FAQUnited States Sales and Use Tax Q&A
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What are sales and use tax in United States? |
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Sales tax is a gross-basis tax imposed on the retail of most tangible personal property and certain services. Sales tax generally applies on the sale to the end user or ultimate consumer, usually known as RETAIL, it is added to the sales price, and then the total amount should be collected from the purchaser. Use tax is imposed on the storage, use, or consumption of a taxable item or service on which no sales tax has been paid. Use tax does not apply if the sales tax was charged. Use tax applies to purchases made outside the taxing jurisdiction but used within the state. |
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What products are subject to sales and use tax? |
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Sales of tangible personal property are generally taxable unless specifically exempted. Services are generally non-taxable unless specifically included. Taxable services may include public utility services, admissions to public events, data processing etc. Sale of intangible property, such as sale of stocks, bonds and copyright, are generally not subject to the tax. Sales for resale or wholesale are usually exempted. |
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Who needs to apply sales and use tax permit/certificate? |
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Typically, every person/entity that is engaged in the business of selling tangible personal property at retail/wholesale, or furnishing any taxable service in certain state, must register with the state to obtain the sales and use tax permit/certificate. For remote/out-of-state sellers with substantial nexus in the taxing state, they must register with the tax authority for sales and use tax. Substantial nexus used to be based on physical presence (such as having office, employees), but economic nexus (such as annual volume of sales or number of transactions) is established recently. An overseas/out-of-state company without substantial nexus in a state may voluntarily register for collection of sales or use tax. However, the company is subject to the same duties and obligations as a taxpayer who is required to register and will be required to file returns. |
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As a wholesale, do you need to register for sales and use tax permit/certificate? |
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As long as the wholesaler doing business in the sales taxable items, the company needs to register with the tax authority to obtain the sales and use tax permit or account number. Besides the sales and use tax permit, a Resale Certificate must be provided to your U.S. supplier to buy these resale items without paying sales tax. Further, if the wholesaler sells to another U.S. wholesaler purchaser, the company needs to collect Resale Certificate from the purchaser to avoid collect sales tax. Some states issue official resale certificates, some states offer a template for you to fill out with detailed business information. |
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What documents are required to obtain the sales and use tax permit? |
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To apply the sales and use tax permit, the following information are required:
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How to apply the sales and use tax permit and how long it takes? |
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The sales and use tax can be applied online, by fax, or by mail, and the processing time is various from immediately to 3 weeks, depending on specific state requirement. |
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How often to file sales and use tax return? |
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Upon approval of sales and use tax registration, you will receive the sales and use tax permit and registration letter. This permit and letter will contain your sales and use tax account number, your filing frequency and filing due date. You must file your sales and use tax returns accordingly. |
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What sales documents we need to keep in case future audit? |
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You must keep everything in record when it comes to sales and use tax documentation, such as the following items:
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| Q: |
Are there any penalty related to sales and use tax? |
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Yes. There are many kinds of penalties regarding sales and use tax, and each state has their own standards to set the penalty. Failure to remit the sales tax with or before the sales and use tax return due date will expose the taxpayer to late payment penalties, and interest. When there is intent to evade or not report the correct state tax due, a state can impose a penalty equivalent up to 100% of the additional tax due. |
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