US Sales Tax Sourcing
When it comes to charging your customers sales tax, there are 2 main ways to charge tax.
- Destination-Based Sales Tax
- Origin-Based Sales Tax
So what is the difference between the 2? And which one should you charge?
Difference Between Destination vs Origin
The difference between destination and orgin based sales tax is what address you will use when determining the sales tax that you based your sales tax on. Destination bases sales tax charges tax based on the destination of the "product" you are selling, where orgin based, charges it based on where the product originated from. So what are some examples?
If you have a product that you are selling, if you are to ship that product to the customer, with origin based sourcing, it means you charge sales tax based on where that product originated from, which would be your offices address. If you are destination based sales tax, you will charge it based on where that product is being delivered to, or where the customer recieves the order.
What About Services?
What if you offer a service that is not picked up at your location, but you are not shipping them. With service based products, typicaly the address that is used is the location that the service is fullfilled. The customer officially recieves the order where the event or occasion is set up.
How will tax be charged for each option?
At Balloon Suite, when setting up a saltes tax we have 2 current forms of tax.
Origin-Based - With this method, the tax will be calculated based on your address reguardless of where order is fullfilled.
Destination-Based - Destination based tax will calculate the tax based on where the products/service is fullfilled/delivered.
What if I have to charge taxes in miltiple states
When it comes to charging taxes in different states, your tax nexus will be determined based on a lot of factors. There are a number of things that can mean you need to collect sales tax in multiple states such as:
- Your physical presence
- Delivery & Distribution
- Employee Location
If your not sure if you should collect sales tax across state lines, you should contact an accountant.