What is an example of a destination-based sales tax?
For example, if you are based in Salt Lake City, Utah, and you make a sale to a customer in Provo, Utah, you will charge the applicable Salt Lake City sales tax on the sale.
- Alabama.
- Arkansas.
- Colorado.
- Connecticut.
- District of Columbia.
- Florida.
- Georgia.
- Hawaii.
Major origin-based states include Texas, Pennsylvania, Ohio, Virginia and California. Most states and Washington, D.C., are destination-based requiring you to apply sales tax at the location of the customer.
*California has to be special! It's a “modified origin” state. So state, county and city taxes are based on the origin, but district taxes are based on the destination.
Washington State changed to “destination-based” sales tax, meaning that tax for items shipped or delivered are now calculated at the point of delivery or first use, rather than the location where the item was shipped from. Items purchased at a storefront are still charged tax at the local rate of the storefront.
Destination-based Tax: GST is a destination-based tax, levied at each stage of the supply chain, from the manufacturer to the consumer. It is applied to the value addition at each stage, allowing for the seamless flow of credits and reducing the tax burden on the end consumer.
In a destination-based state, sales tax is collected based on the buyer's location. That means you collect sales tax based on your customer's state and local tax rates. You also remit the tax to your customer's state and locality. Destination state = Buyer location's tax rate.
Which states are origin-based and which are destination-based? *California is unique. It's an origin-based state where state, county, and city taxes are based on the business location, but district taxes are based on the customer address.
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 its name suggests, O&D is the starting point (origin airport) and end point (destination airport) of a traveler's directional journey.
Is Florida a destination-based sales tax?
Florida is a destination-based sales tax state. So if you live in Florida, collect sales tax at the sales tax rate of the address where you ship your product.
Sourcing sales tax in Michigan: which rate to collect
Michigan is a destination-based state. This means you're responsible for applying the sales tax rate determined by the ship-to address on all taxable sales. For additional information, see the Michigan Department of Treasury Sales and Use Tax page.
Sourcing sales tax in Ohio: which rate to collect
In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing). Ohio uses both destination and origin sourcing.
New York's retail sales tax is a destination tax. The point of delivery or the point at which possession is transferred by the seller to the purchaser determines the rate of tax to be collected. Sales delivered outside New York State are exempt from tax.
Maryland is a destination-based sales tax state. So if you live in Maryland, collecting sales tax is based on where your customer lives. Luckily, Maryland is one of the few states with no local tax rates, so you would only charge the state sales tax rate of 6%.
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). Illinois generally uses destination-based sourcing.
Washington is a destination-based sales tax state. So if you sell an item to a customer through your online store, collect sales tax at the tax rate where your product is delivered. (I.e. the Buyer's ship to address.) The state sales tax rate for Washington is 6.5%.
The state-wide sales tax in Kentucky is 6%. Kentucky has a destination-based sales tax system, * so you have to pay attention to the varying tax rates across the state. Charge the tax rate of the buyer's address, as that's the destination of your product or service.
In theory, California is considered a modified origin-based state (or a “hybrid-origin” state), which means that for in-state sellers, the state, county, and city taxes are calculated based on the location of the seller or ship-from address (origin-sourcing), while district taxes are calculated based on the location of ...
- New York: 4% sales tax rate.
- Wyoming: 4% sales tax rate.
- Colorado: 2.9% sales tax rate.
- Alaska: no sales tax.
- Delaware: no sales tax.
- Montana: no sales taxes.
- New Hampshire: no sales tax.
- Oregon: no sales tax.
Is Texas a destination state for sales tax?
Texas is an origin-based sales tax state. So if you live in Texas, collecting sales tax is fairly easy. Collect sales tax at the tax rate where your business is located. The Texas sales tax rate is 6.25%.
With most online sales, most states base sales tax rates on the shipping address. In sales tax jargon, this is known as destination sourcing, because sales tax is sourced to the destination of the goods, the place where they're delivered.
Missouri is a destination-based sales tax state. This means that sales tax rates are determined by the location of the buyer, not the seller.
States rely on sales tax to fund budget items like roads and schools, so they have a vested interest in making sure that merchants in a state are collecting the right amount of sales tax from buyers in the state. With all these different states, rules and laws come a veritable cornucopia of sales tax rates!
Each location is different. On a state level, some states have an income tax, and others don't. States with no income tax will likely have a higher sales tax. Some state governments are run more efficiently than others and may not need to generate as much tax revenue.
