Sales Tax 101
For today’s merchants, understanding sales tax is a critical business function that impacts your bottom line. Whether you’re launching a new venture or streamlining operations, mastering business sales tax basics can save you time, money, and considerable stress. Let’s break down what you need to know to stay compliant and keep your focus where it belongs: growing your business.
What is sales tax?
Sales tax is a tax on goods and services collected by merchants from their customers. If you are a business owner and you sell products or services, you are required by law to collect business sales tax. This is a general description with many exceptions and rules around the taxability of goods and services that vary from state to state.
Who pays sales tax?
Consumers pay sales tax. Business owners do not pay sales tax out of their own pockets. Merchants are simply required to collect it, hold it secure, and send it to the state or city by a required date. It’s commonly referred to as a pass-through tax.
Is sales tax a federal tax?
No. Sales tax for businesses is a state, city, and/or county tax. It is never paid to the federal government like payroll or income tax. Understanding sales tax requires recognizing its local nature.
Does every state have a sales tax?
No. Five states—New Hampshire, Oregon, Montana, Alaska, and Delaware (the NOMAD states)—don’t have general sales tax. However, even these states have exceptions requiring merchants to collect sales tax on specific goods or services, such as food & lodging tax in New Hampshire or local city taxes in Alaska.
Are all goods and services taxable?
No. The taxability of goods and services varies significantly from state to state or, in some cases, city to city. A comprehensive sales tax guide should be consulted for your specific location.
How do you know what’s taxable and what’s not?
States publish lists of taxable and non-taxable goods and services on their websites. For a complete sales tax basics reference, check your state’s Department of Revenue website. DAVO can help businesses navigate these complex rules automatically.
How do I know how much sales tax to charge?
Sales tax rates are set by the state, county, and city, and there are over 12,000 tax jurisdictions in the US. The definitive answer is always the sales tax rate posted on your State Department of Revenue website. Rates posted elsewhere are often not up-to-date and incorrect. It’s always the business owner’s responsibility to charge the correct sales tax rate.
Who gets the sales tax money?
In most instances, all sales tax gets paid directly to the state. However, in some states, merchants are also required to collect and remit local sales tax to the city or county. Understanding sales tax distribution is crucial for proper compliance.
After businesses collect sales tax, what then?
Merchants are required to hold it secure, and every month or quarter they must fill out a sales tax return and pay it to the state. This is where DAVO’s automation becomes invaluable, handling the collection, filing, and payment process seamlessly.
What if you forget to pay or spend the money and can’t pay?
States have severe penalties for missing tax payments, as high as 25% of what you owe. If sales tax goes unpaid, states may seize the assets of the business or owner and auction them off to pay the debt. In extreme cases, owners can be prosecuted. Even if the business closes, sales tax is a personal liability that will follow the owner until paid.
Simplify Your Business Sales Tax Management
DAVO automates every step of the sales tax process—from collecting to filing to paying. It works seamlessly with your POS system, so there’s nothing you need to do. Because DAVO guarantees your taxes will be paid on time and in full, you can focus on being a business owner, not a tax collector.
Ready to eliminate sales tax stress? Visit our website to learn how DAVO can integrate with your existing POS system and start automating your sales tax process today.
EN 
ES