When to fee Sales responsibility For Your Services: A navigator (2025)

If you’re a merchant who sells within the United States, sales responsibility due dates can be an unwelcome wake-up call, especially if you’re recent to the globe of US sales responsibility.

Between the different sales responsibility rules for each state, the recent laws for out-of-state ecommerce sellers, and the penalties of overcharging or failing to remit sales responsibility, there’s no denying that sales responsibility lawful operation has become tricky to navigate.

Luckily, it’s straightforward to recognize where and when you may require to collect sales responsibility, as well as how to collect accurately with product- and location-specific rates, thanks to Shopify responsibility. Keep reading to discover more about sales responsibility for tiny businesses, including when to fee sales responsibility for your ecommerce store. 

What is sales responsibility?

Sales responsibility is a consumption responsibility paid to the government on the sales of goods and services. It’s typically paid by the complete customer of a product at the point of sale, collected by the seller, and remitted to the government on a regular basis, depending on the seller’s volume, products, and state requirements.

Shopify has a helpful sales responsibility reference page for learning the sales responsibility rates, collection rules, and nexus conditions for each state. 

Sales and use responsibility is collected at the state level in 45 states and the District of Columbia, and at a local level for some towns and municipalities. Currently, only five states don’t collect sales responsibility at the state level: Alaska, Delaware, Montana, recent Hampshire, and Oregon.

When to fee sales responsibility

The excellent information is that you’re only required to collect sales responsibility if you meet the criteria for establishing a significant business presence in the state. This conditional obligation is referred to as the sales responsibility nexus.

Most products and services are subject to sales responsibility but some are exempt or subject to a different rate, depending on your state. To determine where your business has nexus, and whether your products are taxable, pursue the steps below.

Sales responsibility obligations for online sellers

In the US, online sellers are obligated to collect sales responsibility if they have a nexus in a particular state. If you meet the requirements, you require to collect sales responsibility on eligible online orders. You can accomplish that either by incorporating the sales responsibility in your product pricing or tacking it on as an additional expense at checkout. 

Both approaches have their pros and cons. Extra costs at checkout are the biggest rationale for online cart abandonment. Including sales responsibility in your product prices avoids these extra costs at checkout, but they make your products more expensive. This can be an issue if you’re mainly competing on worth.

If you’re required to collect sales taxes, you’re obligated to keep accurate sales responsibility records, including the amount you’ve collected, and file your sales responsibility profit with state authorities.

How to fee sales responsibility

Here’s what you require to be sales responsibility compliant:

1. Determine where you have nexus
2. Ensure your products are taxable
3. Register for a sales responsibility permit
4. Set up sales responsibility collection in Shopify
5. Prepare your sales responsibility reports
6. File your sales responsibility profit(s)

1. Determine where you have nexus

Nexus is established when you meet the requirements for a business presence in a state. Prior to 2018, this referred to a physical presence, such as having a warehouse.

With the precedent set in South Dakota v. Wayfair, where the Supreme Court ruled in favor of the state’s entitlement to sales responsibility from the out-of-state seller, many states have updated their definition of nexus to include remote sellers with no physical presence. 

As a outcome, nexus can now exist based on either a physical or an economic presence in a state. Now, all sellers who have generated enough sales in a given state to qualify must pay state sales taxes in all applicable situations.

Physical nexus

Depending on the state, a physical nexus can be anything from:

• An office
• An employee residing in or traveling to the state
• A warehouse
• A distribution center
• A third-event affiliate
• Stored inventory
• Temporary physical business in a state, such as at a trade display or craft fair

Economic nexus

An economic nexus is triggered when you reach a sure threshold of sales within the state. 

For example, the state of Illinois considers $100,000 in sales or 200 transactions in a 12-month period as the threshold for economic nexus. Texas, on the other hand, deems sales made in the state exceeding $500,000 in the history 12 months an economic presence.

If you suspect you might have a physical or economic presence in a state, check with that state’s taxing authority.

Shopify merchants using Shopify responsibility can easily check where they may have nexus through the sales responsibility insights found in Settings > Taxes and duties > United States > Manage responsibility debt. You’ll also receive a notification when you may have reached nexus in a state.

responsibility sourcing rules

Be aware of responsibility sourcing rules for each state—that is, which state has the correct to responsibility a deal. This sales responsibility rule can be particularly puzzling for recent online businesses: Which state should be collecting taxes—where the customer will receive the order, or where the seller has processed the order? 

Typically, states responsibility based on goal sourcing (the state where the customer receives the order), not origin sourcing (where the seller processes the order)—but not always. 

Here’s the difference between origin and goal responsibility sourcing: 

• Origin-sourced sales are taxed according to where you, the seller, are located. Origin sourcing may apply when property is shipped wholly within a single state. For example, property withdrawn from a Texas warehouse and shipped to a Texas recipient may be taxed at the rate where the warehouse is located.
• goal-sourced sales are taxed according to where the buyer takes possession of the item sold. For example, property shipped from outside of Texas into Texas may be taxed at the rate where the recipient of the goods is located.

Luckily, most states use goal sourcing, but some states and districts use mixed sourcing. Always check the responsibility regulations in the states where you do business. 

2. Ensure your products are taxable

While most tangible personal property (like your product line) is subject to sales responsibility, some property is exempt from sales responsibility or subject to a different rate.

Nontaxable property can include some or most:

• Services, such as legal or home renovation services
• Digital products, such as music, video games, or software
• Food and groceries
• Prescription and non-prescription drugs

Whether those items are taxable or not depends on the person state taxation laws. For example, sure types of clothing are considered nontaxable in states like Minnesota and recent York, but the same is not factual in every state—or even for every type of clothing in those states.

Services and digital products can be especially confusing, as the line between the two is often blurred. Many services today are delivered through digital products, such as advertising or software-as-a-service (SaaS) products.

Shopify responsibility helps you sort that out by suggesting categories for each of your products that you can review, revise, and approve. Accurate sales responsibility rates are then applied automatically when you add recent items to your store, and those rates are always kept up to date.

If you sell a product you ponder might be nontaxable, check with state responsibility authorities or a responsibility professional to make sure. 

3. Register for a sales responsibility permit

States where you have nexus require you to secure a sales responsibility permit before you commence collecting sales responsibility. To register for a sales responsibility permit, leave to your state turnover authority’s website or provide them a call.

States use sales responsibility funds to pay for things like schools, roads, and community safety, so they are invested in any merchants with nexus in their state collecting and remitting sales responsibility.

Sales responsibility permits are free in most states, while others expense a tiny fee, ranging from $10 to $100. Do a web search for “apply for sales responsibility permit” and the name of the state to get more information.

Once you’ve registered, your state will inform you when and how often it wants you to file sales taxes. This is generally monthly, quarterly, or annually, with most annual due dates falling in January.

Don’t skip this step! States generally consider it unlawful to collect sales responsibility without a permit. Here’s a sample sales responsibility permit application from the state of Florida to provide you a sense of what to expect from this procedure.

4. Set up sales responsibility collection in Shopify

Once you’ve registered in the states where you have a sales responsibility nexus, it’s period to set up the ability to collect sales responsibility in your online storeand any other sales channels. 

If you use Shopify, you can get started by going to Settings > Taxes and duties > United States. From there, choose your preferred responsibility service: Shopify responsibility, Basic responsibility, or Manual responsibility. When you choose Shopify responsibility, you’ll automatically collect sales responsibility at checkout using hyper-accurate product- and location-specific rates. 

“We no longer require to manually update sales responsibility information, saving us countless hours and reducing the uncertainty of errors,” says Ailee Fei, who uses Shopify responsibility for her business, Daily Charme. “It’s been a game-changer for our tiny business.”

Merchants choosing Basic or Manual responsibility will require to receive some additional steps to configure their responsibility settings. A complete overview of your options is available in the Shopify assist Center.

Once you’ve determined your preferred responsibility service, select the state where you’d like to activate responsibility collection and select Collecting taxes > Collect sales responsibility. responsibility is now activated for that state and will be automatically collected from buyers in that state.

If you sell on multiple channels, you must collect sales responsibility from buyers in states where they have sales responsibility nexus on every channel you sell on. Again, this is fairly straightforward if you only have sales responsibility nexus in one state. If you have a sales responsibility nexus in multiple states, check with every platform on which you sell to make sure you’re collecting sales responsibility from the correct buyers.

5. Prepare your sales responsibility reports

As your sales responsibility filing date approaches, figure out how much sales responsibility you’ve collected from buyers in every state where you have nexus.

The level of bookkeeping reporting specific required varies from state to state. The majority of states desire to recognize the amount of sales responsibility you collect from in-state buyers, broken down by county, city, or district.

With Shopify responsibility’s sales responsibility update tool, you have all you require to prepare for filing sales responsibility. This update provides both net sales and taxable sales, each broken down by state, county, and local jurisdictions, along with the exact reporting codes. You can also customize the update to your exact needs. For example, hide columns, filter by goal or period period, or view complete deal data for reference or auditing purposes.

6. File your sales responsibility returns

Now comes the part where you update the sales responsibility you’ve collected from buyers to the states where you have sales responsibility nexus.

Check with person states on when and how to file. Most states make it straightforward to file online. In truth, some states require you file online or pay a penalty.

If you didn’t collect any sales responsibility over a taxable period, many states still require you to file what is known as a “zero profit.” A zero profit lets states recognize that, while you didn’t collect sales responsibility during this period, you’re still in business. If you overlook to file a zero profit, you can be charged with a penalty.

It literally pays to file your sales responsibility returns on period: Many states realize sales responsibility is a burden and will award merchants a sales responsibility discount for paying early or on period. Don’t leave that money on the table.

Look up and mark those sales responsibility due dates in your calendar. If you use Shopify responsibility, you’ll receive intelligent notifications that inform you when and where you require to file your returns, saving you the trouble.

Understanding sales responsibility rates by state

Overview of state sales responsibility rates

Sales responsibility rates vary by state and typically range between 2.9% and 7.25%. Here’s a breakdown of the rates by state, as of 2024.

Variations in local sales taxes

It’s not just state-wide sales responsibility you’ll require to consider—some states have a “local alternative” that lets sure cities and counties add an additional responsibility rate onto the state sales responsibility. 

In the state of Louisiana, for example, the state sales responsibility rate is 4.45%. The recent Orleans parish charges an additional 5% in local taxes, making the total sales responsibility rate 9.45% if you have a nexus in the district. The recent Orleans parish keeps the extra percentage, while the state sales responsibility is passed onto Louisiana state. 

Exemptions and exceptions to sales responsibility

ordinary exemptions for nonprofits and charities

While specific rules vary by state, some online sellers are exempt from sales responsibility if they sell to nonprofits and charities. 

These exemptions can include:

• Donations to nonprofits
• Purchases made for charitable purposes
• Products bought for official use by government or educational institutions

Exemptions for sure types of products

The majority of products are taxed at the default sales responsibility rate determined by state and local governments. However, sure products may be taxed at lower rates or exempt depending on local rules and regulations. 

Online retailers selling the following products tend to be exempt from charging sales responsibility on those items:

• Non-prepared food
• Medical equipment and prescription medications
• Educational materials (e.g., college textbooks)

Professional services also tend to be exempt from sales taxes. If you’re hiring independent contractors to design your website or working with a business consultant, for example, these transactions tend to be exempt from state sales responsibility.

Shipping is a little less straightforward. In most states, shipping charges are not taxable if they’re separately stated on the invoice and not marked up. However, some states consider shipping charges part of the sale worth and therefore taxable.

How to apply for sales responsibility exemptions

If you’re eligible for a sales responsibility exemption, you can apply for a sales responsibility exemption certification from the US Department of State online portal. You’ll require to provide this certificate to remove the sales responsibility on exempt purchases when buying items from a business that charges sales responsibility.

How to keep track of sales responsibility collected

If you’re selling on Amazon, eBay, Etsy, or another marketplace platform, these companies are now obligated to collect and remit taxes on behalf of their sellers in states with marketplace facilitator laws. You should still confirm the marketplace is collecting and remitting responsibility on your sales made through their platform.

Shopify makes it straightforward to track sales responsibility collected with Shopify responsibility. You can track your obligations in each state, and automatically collect responsibility at checkout with product and location accuracy. 

With Shopify responsibility, there’s no require to complete manual state responsibility returns, either. Shopify responsibility supports automated filing enrollment, so you can get notified when your responsibility returns are ready and automate submissions to avoid late penalties.

“Previously, to sort through all the data, I had created a custom spreadsheet and formulas to spit out the data that the state of Illinois needs,” says Caleb Benoit, founder of Connect Roasters, about using Shopify responsibility. “With this update, that’s no longer essential. I just pull up the Illinois Department of turnover site in a recent browser tab and copy the numbers. Takes 15 minutes max.”

What happens if you don’t collect sales responsibility?

Skipping out on local sales responsibility can have solemn consequences for your business. If you don’t collect it, you’re still liable for the uncollected amount and will have to pay out of pocket. You may face penalties and profit charges, too, which can quickly add up. 

In the worst-case scenario, state responsibility authorities may impose hefty fines, revoke your sales responsibility permit, or even file criminal charges. Some states might also place liens on your business assets or personal property to recover the owed taxes. 

It’s way easier (and cheaper) to just collect the responsibility and remain on the correct side of the law.

Is sales responsibility complicated?

Yes. Are you alone? No.

Once you’ve run through these steps, you should have a basic handle on how to fee sales responsibility. Still feel overwhelmed? That’s why many business owners consult a responsibility professional to ensure they’re compliant with sales responsibility laws.

If your business is powered by Shopify, consider the benefits of using Shopify responsibility. Built to assist business owners manage their responsibility debt in the United States, Shopify responsibility automates a lot of sales responsibility processes for you and provides guidance on how to register and remit sales taxes with the relevant authorities.