Origin-based vs. destination-based thresholds

Modified on Wed, 9 Oct at 4:51 PM

As we have all heard time and time again, comprehending sales tax rates can be challenging. Nevertheless, there is a more simplistic concept in regards to what you should charge your customers who are based in your home state. Foremost, you will need to know if your business is based out of an origin-based state or a destination-based state.

Important Note: It should be pointed out that this information should be used to understand the concept of applying sales tax in your home-base state only. Out-of-state sellers who are selling into their nexus states have different requirements.

Origin-based sales tax states

Below is a list of all the applicable origin-based states, this means that as a business owner, you should impose sales tax to everyone in your home-base state, at the rate where your business is located. This levy can be a combination of state, county, city, and district tax rates.

Arizona	Mississippi	Pennsylvania	Utah
California*	Missouri	Tennessee	Virginia
Illinois	Ohio	Texas

*California is a bit different than the other origin-based states. It is considered to be a modified origin state, which means the rates of state, county and city taxes are based on the origin, however district taxes are based on the destination state (where the buyer is located).

As you can see, there aren’t many origin-based states which is a much simpler concept to understand. The other states are considered to be destination-based, which is a bit more intricate concept to say the least.

This is due to the fact that in destination-based states, the sales tax rate is based upon where the buyer is located specifically, the destination of the sale. Therefore, depending on where your buyer is located, you’re required to charge sales tax based upon their state, county, city and local rates where states can potentially have hundreds of tax jurisdictions, resulting in a great deal of different sales tax rates.

Destination-based sales tax states

Below is a list of all the applicable destination-based states, this means that as a business owner, you should impose sales tax to everyone in the state where the product(s) are being delivered to. This levy can be a combination of state, county, city, and district tax rates.

Alabama	Indiana	Minnesota	Rhode Island
Arkansas	Iowa	Nebraska	South Carolina
Colorado	Kansas	Nevada	South Dakota
Connecticut	Kentucky	New Jersey	Vermont
District of Columbia	Louisiana	New Mexico	Washington
Florida	Maine	New York	West Virginia
Georgia	Maryland	North Carolina	Wisconsin
Hawaii	Massachusetts	North Dakota	Wyoming
Idaho	Michigan	Oklahoma

*New Mexico as of July 1, 2021, changed their sourcing from origin-based to destination-based sourcing.

Remote Sellers: Origin vs. Destination-based sales tax thresholds

Let’s say you have nexus in multiple states outside of your home-based state. As a business owner, you would then be considered an out-of-state seller or what’s commonly known as a “remote seller” in those state(s).

A golden rule is that you are considered to be a remote seller if you have nexus in a state where you and your business are not located.

States more often than not instruct their remote sellers to charge sales tax based upon the buyer’s destination i.e where the item is being shipped. Fewer states tell out-of-state sellers that they should charge a flat use tax rate.

We suggest contacting the DOR of the state(s) you have in question regarding what tax rate to charge. And of course, Taxually is here to assist you with all things sales and use tax related!

FAQ

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