulfilled by Amazon warehouses)
- Conducting business temporarily within the state (such as at a trade show)
You will always have a physical nexus in the state that your business is registered.
In June 2018 the United States Supreme Court determined that states were allowed to collect sales tax from sellers who were not physically present within the state, and could require sellers who meet criteria for volume or value of orders to also pay sales tax. This is also known as economic nexus. Since this ruling most states have passed laws stating when a business’s economic nexus begins in that state.
The more states in which you have nexus the more complicated figuring out your sales tax structure will be. The first step to determining what sales tax you need to pay is to determine in which states you have nexus.
Destination/Origin based sourcing
For states with which you have nexus, the tax rate that should be charged to customers within that state will depend if the state is an origin based or destination based state.
Origin based states
In origin based states sales tax is based upon the location of the origin of the sale. In other words, in origin based states that you have a physical nexus in you would charge customers the tax rate based on the location of your business. However, if you are a remote seller within one of these states (so you have no physical presence in the state) but still have nexus with the state, then sales tax is charged at the destination of the sale (your customer’s location).
Destination based states
In destination based states sales tax is based upon the location of the customer. This is true whether you have a physical nexus or an economic nexus in the state.
Notice and report
In states where you have no nexus and therefore no responsibility to collect and remit sales tax, some states have placed laws requiring the customer (the receiver of the product) to declare and pay a use tax to their state. This is intended to make things fairer for in-state sellers as it should discourage people from purely looking for out-of-state sellers to avoid paying sales tax. While, in these instances, you would not be required to pay anything to the state, you might have a responsibility to inform the customer of their duty to pay tax or to inform the government of who has bought from you.