Building Your Business Business Taxes How Does a Home-Based Business Collect Sales Tax? By Jean Murray Jean Murray Facebook Twitter Jean Murray, MBA, Ph.D., is an experienced business writer and teacher who has been writing for The Balance on U.S. business law and taxes since 2008. She has taught accounting, business law, and business finance at business and professional schools for over 35 years, has authored several books on saving money and simplifying your business, and was the owner of startup-focused company Emence Enterprises, LLC. learn about our editorial policies Updated on September 19, 2022 Fact checked by Daniel Rathburn Fact checked by Daniel Rathburn Daniel Rathburn is an associate editor at The Balance. He has over three years of experience working in print and digital media as a fact-checker and editor. Daniel holds a bachelor's degree in English and political science from Michigan State University. learn about our editorial policies Share Tweet Pin Email In This Article View All In This Article How Businesses Collect Sales Tax The Sales Tax Process Sales Tax on In-Person Transactions Sales Taxes on Internet Transactions Frequently Asked Questions (FAQs) You have just started a home-based business and someone has told you that you must collect sales taxes on sales. You must figure out how to do this, on every taxable transaction, from local sales to online sales. Here are some tips to help you collect sales taxes for online and in-person sales for your home business. Key Takeaways Your home business pays sales taxes to a state tax agency in the same way as other types of businesses.You must pay sales taxes if you have a tax presence in a state, by selling products or having a home office.If you have a very small home business, you may not have to deal with sales taxes on online transactions.Sales taxes are complicated; it’s best to get sales tax software to help with all the sales tax laws. How Businesses Collect Sales Tax Sales taxes are required by most states for both in-person sales and sales over the internet. States require small businesses, including home-based businesses, to collect, report and pay sales if they have a tax nexus (a tax presence) in that state. Your home business can have a tax nexus if the business: Sells or ships products from your home to buyers in the state Has an office or place in your home where you conduct business Has employees who work in the state for your home business, including independent contractors, salespeople, representatives, or agents In addition to statewide sales taxes, many cities, counties, and other types of localities require sales taxes. Note Alaska, Delaware, Montana, New Hampshire, and Oregon don’t have statewide sales taxes. The Sales Tax Process After you have determined that your home business has a tax nexus in your state, the next step is to find what products and services you sell are subject to sales taxes in your state. You’ll need to know if your products or services are taxable, the tax rate, and the difference in taxes if you are selling to individuals in different parts of your state. Check with your state's department of revenue or taxing agency (it might be called something else in your state). You can find information on whether your products or services are taxable (most products are; many services are), and the tax rates in all localities in your state. The next step is to register to collect sales tax in your state by getting a seller’s permit. In most states, you can register, submit reports, and pay taxes online. Sales Tax on In-Person Transactions In-person transactions are the easiest to deal with. Let's say you make and sell greeting cards for shops in your city. You will need to know the sales tax rate at the location where you deliver the product and charge that to each of your customers. If you make products at home and sell them to customers at a outdoor market or flea market, you will might want to get a phone with an internet connection and sales tax software to calculate the sales tax. Of course, you can also handle these transactions manually with a receipt pad. Sales Taxes on Internet Transactions All states that charge sales tax also have laws requiring businesses that sell online to pay sales taxes for online transactions. You are a remote seller if your business doesn’t have a physical presence in the state but it sells products or services for delivery into that state. The key thing to remember is “delivery into a state.” To help small businesses, each state has a threshold for annual sales or number of transactions below which the state doesn’t require reporting of online transactions. For example, Arkansas requires sales tax report if online sales are greater than $100,000 or 200 transactions during the current or preceding year. California requires reporting if total combined physical and online sales exceed $500,000 during the preceding or current calendar year. Consider the estimated sales for your home business and the number of possible states into which you might deliver taxable products or services in that state. You could potentially need to deal with 45 states and over 38,000 localities. The best way to solve this complicated problem is to find a tax software company that an automatically charge sales taxes on your online transactions. These companies are fairly up-to-date on the current requirements. Frequently Asked Questions (FAQs) What sales are exempt from sales tax? Each state sets the taxable products and services in that state, exempting some from sales taxes. Alaska, Delaware, Montana, New Hampshire, and Oregon don’t have sales taxes. Florida, for example, has no sales tax on common household remedies, most grocery products, infant supplies, seeds and fertilizers. Minnesota, New Jersey, Pennsylvania, and Vermont don’t impose sales tax on clothing, and several other states have limits on clothing items. How do I figure sales tax? To calculate sales tax for a product, you will need to know the price of the product and sales tax rate for that product in the state and specific locality. For example, a book you are selling to someone in Mendocino, California, for $15 would have a sales tax rate of 9.375%, would cost $16.46 including sales tax. The same book sold in Oakland, California, (10.250%) would cost $16.54. The sales tax rate is the same if you are selling the book online for delivery to someone at those locations. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Tax Foundation. "State and Local Sales Tax Rates, 2021." Streamlines Sales Tax Governing Board Inc. "Remote Seller Guidance." Florida Dept. of Revenue. "Nontaxable Medical Items and General Grocery List." Tax Foundation. "Map: State Sales Taxes and Clothing Exemptions." State of California. "California City & County Sales & Use Tax Rates (Effective April 1, 2022)."