Origin- and destination-based sales tax rates | Stripe (2024)

FAQs

What is the difference between origin based and destination-based sales tax? ›

Origin-sourced sales are taxed where the seller is located, while destination-sourced sales are taxed at the location where the buyer takes possession of the item sold. As a seller, it is important to know whether you are located in an origin-sourced state or a destination-sourced state.

* California is a modified-origin state, where state, county, and city taxes are based on the origin of the sale, while district taxes are based on the destination of the sale.

Marketplace providers that are engaged in business in Texas must collect and remit tax on all sales by marketplace sellers. The local tax rate is based on the shipping destination.

Destination-based sales tax: how it works

Destination-based sales taxes mean you use the tax rate of the destination of the product or service. The customer is the destination. The tax rate you apply to the sale must be the local rate where the buyer is located or where the product is headed.

Additionally, for interstate commerce, when a seller ships into any state from a location outside that state, the sale is sourced to the destination point and the sales tax rate applies at the destination point. There are some states that go against the grain and are considered origin-based states.

The destination-based cash-flow tax (or DBCFT) allows for wage deductions, while a VAT does not. Under the cash-flow tax with border adjustment, imports would be charged a uniform 20% and unlike "the sales tax, the cash-flow tax with border adjustment would favor domestically produced goods."

In a destination-based (or interstate) ecommerce transaction, the location where your customer takes possession of the product is the point of taxation. This is the shipping address, meaning your business would use this address to calculate sales tax, not the billing address.

Sales tax generally does not apply to your transaction when you sell a product and ship it directly to the purchaser at an out-of-state location, for use outside California.

When it comes to destination-based eCommerce transactions, the location where your customer takes possession of the product is considered the point of sale. In this case, the customer takes possession of the product at her shipping address. So you, the seller, would charge her sales tax based on her shipping address.

For sales tax purposes, the state that has the right to tax the sale is the state where delivery occurs. The seller should collect the tax for the state where the property is delivered to the customer.

Is Missouri an origin or destination state for sales tax? ›

In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing). Missouri is an origin-based state.

What tax rate do I use? The Texas state sales and use tax rate is 6.25 percent, but local taxing jurisdictions (cities, counties, special-purpose districts and transit authorities) also may impose sales and use tax up to 2 percent for a total maximum combined rate of 8.25 percent.

New York is a destination-based sales tax state. So if you live in New York, collecting sales tax can be a bit complicated.

Sales tax does not apply when the property is sold to a purchaser for shipment abroad and is shipped or delivered by the retailer to the foreign country.

Note: Effective July 1, 2021 New Mexico has moved to destination-based sourcing. This means that the gross receipts tax rate on the sale of property will be based on the location where the property is received by the buyer.

For example, if your company in state A provides a product or service for someone in another state (state B), you are conducting interstate business. Intrastate business is business conducted within a particular state. So if a company and customer are in the same state, then you are conducting intrastate business.

The VATs are “destination based” taxes in which taxes are imposed by the jurisdiction in which the buyer is located. Exports are not taxed by the jurisdiction in which the goods are produced (zero-rated); imported goods are taxed by the jurisdiction in which they are sold.

Sales tax applies to almost anything you purchase while excise tax only applies to specific goods and services. Sales tax is typically applied as a percentage of the sales price while excise tax is usually applied at a per unit rate.