The ABCs of tax compliance jargon
by March 18, 2025
Navigating the world of sales tax compliance can be daunting, especially when you’re faced with a set of terms and jargon that you aren’t familiar with. To help you make sense of commonly used terminology, we’ve compiled a list of sales tax compliance terms that every business owner should know.
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Indirect tax
Indirect taxes are applied to retail sales of certain tangible personal property and services, paid by the consumer, and remitted to the appropriate tax authority by the business. Businesses collect indirect taxes on behalf of the government, and remit the money collected on a set basis.
Sales tax
Sales tax is a type of indirect tax in the US. Sales tax is applied to retail sales of certain tangible personal property and services, paid by the consumer, and remitted to the appropriate tax authority by the business. Forty-five states have a state-wide sales tax. The five states that don’t have a state sales tax are:
- Alaska: Alaska passed legislation allowing local jurisdictions to elect to require that e-commerce businesses with economic nexus to collect sales tax. You can find a list of local jurisdictions that require sellers with economic nexus in Alaska to collect here.
- Delaware
- Montana
- New Hampshire
- Oregon
Sales tax is governed at the state level, meaning each state creates their own sales tax rate, product taxability rules, and filing frequencies and procedures. Further, states also allow local areas (cities, counties, etc.) to levy their own sales tax.
Value-added tax (VAT)
VAT is a type of indirect tax, most commonly found in Europe. Similar to the US, each country can set their own VAT rates. Unlike the US sales tax system, the VAT system is a multi-stage tax that is imposed at every step of the supply chain. The VAT is due in the country of consumption regardless of the country of the seller.
Goods and services tax (GST)
Similar to sales tax, GST is an indirect tax that applies to the sale of certain goods and services. GST is commonly found in Canada and the Asia-Pacific region.
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Sales tax nexus
Sales tax nexus occurs when your business has some kind of connection to a state. All states have a slightly different definition of nexus, but most of the time states consider that a “physical presence” or “economic connection” creates nexus. For this reason, there are two different types of nexus, physical and economic. Businesses only need to collect sales tax from customers in states where they have sales tax nexus.
Physical nexus
Physical nexus means having a physical connection to a state. Some common business activities that create physical sales tax nexus include:
- Having an office, store or other location in a state (even a home office)
- Having an employee, salesperson, contractor, etc. in a state
- Owning a warehouse or storage facility in a state
- Storing inventory in a state (such as in an Amazon FBA warehouses or other 3rd party fulfillment center)
- Temporarily doing physical business in a state for a limited amount of time, such as at a trade show or craft fair
Economic nexus
Economic nexus is making a certain amount of sales in a state, either a certain dollar amount or a certain number of transactions. These are referred to as economic nexus thresholds, and they vary by state.
Product taxability
As we mentioned above, each state determines what items are taxable. Most tangible goods are taxable. However, it gets complex as states vary in how they tax common items such as grocery products or medicine. Often, states will tax essential goods like these at a lower rate, or exempt them from sales tax entirely.
Digital goods and services, like SaaS offerings, also vary from state to state. Sometimes, it depends on how the digital goods are shared when purchased, or if it comes with a physical item like a flash drive.
If this sounds confusing, don’t worry! Subscribe to our sales tax newsletter to get monthly sales tax insights delivered directly to your inbox, keeping you up to date on all the aspects of compliance. In general, once you’ve determined where you have sales tax nexus, you should research if your offering is taxable in those states.
Sales tax permit
A sales tax permit allows a business to collect sales tax from customers in a certain state. Businesses must register for a sales tax permit when they have met nexus thresholds in a state and have determined their product is taxable. Businesses should not collect sales tax without having a valid permit. In most states, registration is free. Each state has their own registration requirements and processes, making multi-state compliance challenging. In general, these are the steps to register with a state to collect sales tax:
- Gather vital info like your EIN and other business identifying information
- Visit your State’s Department of Revenue website
- Search or click on the “Sales and Use Tax” section of the website
- Click the link to register your business
We’ve outlined how to register for a sales tax permit in each state here. If you’d like to streamline your compliance, TaxJar can handle the registration process for you. Visit our registration page to request our team of experts manage your sales tax registration on your behalf.
Resale certificate
A resale certificate is a document that allows registered retailers to buy items for resale without paying sales tax on those items. Some states issue official resale certificates tailored to your business that you can print and give to your suppliers. Other states offer a template for you to fill out with your resale certificate number. Either way, you’ll need to present some form of a resale certificate document to a supplier should you want to buy items for resale without paying sales tax on those items.
Resale certificates are only to be used to buy items you intend to resale or component parts of items you intend to resale. For example, the wood used to make a table to sell.
Before you try to use a resale certificate, check either TaxJar’s State Resale Certificate blog posts or contact your state to determine what you need to present to buy items tax-free for resale.
Remote seller
A remote seller is a business that sells goods or services in a state where it does not have a physical presence. Remote sellers must comply with the sales tax policies of the states where they make sales. This often comes up in sales tax law, and it’s important to understand how your business is defined.
Tax jurisdiction
As we mentioned above, each state creates their own sales tax laws. On top of that, cities and local governments can create additional sales tax. Tax jurisdiction refers to the specific area, a city or town, where a sales tax is imposed. Each jurisdiction may have different rates and rules regarding sales tax compliance.
Filing frequency
Filing frequency indicates how often a business is required to file its sales tax returns, which could be monthly, quarterly, or annually, depending on state regulations and the volume of sales. When you register for a sales tax permit, the state will assign you a filing frequency.
States generally assign filing frequency based on one of two criteria:
- how much your business grosses in sales
- how much sales tax your business collects
For example, businesses with an average monthly tax liability of $100.01 to $1416.65 are required to file their California sales tax returns quarterly. Other states like Pennsylvania calculate how often a seller should pay based on their previous year’s third-quarter sales tax liability.
A handful of states, like Nevada and New York, base how often you’ll be asked to file sales tax on your average monthly taxable sales. For instance, in Nevada businesses who gross an average of $10,000.01 and up are asked to file monthly, while businesses who gross an average of $10,000 or less in taxable sales are assigned to file quarterly.
In many states, small or seasonal businesses are only required to file sales tax once per year.
The general rule of thumb here is that the more your business grosses, the more often a state will require that you file and pay sales tax.
Zero return
Most states require businesses to file a sales tax return by their set due date, regardless if any sales were made during that reporting period. This is referred to as a zero return. The states use sales tax returns as a way to check in on businesses, and failure to file a return even if you have nothing to report, could result in penalties and interest payments.
If you continuously have nothing to report, and are filing zero returns consistently, you can reach out to the state and request a filing frequency change, to file less often.
How to streamline your sales tax compliance with TaxJar
Understanding these common sales tax compliance terms is crucial for effectively managing your business’s sales tax obligations. Staying informed not only helps you maintain compliance but also allows you to better navigate the complexities of sales tax in today’s marketplace.
If you’re looking for an easier way to manage your sales tax compliance, TaxJar can help. TaxJar manages all the different aspects of compliance, including keeping you updated on where you have nexus, registering for sales tax permits, and automating sales tax filing and remittance. To learn more about TaxJar and get started automating your sales tax compliance, start a free, 30-day trial today.
