Lately, we’ve gotten a spate of questions here at TaxJar from online sellers who have sales tax nexus in multiple states and are wondering what sales tax rate to charge their customers.
Here’s an example:
Julie lives in Colorado and sells through FBA. Amazon stores her items in fulfillment centers across 10 states (Fun Fact: According to our data, 10 is the average number of nexus states for FBA sellers). Fortunately for Julie, Amazon’s robust tax collection system ensures that she collects the right amount of sales tax from all of your FBA customers. (Find out how to set up your Amazon sales tax settings here.) But… monkey wrench! Julie has also opened her own store through her WooCommerce shopping cart. Now she needs to figure out how much sales tax she should collect from her out of state buyers.
Julie’s big question is…
What sales tax rate do I charge my customers? My state’s rate or their rate?
Short answer: The sales tax rate you charge your customers is always based on the state where you are shipping the item. You would never charge an out-of-state customer a sales tax rate based on your home state’s rates.
This is the right way to collect sales tax from an out-of-state customer:
Julie lives in and runs her business in Colorado. She also has sales nexus in Indiana. She ships an item to a customer in Indiana. She would always charge her customer sales tax based on Indiana sales tax rates, and not Colorado rates.
It’s easy, though. to think that you would charge your customers based on the sales tax rate where you are located. So here’s the wrong way to collect sales tax from a customer:
Julie lives in Colorado and sells to a customer in Indiana. Julie charges her Indiana customer the sales tax rate of the location where she lives in Colorado. This is incorrect. Julie should charge the sales tax rate where her customer lives in Indiana.
As with anything sales tax related, the tax rate you charge can get way more complicated. We’ve written a whole post on origin vs. destination sales tax to help you figure out how much to charge customers. If you are running your own shopping cart or marketplace, TaxJar’s SmartCalcs sales tax API takes all of the nuances of charging sales tax into account for your store, so you don’t have to worry about figuring out sales tax rates at a location halfway across the country!
Or if you do want to look up a sales tax rate, you can do that with TaxJar’s Sales Tax Calculator.