Frequently Asked Questions

State and local tax rules change often and can vary widely from one state to another. If your business sells products or services across multiple states, it’s easy to miss a filing requirement or misapply tax rules.

You need to charge sales tax when your business has established nexus in a state, and the products or services you provide are subject to tax there.

You establish nexus when your business builds a clear connection to a state, either by having a physical presence or by reaching a certain level of sales activity within that state.

Yes, companies must obtain a sales tax permit/license before they begin collecting tax.

If a state discovers that you have nexus and do not have a sales tax license, they can assess tax against the company on sales where tax should have been collected. The state may also impose interest and penalties of up to 25% of the tax owed.

Your state and local tax rate depends on where you live or operate your business. The rates can vary by state, county, and city, so the total tax rate is usually a combination of several local taxes.

A state tax audit can take a few weeks to several months, depending on how organized your records are.

Common triggers for a state tax audit include large changes in reported income, missing filings, or mismatches between state and federal tax records.

While it’s possible to handle an audit on your own, having professional guidance can help ensure your responses are accurate, your documentation is complete, and your risk is minimized throughout the process.

A taxability review looks at your products or services to determine which ones are taxable in certain states, to ensure you are collecting the right amount of tax.

Taxability reviews are important because if you collect too much tax, customers will complain or ask for a refund. If you collect too little, your business may end up paying the difference after an audit.

Yes, taxability rules can vary widely by state, especially for services, digital products, and specialized goods. What is taxable in one state may not be taxable in another.

Sales tax nexus is when your business has enough presence or activity in a state to require collecting sales tax. A connection can come from having employees, inventory, or abundant sales in that state. If a nexus exists, your business will need to register and start collecting sales tax.

To determine nexus, you must review where your business has employees, inventory, offices, or strong sales activity, and then compare those factors with the state’s tax rules to see if registration and filing are needed.

Yes, selling online can create an economic nexus if your sales exceed certain thresholds in a state, even if you don’t have a physical presence there.

Sales tax compliance is the process of collecting, reporting, and filing sales tax correctly with each state where your business operates. It involves maintaining accurate records, preparing tax returns, and making timely payments to stay compliant and avoid penalties.

How often you need to file a tax return depends on the state and your sales. Some businesses are required to file monthly, while others file quarterly or even annually.

If you miss a sales tax filing deadline, it’s best to file as soon as possible to limit penalties and interest, even if no tax is owed. Getting back on track quickly helps keep your business in good standing and avoids further issues.

In many states, you are still required to file a return even if you had no sales during the reporting period, often referred to as a zero return.

A reverse audit is a review of past tax payments to see if your business overpaid sales or use tax, and in doing so, to help you recover excess money paid.

Consider conducting a reverse audit if your company operates in multiple states, has complex purchasing processes, or has never reviewed its previous tax payments.

In most cases, a reverse audit can review transactions from the past three to four years, depending on the state’s statute of limitations.

Common overpayments include tax paid on exempt purchases, incorrect tax rates, or errors in how vendors applied sales tax.

A tax exempt certificate is a document that allows a buyer to purchase certain goods without paying sales tax. It shows the seller that the purchase qualifies for a legal tax exemption.

You get a tax exempt certificate by registering with your state’s tax authority, or by qualifying for a specific exemption. Once approved, you show the certificate to vendors when making exempt purchases.

You should review your exemption certificates regularly to confirm they are valid and up to date, because expired or incomplete certificates can create unnecessary audit risk for your company.

If you can’t show valid exemption certificates during an audit, the state may treat those sales as taxable and bill your business for the difference, along with added penalties and interest.

Keeping your exemption certificates in order helps you avoid problems during an audit. It also reduces risk and makes sure your records are easy to back up if questions come up later.

Sales tax software helps calculate the correct sales tax for each transaction based on location and the tax rules. Businesses use it to help make tax compliance easy and reduce manual errors when collecting and reporting sales tax.

Yes, a proper setup will help ensure the software uses the correct tax rules for your products and locations.

Yes, many sales tax software platforms can store and manage customers' exemption certificates, helping you stay organized and ready for an audit.

The right software depends on your business size, where you operate, and how complex your tax requirements are. Choosing the right solution helps ensure accurate reporting and long-term scalability.