Is the sales tax rate is based on origin or destination in the states where you do business?

by Chuck January 01, 2012

based on origin or destination

based on origin or destination

By Charles F. Spielmann

It’s important for businesses to know not only which sales tax laws apply to the products and services they provide, but also whether the source of the sales tax rate is based on origin or destination.

Sales tax is based upon the origin of the sale in just a few states. The majority of states base the sales and use tax upon the destination.

Destination-based systems can be complicated for retailers because the burden of staying up to date with ever-changing tax rates for all jurisdictions within the state or states in which they have nexus falls upon the retailer. Filling tax returns in these states can be doubly complicated since some require the retailer to precisely track and break their sales down for each jurisdiction.

As of this writing, the following states are destination based: Alabama, Arkansas, Colorado, Connecticut, District of Columbia, Florida, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, Nevada, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, South Dakota, Tennessee, Vermont, Washington, West Virginia, Wisconsin and Wyoming.

There are several states where sales taxes are origin based. Sales taxes in these states originate from the point of purchase regardless of where the customer receives the merchandise. This method is much simpler for the merchants.

The origin-based states are: Arizona, Illinois, Mississippi, Missouri, New Mexico, Pennsylvania, Texas, Utah and Virginia.

In an interesting exception to the two sales tax sourcing bases already mentioned, California is considered a modified origin state. While sales taxes are origin based at the state, county, and city levels, special districts are destination based.

Alaska proves to be its own special case. The state doesn’t impose any sales or use tax, but various boroughs and municipalities do. There is no uniformity between these municipalities and no ordinance can be considered “typical,” so Alaska is essentially non-classifiable at a state-wide level.

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