Sales & Use Tax FAQs for Accountants
Sales And Use Tax FAQs
Sales and use taxes are important considerations for businesses, accountants, bookkeepers, tax professionals, and anyone responsible for tax compliance. Understanding when a transaction is taxable, when a business must register, how exemptions work, and when use tax applies can help reduce costly compliance errors.
The Sales and Use Tax FAQs at CPA Training Center provide educational answers to common questions about sales tax, use tax, nexus, taxable transactions, exemptions, resale certificates, registration, filing, multistate sales, e-commerce, audits, and sales tax compliance.
Whether you're an accounting student, CPA, bookkeeper, business owner, or tax professional, these FAQs can help strengthen your understanding of sales and use tax.
Important: Sales and use tax rules vary significantly by state and locality and can change frequently. The information on this page is for general educational purposes and is not tax or legal advice.
General Sales Tax FAQs
What is sales tax?
Sales tax is a consumption tax imposed by a state or local government on certain sales of goods and, in some jurisdictions, services. Businesses generally collect sales tax from customers and remit the applicable tax to the appropriate taxing authority.
What is use tax?
Use tax generally applies when taxable goods or certain taxable services are purchased without paying the applicable sales tax and are then used, stored, or consumed in a jurisdiction that imposes use tax. Use tax is designed to complement sales tax and help prevent tax differences based solely on where a purchase was made.
What is the difference between sales tax and use tax?
Sales tax is generally collected by the seller at the time of a taxable sale. Use tax generally applies when taxable property or services are purchased without the appropriate sales tax and subsequently used, stored, or consumed in a jurisdiction where use tax applies.
What is a taxable sale?
A taxable sale is a transaction subject to sales tax under the applicable state and local laws. Whether a transaction is taxable depends on factors such as the type of product or service, where the transaction occurs, the purchaser, and applicable exemptions.
Are all goods subject to sales tax?
No. Taxability varies by jurisdiction. Some states tax most tangible personal property while providing exemptions for certain products. Other jurisdictions have different rules for specific categories of goods.
Are services subject to sales tax?
It depends on the jurisdiction and the type of service. Some states tax certain services, while others generally do not tax services unless specifically identified as taxable.
Are digital products subject to sales tax?
Digital products can be subject to sales tax depending on the state and the nature of the product. Businesses selling software, digital downloads, subscriptions, streaming products, or other digital goods should review the rules applicable to each jurisdiction.
Are software products taxable?
Software taxability varies by jurisdiction and may depend on whether the software is delivered physically, electronically, through a cloud-based service, or under another arrangement. Businesses should determine the applicable rules for each jurisdiction in which they have tax obligations.
Why do businesses need to understand both sales and use tax?
A business may collect sales tax on its own sales while also owing use tax on certain purchases. Understanding both taxes helps businesses properly collect, report, and pay their tax obligations.
What is sales tax nexus
Nexus is the connection between a business and a state that is sufficient for that state to require the business to register, collect, and remit sales tax. It comes in two forms: physical nexus, created by people or property in the state, and economic nexus, created by exceeding a sales or transaction threshold there.
How did the Wayfair decision change sales tax for remote sellers
In South Dakota v. Wayfair, Inc. (2018), the U.S. Supreme Court overturned the physical-presence requirement established in Quill. States may now require out-of-state sellers to collect sales tax based purely on economic activity in the state. Every state with a sales tax has since adopted an economic nexus standard. For accountants, this converted sales tax from a question about where a client has offices into a question about where a client has customers.
What triggers economic nexus in a state
Exceeding that state's threshold for sales revenue or transaction count into the state, usually measured over the current or previous calendar year. The most common threshold is $100,000 in sales, and some states add or substitute a transaction count. Thresholds, measurement periods, and whether exempt sales count toward the threshold all vary by state, and several states have raised thresholds or dropped their transaction test since 2018.
What is the difference between sales tax and use tax
Sales tax is collected by the seller at the point of sale and remitted to the state. Use tax is the mirror image: it is owed by the buyer when taxable goods are purchased without sales tax being charged - typically from an out-of-state or online seller - and used in a state that taxes them. The rate is usually identical. Use tax exists so that buying out of state does not create a tax advantage over buying locally.
Who actually owes the tax - the buyer or the seller
Legally, most states impose the tax on the buyer and make the seller responsible for collecting and remitting it. That distinction matters at audit: if a seller fails to collect, the state can generally pursue either party, and in practice it pursues whichever one is easier to assess. This is why uncollected tax on a seller's exempt sales becomes the seller's liability when the exemption cannot be substantiated.
Is there a federal sales tax in the United States
No. There is no national sales tax or VAT. Sales and use tax is imposed at the state level, and in many states at the county, city, and special-district level as well. This is the root cause of the compliance burden: a single delivery address can carry state, county, city, and transit-district rates that each change on their own schedule.
Which states do not have a statewide sales tax
Five: Alaska, Delaware, Montana, New Hampshire, and Oregon - often remembered as the NOMAD states. Alaska is the trap. It has no statewide sales tax but does permit local sales taxes, and many Alaskan boroughs and municipalities impose them, including on remote sellers through the Alaska Remote Seller Sales Tax Commission. Advising a client that Alaska is a no-tax state is a common and costly oversimplification.
What does "tangible personal property" mean, and why does it matter
It is the default category of what sales tax applies to: physical, movable goods. It matters because the default in most states is that tangible personal property is taxable unless specifically exempted, while services are exempt unless specifically enumerated as taxable. Knowing which default applies in a given state tells you which direction to research from.
Does having a single remote employee in another state create nexus
Usually yes, for physical nexus purposes. An employee working in a state is generally presence in that state, and unlike economic nexus there is no dollar threshold to exceed - one person can be enough. This is one of the most common surprises for clients who went remote without reviewing tax footprint, and it can create income tax and payroll obligations at the same time.
Do marketplace sales count toward my client's nexus threshold
It depends on the state. Marketplace facilitator laws make the marketplace - not the individual seller - responsible for collecting tax on sales made through it. But some states still require sellers to include marketplace sales when measuring whether they crossed the economic nexus threshold for their direct sales. A client can therefore owe registration and filing in a state where the marketplace already handles the tax.
Does my client need a sales tax permit in every state where they sell
Only in states where they have nexus. Registering where there is no nexus creates filing obligations, including zero returns, that did not previously exist. The correct sequence is to determine nexus first, register second - never the reverse. Registering "just to be safe" in all 45 sales tax states is a costly mistake.
How do multi-state businesses manage use tax obligations
By reviewing purchases, not just sales. Accrue use tax on taxable items bought without tax - equipment, software, supplies, and promotional materials are common culprits - and remit it with the sales tax return. Most states provide a use tax line on the sales tax return for exactly this. Unaccrued use tax on fixed-asset purchases is one of the most reliable findings in a state audit.
What is an exemption certificate, and who is responsible for keeping it
It is documentation from the buyer establishing that a sale is not taxable - typically resale, manufacturing, agricultural, or nonprofit exemption. The seller must obtain and retain it. At audit, an exempt sale without a valid, complete, current certificate on file is treated as a taxable sale, and the seller pays the tax plus interest and penalties even though it was never collected from the customer.
How often do exemption certificates need to be updated
This varies by state - some accept a certificate indefinitely while the relationship continues, others require renewal on a fixed cycle. The practical standard is a periodic review of the certificate file to catch expirations, entities that have changed names or ownership, and certificates that were incomplete when accepted.
Are services subject to sales tax
In most states, services are exempt unless the state specifically lists them as taxable. But the list of taxable services has expanded steadily, and states differ sharply on categories like software, data processing, digital advertising, installation, and repair labor. Assume nothing on the basis of another state's treatment.
How is software taxed - is SaaS taxable
There is no uniform answer, which is exactly why it appears on so many audits. States take different positions on prewritten software delivered electronically, custom software, and software as a service. Some tax SaaS outright, some treat it as a nontaxable service, and some tax it only when the user is in-state. Any client with a meaningful software spend should have its treatment documented state by state.
What triggers a sales and use tax audit
Common triggers include a large or sudden change in reported sales, a consistently high ratio of exempt to taxable sales, industry-based audit programs, a nexus questionnaire answered in a way that suggests unfiled periods, referral from another state or from a federal audit, and being a large employer or purchaser in the state. Some states also select returns at random.
What does an auditor actually look at
Typically three things: exempt sales without valid certificates, purchases where use tax should have been accrued, and whether taxability decisions match the state's rules. Auditors frequently work from a sample period and extrapolate across the audit period, which is why a small error rate found in a sample can produce a large assessment.
How far back can a state audit sales and use tax
The standard lookback is generally three to four years, but that period is often open-ended if the business never registered or never filed in the state. An unregistered business with nexus can face assessment for every year nexus existed. This asymmetry is the reason voluntary disclosure agreements exist.
What is a voluntary disclosure agreement, and when should a client consider one
A VDA is a negotiated arrangement in which a business that has unmet obligations comes forward before being contacted, in exchange for a limited lookback period and usually waiver of penalties. It is the standard remedy for a client that discovers historical nexus. The eligibility rule to watch: a business that has already received a nexus questionnaire or audit notice from the state is generally no longer eligible.
What should a client do the day they receive an audit notice
Do not begin producing records ad hoc. Confirm the audit period and scope in writing, identify who is authorized to communicate with the auditor, pull the exemption certificate file and fixed-asset purchase records for review before the auditor sees them, and quantify likely exposure internally first. The work done in the first two weeks generally determines the size of the assessment.
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