This is general information, not tax advice. Sales tax rules vary by state and sometimes by city or county. Check with your state’s tax agency or a tax professional for the rules that apply to you.
Sales tax is one of the first taxes a new seller runs into, and one of the easiest to get wrong. If you sell candles at craft fairs, coffee from a cart or gifts from a small shop, you are probably expected to collect sales tax from your customers and pay it to the state. Here’s how it works, in plain terms.
What is sales tax?
Sales tax is a tax on the sale of goods, and in some states certain services, charged at the point of sale. The customer pays it, but the seller collects it and sends it to the state. In the United States there is no federal sales tax. Each state sets its own rules, and cities, counties and special districts can add their own local sales tax on top.
The key idea for a seller: the tax you collect is not your money. You are holding it for the state until you file. Keep it separate in your head, and ideally in a separate bank account, so it isn’t spent on stock or rent.
States without a statewide sales tax
Five states have no statewide sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon. That doesn’t always mean no sales tax at all. Some Alaska cities and boroughs charge their own local sales tax, so a seller at a market there may still need to collect it. And these states can have other taxes that apply to businesses.
Who collects sales tax
The seller does. If your sale is taxable in the place where it happens, you are responsible for charging the right rate, collecting it at checkout and paying it to the state. That applies whether you run a shop, a food truck, a coffee cart or a table at a weekend market. Being small or part-time doesn’t usually exempt you from collecting on in-person sales.
Online and out-of-state sales have extra rules. Since 2018, states can require remote sellers to collect sales tax once they pass a sales threshold in that state, and marketplaces like large online platforms often collect it for their sellers. The thresholds differ by state, so check each state you ship to.
Get a seller’s permit first
Before you make taxable sales, most states require you to register with the state tax agency. The document goes by different names: seller’s permit, sales tax permit or license, certificate of authority, and others. Registration is usually done online through the state’s revenue or taxation department, and many states don’t charge for it.
- Find your state agency. The Federation of Tax Administrators keeps a list of state tax agencies.
- Selling at an event in another state or city? Some states issue temporary permits for short events. Ask the organizer; they often know what vendors need.
- Buying stock to resell? Many states let registered sellers use a resale certificate so they don’t pay sales tax on inventory they will resell. Rules and forms vary.
The SBA’s guide to licenses and permits is a good starting point for the other registrations your business may need.
Which items are taxable varies by state
Not everything you sell is taxed the same way, and the same item can be taxed in one state and exempt in the next. Common areas where states differ:
- Food. Many states treat grocery food differently from prepared food. A bag of coffee beans and a hot latte from the same cart may be taxed differently. Food trucks usually sell prepared food, which is often taxable.
- Clothing. Some states exempt clothing, fully or up to a price limit.
- Services. Some states tax services such as gift wrapping, repairs or custom work; others don’t.
- Shipping and delivery charges. Treatment varies.
- Gift cards. In general, selling a gift card is not itself taxed; tax applies when the card is used to buy taxable items. Confirm for your state.
Your state tax agency publishes guides by industry. Look for ones on restaurants and food, retail, or temporary vendors and fairs.
How the sales tax rate is built: state plus local
The rate a customer pays is usually the state rate plus any local rates for where the sale takes place: county, city and sometimes a transit or special district. That means two markets in the same state can have different rates, and a food truck that parks in three cities during the week may need to charge three different rates.
Don’t guess. Most state tax agencies have a rate lookup tool by address. Look up the rate for each location you sell at, write it down with the date you checked, and recheck when rates change, which often happens at the start of a quarter or year. Our free sales tax calculator helps with the math once you know the rate.
Collecting sales tax at markets, fairs and events
In-person events are where sales tax gets messy. A few habits keep it clean:
- Know the rate for the event’s location, not your home address. For in-person sales, the rate is generally based on where the sale happens.
- Decide how you price. You can add tax at checkout, or build it into round prices so cash is quick. If you include tax in the price, check whether your state allows it and whether you must post a sign saying so. Either way, you still owe the tax on the sale.
- Record every sale, cash included. Your tax return has to match your sales, and a pile of cash with no record is hard to defend in an audit.
- Track sales by location or event, especially if rates differ between them. Some states want sales reported by location.
- Mark tax-exempt items so they aren’t taxed by mistake, like a jar of honey next to a taxable prepared drink.
Our guides to selling at a farmers market and craft fair booths cover the rest of event prep.
Keeping sales tax records
When you file, you’ll typically report total sales, taxable sales, exempt sales and the tax collected. Keep records that let you produce those numbers for any period:
- A record of every sale with the date, amount, tax charged and payment method.
- Daily totals, such as an end-of-day Z-report, and your cash drawer count.
- Resale certificates and exemption certificates from customers who bought tax-free.
- Receipts for inventory purchases.
- Copies of every return you file and every payment you make.
States can audit several years back, and how long you must keep records depends on the state. Keep them longer than you think you need.
Filing and paying sales tax
After you register, the state assigns you a filing frequency, usually monthly, quarterly or annually. Smaller sellers often start on a less frequent schedule, and the state may move you to more frequent filing as your sales grow.
- Put the due dates in your calendar the day you register.
- File even if you had no sales. Many states expect a return for every period, and a missed zero return can bring penalties.
- Set the tax aside as you go, so the payment isn’t a surprise.
- File on time. Late returns usually bring penalties and interest; some states reward on-time filers with a small discount.
If you stop selling in a state, close your permit properly instead of letting it lapse, or you may keep receiving notices for missing returns.
Common sales tax mistakes small sellers make
- Using the home rate for every event instead of the event’s location.
- Forgetting to record cash sales.
- Charging tax on exempt items, or not charging it on taxable ones.
- Spending the tax money before the return is due.
- Selling at an out-of-state show without checking whether a temporary permit is needed.
- Skipping zero returns in slow months.
How SleepingFire helps with sales tax
SleepingFire doesn’t look up rates or file returns for you, and it isn’t accounting software. What it does: you set your store’s tax rate, mark exempt products as tax-exempt, and every sale records the tax charged along with the payment method, cash included. When it’s time to file, the sales tax summary covers any date range and exports to CSV for you or your accountant, and each day’s Z-report can be downloaded as a PDF. See the sales reports.