Sales tax is managed at the state level, and sometimes at the city or jurisdiction level. For a business with tax obligations in multiple states, understanding and abiding by the unique filing and remittance requirements for each state can be a time-consuming process.

Below, we’ll cover what you should know about your sales tax requirements, including certain nuances to keep in mind when filing and remitting sales tax, and how to file and remit (pay) sales tax in each state to maintain compliance.

What's in this article?

• Understand your sales tax requirements
  
• Filing vs. paying sales tax
  
• How to file a sales tax return
  
• How to remit (pay) sales tax
  
• How Stripe Tax can help
  

Understand your sales tax requirements

The first step is understanding where you have sales tax requirements. Generally, businesses (including corporations, LLCs, and sole proprietorships) are required to collect sales tax from customers when they exceed certain thresholds. These thresholds are referred to as “economic nexus thresholds,” and they are either revenue-based, transaction-based, or both. These thresholds vary by state: learn more about navigating the sales tax registration process in the US.

It’s also important to know whether the state in which you’re operating is origin-based or destination-based. In origin-based jurisdictions, sales tax is calculated using the seller’s location. In destination-based states, sales tax is calculated using the buyer’s address.

Once you have determined where you have met economic nexus thresholds, you must register for a sales tax permit in those states. To register for a sales tax permit, you’ll need to provide general business information, and certain states charge a small fee for registering. Registration is done online, and you can review this comprehensive list to find the relevant registration link.

Filing vs. paying sales tax

Filing and remittance (paying) are often used interchangeably, but they are two different activities—and both are required to maintain compliance. Filing is when a business submits a sales tax return that details the sales activity for a taxable period and how much sales tax was collected. Remittance is submitting the tax collected to the appropriate tax authority, which could be a state or a city. Remittance is also often referred to as paying sales tax.

To calculate how much sales tax you must remit, multiply the taxable amount of a sale by the total combined sales tax rate for your current location.

The reason these two actions are often grouped together is because sales tax returns and payment are generally due at the same time. While each business has a unique filing and remittance frequency, high-volume businesses are often required to file more frequently than small businesses. The tax authority will set the due date when you register to collect tax, but this can change as your business evolves.

In most states, high-volume businesses need to remit sales tax monthly, generally by a specific date the following month. Moderate volume businesses may be able to remit quarterly, while low volume or seasonal businesses with fewer sales may only need to remit once a year.

The state tax authority will notify you if your filing frequency has changed.

How to file a sales tax return

Filing a sales tax return involves reporting your sales transactions and tax collected for the taxable period. Each state has its own sales tax return format, but generally you are required to detail your gross sales, taxable and non-taxable sales, customer information, and the amount of tax collected. Streamlined Sales Tax (SST) allows businesses to easily register and remit sales tax across the participating states, simplifying the process for multi-state sellers.

Depending on the tax authority, you may be required to itemise this information by jurisdiction. For example, while some states require businesses to report at the city level, others only require consolidated state level information. Maintaining detailed tax records (such as invoices, receipts, purchase orders, and resale certificates) is key for filing an accurate tax return.

There might be periods when your business has not collected any sales tax from customers. However, you may still be required to file a sales tax return. These are referred to as “zero returns,” and you are required to file them with the state by your due date.

When completing a sales tax return, businesses should indicate any appropriate exemptions. These vary by location, but some common types of deductions include resale exemptions, tax-exempt products, sales where taxes were collected by marketplace facilitators, and sales to exempt organisations.

Another challenging aspect of compliance is home rule states. These states allow individual home rule cities to administer their own sales tax and tax bases. The following are home rule states: Alabama, Alaska, Arizona, Colorado, and Louisiana. In these states, businesses are generally required to file a return in each individual home rule city, in addition to the state return.

How to remit (pay) sales tax

Similar to filing a sales tax return, the process of remitting tax varies by tax authority. There are different methods and timing requirements across the US. For example, California requires some businesses to file returns quarterly, but make monthly prepayments. However, aside from a few exceptions, most businesses will file and remit sales tax on the same due date.

Here’s the general process for remitting sales tax:

1. Calculate your liabilities
   Aggregate your gross transactions for the specified filing window, separate tax-exempt sales, and calculate the exact tax amount owed to the state or local jurisdictions.
   

2. Log into the portal
   Access the state's secure e-services portal using your unique business credentials and tax account numbers.

3. File the return
   Populate the digital tax form with your calculated sales and exemption metadata, or execute a spreadsheet upload if you manage high-volume, multi-location transactions.

4. Authorise the payment
   Input your corporate bank details to execute a secure e-cheque transfer, or use a credit card gateway to submit the exact tax balance due before the state's hard deadline.

5. Confirm submission
   Review the calculated filing summary, verify that the final dollar amounts match your back end accounting records, and enter your account password to officially transmit the return.

To avoid penalties and interest, ensure your tax payments are submitted by the set due date. In most jurisdictions, failure to file and failure to pay fees can add up quickly. Additionally, make sure to download the digital return summary and secure the transaction reference confirmation number. Keep these records to ensure compliance in the event of a future tax audit.

Each tax authority allows different payment methods for remitting sales tax, although most allow electronic payments such as ACH or electronic funds transfer, as well as credit and debit card payments. While credit card or debit card payments are immediate, they often incur processing fees. ACH payments generally cost less, but are slower.

Most states prefer businesses to file and remit online, using their own state portals. You can review this comprehensive list to find the relevant state tax authority link for filing and remitting sales tax.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard or using our powerful API.

Stripe Tax helps you monitor your obligations and alerts you when you exceed a tax registration threshold based on your Stripe transactions. It can also register to collect tax on your behalf in the US and manage filings through trusted partners. Stripe Tax automatically calculates and collects sales tax, VAT and GST on:

• Digital goods and services in all US states and over 100 countries
  
• Physical goods in all US states and 42 countries
  

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration, or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: If you need to register for a sales tax in the US, let Stripe manage your tax registrations. You'll benefit from a simplified process that prefills application details – saving you time and simplifying compliance with local regulations. If you need help registering outside of the US, Stripe partners with Taxually to help you register with local tax authorities.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business.

Learn more about Stripe Tax or get started today.