How we calculate sales tax

How is my sales tax calculated?

QuickBooks uses these three components to calculate your sales tax rate:

• The state where you are registered to collect sales tax
• The physical address of your business
• The physical address on the sales receipt or invoice

If you live and operate your business in Illinois, for example, then you have to pay sales tax there, must register for a sales tax permit, and collect sales tax from customers there. But if you live in Illinois and do not have any business presence in Wisconsin (no office, employees, affiliates, goods in a warehouse, etc.), then you might not have a requirement to collect sales tax on sales to Wisconsin.

However, there might be unique things of how you run your business that create the requirement to collect sales tax, and if you are in doubt, we recommend that you consult with an expert advisor.

The amount of sales tax you collect varies from state to state and location to location. Each state sets a sales tax rate. Then counties, cities, other localities and even special taxing districts can set their own rates.

What if you sell to customers in different states?

When your customers are located in other states – a common situation for e-commerce and online business owners, your tax situation will vary depending on what state you are located and where you are selling.  We advise you to contact your state tax authority, or your accountant, to get information for your specific situation. The general rules are as follow: 

• If you don't have a presence in a state, then you are not required to collect sales taxes.
• Every state defines sales tax rules differently. Check with your local tax authority for clarification if you have questions.

What types of transactions are exempt from sales tax?

While you should check with your individual state tax authority as to which goods and services sold in your state are subject to sales tax, generally you are not required to collect sales tax for the following transactions:

• Resold items – Retailers don't typically have to pay sales tax on wholesale purchases since it's assumed that the end consumer will pay sales tax on these items at the point of purchase.
• Raw materials – If you produce and sell goods that will be the raw material for other goods, these items are typically considered sales tax exempt.
• Non-profits – Sales made to non-profit organizations are normally exempt from sales tax If you are involved in these types of transactions, you'll need to get a copy of the buyer's tax-exempt certificate or number (issued by the state they are in).