Sales tax for small business owners is set by states and local governments, which is why the rules can change depending on what you sell and where your customers are.
Sales tax for small business: who sets the rules
In the United States, sales tax is mostly a state matter, and some cities and counties add their own. That means there is no single national rate. This guide to sales tax for small business owners is general information, not tax or legal advice, and you should confirm the details with your state tax agency or an accountant.
Start by finding your state revenue or tax department website. The official U.S. government business guide links to state resources, and your local SBDC can point you to the right office.
- Rules differ by state and sometimes by city
- Your state tax agency is the official source
- Confirm details before you start charging customers
Do you need to collect sales tax
Whether you must collect depends on what you sell and where. Many states tax most physical goods, while services and digital products are treated differently from state to state. Some states also have rules about when out-of-state sellers must collect, based on sales volume or activity in the state. Ask your state agency how it treats your product or service rather than assuming.
- Physical goods are often taxable
- Services and digital items vary by state
- Out-of-state selling can create obligations
Getting a sales tax permit
If you will collect tax, most states require a sales tax permit or registration before you start. It is often free or low cost, and it lets you collect tax legally and report it. Selling without one can lead to penalties. Our guide on legal basics for starting a business covers the other registrations to check, and our guide on getting an EIN explains the federal tax ID you may need on the form.
- Register with your state before your first sale
- Keep the permit where you can find it
- Check whether your city also requires registration
Collecting and tracking sales tax for small business sales
When you sell, you generally add the tax to the price, keep the money separate from your own income, and report and pay it on a schedule your state sets. Many owners use accounting software or a point-of-sale system that calculates the right rate. A separate account helps, and our guide on opening a business bank account explains why. The tax you collect is not your revenue, so do not spend it.
- Add the right rate at checkout
- Hold collected tax apart from your income
- Report and pay on the schedule your state sets
Exemptions, resale and records
Some sales are exempt, such as certain nonprofit purchases or items bought for resale. When a customer claims an exemption, you usually need to keep the proper certificate on file. Good records protect you in an audit. Keep invoices, exemption certificates and filing confirmations organized for as long as your state requires.
- Keep exemption certificates on file
- Save invoices and filing confirmations
- Ask how long your state requires you to keep them
Where to get help
Rules change, so check your state agency regularly. For income-side questions, the IRS small business and self-employed tax center is the federal resource, and SCORE offers free mentoring. A short call with an accountant can save you from a costly mistake. Our guide on estimated taxes for small business covers the income tax side.
- State tax agency websites
- Free mentoring from SCORE
- An accountant for your specific situation
Related reading on sales tax for small business
- Legal Basics for Starting a Business: A Checklist
- How to Get an EIN for Your Business
- How to Open a Business Bank Account
- Estimated Taxes for Small Business Owners Explained
- Business Funding Options: A Plain-English Guide for New Owners
- LLC vs. Sole Proprietorship: Setting Up Your Business Opportunity Correctly
- USA.gov guide to starting a business
- America’s SBDC small business advising
- IRS small business and self-employed tax center
- SCORE free business mentoring
