Stripe is an easy-to-use and developer-friendly way to accept payments for anything. If you’re selling products through Stripe, you need to be able to collect the right amount of sales tax.
This Stripe sales tax guide was written specifically for sellers and developers who use Stripe’s Orders API to collect sales tax. TaxJar directly integrates with Stripe Relay to collect the right amount of sales tax on your behalf, every time, no matter how complicated your tax situation. You can find out more about TaxJar and Stripe Relay here.
And if you don’t yet use the Orders API, no worries. This primer to sales tax will help you ensure you’re doing the right thing when it comes to sales tax, too.
Let’s get started.
Know Where You Have Sales Tax Nexus
Sales tax is governed by individual U.S. states. There is no “federal” sales tax.
The first thing you need to figure out when it comes to sales tax is where exactly you have “sales tax nexus.” Nexus is just a legalese word for a “significant connection” to a state. You will always have sales tax nexus in your home state (unless you’re lucky enough to live in one of the five states without sales tax.)
But as your business grows, you can have nexus in other states. The factors that create sales tax nexus include:
- Physical Location – Whether you sell products from a laptop on your kitchen table or from a downtown office or an industrial park warehouse, a location creates sales tax nexus. This is why you’ll always have home state nexus.
- Personnel – An employee, contractor, salesperson or installer usually creates sales tax nexus. (Though there are some exceptions when it comes to contractors creating sales tax nexus.)
- Inventory – Keeping a “stock of goods” in a warehouse in a state often creates sales tax nexus. This is the point where nexus can get tricky for people who sell through Fulfillment by Amazon or another third party program where inventory is stored around the country.
- Affiliates – A third party affiliate who sends referrals to your store in exchange for a cut of the proceeds creates sales tax nexus in some states. This is one of the newer ways that states have found to create nexus.
- Drop Shipping – If you have your distributors ship items directly to your customers, you’re in a drop shipping relationship. Depending on the terms of the relationship, you may be on the hook for sales tax.
- Temporarily Doing Business – Every state is different, but in some states, attending a trade show, craft fair or otherwise doing business temporarily could make you liable for sales tax for the entire year. You can read more here about sales tax and temporarily doing business.
Wondering if a business activity creates sales tax nexus? Here’s a list of what every state’s code of laws has to say about factors that create sales tax nexus. If you have any questions or gray areas, you should also contact a good sales tax CPA.
Is what you’re selling taxable?
Once you’ve determined where you have nexus, your next step is to determine if what you are selling is taxable in that state. Most tangible personal property is taxable, though some states exempt necessities like clothing or grocery items, or products that further state policies, like textbooks.
If you sell products in states where they are tax exempt or taxed differently, sales tax can be a real challenge. This is one of many areas where TaxJar has your back.
You sell grocery items and have nexus in Kentucky and Arkansas. Groceries are tax exempt in Kentucky so you don’t have to worry about collecting sales tax from buyers there. But in Arkansas, groceries are taxed at a reduced rate of 1.5% + any local tax rates. Take into the account the fact that you are required to collect the exact sales tax rate at your Arkansas buyer’s shipping address, and this can be almost impossible to determine for each and every order.
That’s where TaxJar comes in. If you sell commonly tax exempt or differently taxed items like groceries, food, clothing, digital products, etc. TaxJar ensures you collect the right amount of sales tax in every state – even the complicated ones like Arkansas. Just make sure to enter the correct product tax code on your products in the Stripe Orders API and we’ll do the rest. You can see a list of all of the product tax codes TaxJar supports here.
If you’re not selling any taxable products at retail, then you aren’t required to collect sales tax. Just keep in mind that most anything “tangible” is also taxable. If you have questions about whether what you’re selling is taxable, check with your nexus state. Here’s a handy list of phone numbers for every U.S. state’s sales tax department.
Register Your Business to Collect Sales Tax
Once you’ve determined in which states you have sales tax nexus and are required to collect sales tax from buyers, your next step is to register your business for a sales tax permit.
Since sales tax is governed by individual states, you register with your state’s taxing authority (often called the State Department of Revenue.)
Each state’s registration process is a little bit different, so here’s a guide to registering for a sales tax permit in every state.
Once you’ve received your sales tax permit, the state will provide you with a filing frequency and due dates. You’ll generally be required to file either monthly, quarterly or annually. The rule of thumb is that the more sales you make in a state, the more often that state will want you to file and remit sales tax.
And a final word of warning about registering for sales tax permits – don’t skip this step! States consider collecting sales tax without a permit unlawful. Ouch!
Collect Sales Tax from Customers
Your next step is to make sure you’re collecting sales tax from buyers in all of your nexus states on all of the payment processors, shopping carts and online marketplaces on which you sell.
If you’re using Stripe’s Orders API to manage your inventory and transactions, TaxJar provides a direct integration for calculating sales tax. Here’s our guide to setting up Stripe sales tax collection with TaxJar.
Keep in mind that some states also require sales tax on shipping and delivery charges. If you use TaxJar with Stripe’s Orders API you don’t have to worry about that – we’ll charge sales tax on shipping charges in states where shipping is taxable.
Report How Much Sales Tax You’ve Collected
So you have a sales tax filing due date coming up, and you need to figure out just how much in sales tax you’ve collected. This is the part where sales tax starts to get really tricky.
You must figure out how much sales tax you collected from buyers in each state. If you only sell through Stripe, pulling a report of sales tax you’ve collected won’t be terribly difficult. But if you sell on more than one channel, then you have to pull sales tax reports from each channel and then combine them for your totals.
What’s worse is that most states don’t just want the total amount you collected from buyers in that state. That would be a single number (and would be way too easy.)
They also want you to break down how much you collected by city, county or other taxing district.
That’s why we created TaxJar. TaxJar will pull in all the sales tax you collected from Stripe and the channels you sell on, and then break down that information in the way each state wants to see it.
Without TaxJar, you’ll have to combine reports, go back and try to figure out which district a buyer lived in, and then spend hours with state tax code lookup tables. With TaxJar your returns are ready in minutes.
Which leads me to…
File Your Sales Tax Return & Remit Sales Tax Due
Remember that sales tax filing frequency you were assigned way back when you signed up for your sales tax permit? Well now your sales tax filing due date is rolling around and it’s time to file your return and remit the taxes you collected.
You have some choices here. You can file by mail (archaic and time consuming), file online (easier, and some states even require it) or let TaxJar AutoFile your returns for you.
With AutoFile, TaxJar files and remits your sales tax turns for you. After you’re set up, there’s no need for you to do anything else. We’ll also take advantage of any state sales tax discounts that may be eligible for, and remit them right back to you. We’ll never let you leave free money on the table!
Also keep in mind that some states want you to file a sales tax return even if you didn’t collect any sales tax. If you don’t file one of these “zero returns” you can be liable for a penalty. So don’t forget to file on your due date.
And that’s it! You’ve conquered Stripe sales tax (until the next sales tax filing due date rolls around.)
If you have questions or comments about using TaxJar with Stripe’s Orders API, check out our developer’s guide for using Stripe to collect sales tax with TaxJar or leave a comment here.