Which state’s sales tax must be paid?

I have a client who charges sales tax on some items in CA. So far all sales tax were calculated based on my client’s location in CA.

Now for the first time, my client is shipping the item to Arizona. I am using QB automatic sales tax. It calculated only Arizona sales tax. Shouldn’t it calculate CA and AZ sales tax?

solved 4 Answer

Answer

  1. 10 Answers

    For sales tax purposes, the state that has the right to tax the sale is the state where delivery occurs. The seller should collect the tax for the state where the property is delivered to the customer. If the customer picks up the item at the seller’s location, tax should be collected for the state in which the seller is located. If the item is shipped to the customer, then tax applies for the delivery state, whether that is the same state where the seller is located or a different state.

    Sellers should collect sales tax only if they are registered to collect sales tax in that state. If you are below the threshold for collecting sales tax in that state (150,000 of sales for 2020, 100,000 of sales for 2021) you are not required to collect sales tax – the responsibility falls on the buyer to report taxable sales on his/her income tax filings.

  2. 15 Answers

    Thanks for your clarification. 3 more questions:
    1- So if my client sells less than $150,000 a year, there’s no need to collect sales tax from customers?
    2- Where can I find info about the threshold for each state?
    3- I did not know about registration for collecting sales tax. I just set up the sales tax on QB. Should I register my client?

    • 10 Answers

      1- For Arizona, correct.
      2- Information will need to be researched for each state individually, but a pretty good summary can be found here.
      https://www.salestaxinstitute.com/resources/economic-nexus-state-guide
      3- For each state that you project you will exceed the sales tax threshold for after completing your nexus analysis, you’ll need to register with that particular state and remit your sales tax (generally quarterly, but you’ll need to check the filing requirements as each state is different as well).

      Nexus analysis needs to be done annually as the registration/collections thresholds usually change annually, as the Departments of State have continued to lower these thresholds in an effort to collect more taxes as more and more retail sales move online. It is a time consuming process, but necessary to stay compliant.

      Best answer

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