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Accounting 101: Knowing When to Calculate Sales Tax March 20, 2018

O'Fallon, O'Fallon
Accounting 101: Knowing When to Calculate Sales Tax, O'Fallon, Missouri

Knowing how much sales tax to add on to a product or service is a key calculation for businesses. From the state where the company is located to knowing which items are tax-exempt, this important accounting method helps ensure accuracy and compliance. Here are several factors used to calculate sales taxes.

Factors for Calculating Sales Tax

1. Business Location

One of the first factors is the firm's home base. With the exception of certain regions of Alaska, and the entire states of Delaware, Montana, New Hampshire, and Oregon, all states and the District of Columbia assess sales taxes.

Where a business is "located" can have several definitions. The accounting term is "nexus," and includes the physical property or whether one or more employees works in another state away from headquarters. In addition, if a company ships items to a state that imposes sales taxes, the additional tax will need to be imposed.

2. Type of Products & Services Sold

accountingAnother factor considered for the proper charging of sales tax involves the products and services sold by a business. Depending on the state, certain items may be exempt from sales tax assessment. Religious groups, schools, charitable organizations, and other non-profits generally don't charge sales tax if they have the proper tax-exemption license from state authorities. The best way to determine if certain goods are tax-exempt is to consult with a professional accounting specialist who knows the rules in each state.

3. Order Shipping Destination

Accurate sales tax calculations are also determined by what tax authorities require from in-state customers. There are generally two methods used: destination-based and origin-based. With destination-based assessments, companies charge in-state customers a combination of local and state sales taxes at the address where an order will arrive. Origin-based sales tax is assessed on orders where the company is located.


These are just a few of the factors needed to ensure sales taxes are calculated accurately. If your firm has operations in more than one state or is involved in shipping, A-Z Business Solutions is your trusted accounting expert for compliant calculations. With Missouri-based offices in O'Fallon, St. Charles, and Chesterfield as well as locations in Tampa, Seffner, and Clearwater, FL, the company has extensive experience in helping businesses from a variety of industries. To learn more, call (855) 553-2665 or visit their website.