Sales Tax Rate: Your Address or the Customer's Ship-To?

Do I charge my own sales tax rate or the customer's local rate?

Charge each sale at the rate its state's sourcing rule gives, not one rate on every invoice. A sourcing rule says which address a sale is taxed at, and each state writes its own, so no national answer exists. A destination state uses the customer's delivery address. A state that sources to the seller uses the seller's location. A sales tax registration covers one state; it does not turn your own address's rate into the right rate for every customer.

What makes a case not simple:

• More than one state. Each state sources on its own rules.
• Local layers. Inside one state, two customers can owe different rates because cities, counties and districts add their own tax.
• Software already charging one rate on many invoices. Some customers overpaid and others underpaid, and returns already filed carry the wrong amounts. In California, for one, over-collection on one invoice does not offset under-collection on another (see below). Each invoice needs a check against its own state's rules.

Gather an export of every invoice with its ship-to address, tax charged and date; the states where you are registered; the returns filed; and the tax settings in your invoicing or store software.

What do origin-based and destination-based sourcing mean?

Destination-based sourcing taxes a sale at the place the customer receives it. Origin-based sourcing taxes it at the seller's location. Some states mix the two. Of the three states shown, New York is destination-based. Texas local sales tax is origin-based for a seller with a Texas place of business, with local use tax added at the ship-to address when its rate is higher. California district tax follows the delivery address when the seller is engaged in business there.

Use tax is the companion to sales tax: a buyer owes it on goods first stored or used in a place where the sale was not taxed at that place's rate, and a seller required to collect it adds it to the invoice like sales tax (District Taxes).

The Streamlined Sales and Use Tax Agreement, which its member states follow, sources a sale of goods to the seller's location if the buyer receives them there, and otherwise to where the buyer receives them, including the delivery instructions the seller knows. A shipping company holding the goods for the buyer is not the buyer receiving them. A member state with local taxes may, on conditions, source an in-state sale to where the seller receives the order (Streamlined Sales and Use Tax Agreement, sections 310, 310.1 and 311).

New York, Texas and California are not members of the agreement (Streamlined Sales Tax Governing Board). States outside it write their own rules, including origin rules this guide does not show. Read your own state's revenue department guidance before assuming either method.

How does New York set the rate on a delivered sale?

New York is a destination state: the point of delivery, or the point where the seller transfers possession to the buyer, determines the rate (New York Tax Department). The combined rate is the state rate of 4% plus any local rate imposed by a city, county or school district. Taxable sales in the Metropolitan Commuter Transportation District, which is New York City and seven nearby counties, add 0.375% (TB-ST-825).

• Shipped goods take the rate where they are delivered, so a shipment to a customer's home uses that home's rate.
• Goods taken in a store take the store's rate, even if the buyer uses them in another county (TB-ST-825).
• Services take the rate where the service is delivered, or where the property serviced is delivered (TB-ST-825).
• Sales delivered outside New York are exempt from New York tax (New York Tax Department).

How does Texas treat local tax for a seller with a Texas place of business versus one shipping in?

Texas sources local tax to the seller's place of business or to the ship-to address, depending on where the order is received and filled. Texas collects state tax of 6.25% plus local tax capped at 2%, so the most a seller can collect is 8.25% (Publication 94-105).

In general, local sales tax follows the seller's place of business and local use tax follows the place where the customer stores or uses the item. The Comptroller defines a place of business as a location operated to sell taxable items where sales personnel receive three or more orders in a calendar year from customers other than employees, contractors and affiliates. A website, server or domain does not count. A warehouse that only ships does not count unless it meets the test.

The table follows Publication 94-105, dated April 2022. Under an agreed temporary injunction, the Comptroller is not enforcing, while a court challenge runs, the provision that treats orders not received by sales personnel as received away from a place of business. The publication does not say whether the injunction still stands, so confirm the middle four rows with the Comptroller before relying on them for orders no salesperson handles, such as a website checkout.

When a sale is sourced to a Texas location, a seller also collects local use tax if the ship-to location has a higher local rate than that location, but only a use tax whose full rate fits under the 2% cap; it cannot collect part of one to fill the space. Eligible use taxes are applied in this order: city, county, special purpose district, transit authority. A seller cannot collect a local use tax of a type for which it already collects local sales tax (Publication 94-105).

What does a remote seller shipping into Texas collect, and what is the single local rate?

A remote seller collects Texas state use tax plus local use tax for the place where the order is shipped or delivered, or it may elect one flat local rate of 1.75% for the page's tax year (Texas Comptroller: remote sellers). A remote seller is an out-of-state seller whose only Texas activity is remote solicitation, such as a website, phone or catalog. The flat rate saves the address lookup but can be higher or lower than the ship-to rate.

Who must collect (a remote seller with less than $500,000 of Texas revenue in the preceding twelve months need not), when collection starts, who can use the flat rate and how to elect it are in Texas sales tax for out-of-state sellers.

How does California treat district tax when I ship into a district?

California adds district use tax at the delivery address when the seller is engaged in business in that district. The statewide base rate is 7.25%, and most areas add district taxes on top (CDTFA rate information).

• Seller located in a district. District sales tax applies to its sales, except goods shipped, under the sale contract, to a location outside the district for use there (Publication 44, Place of Sale).
• Shipping into another district. The shipment is generally not subject to the seller's own district sales tax. The seller must collect the destination district's use tax if it is engaged in business in that district (Sales Across District Lines).
• Engaged in business. A seller over California's remote-seller threshold is engaged in business in every district that imposes a district tax. A seller with an office, warehouse, stock of goods or representative in a district is engaged in business there. The threshold and what counts toward it are in California sales tax for out-of-state sellers (District Taxes).
• Stock in California. If stock is an out-of-state seller's only California presence, it is treated as a California retailer and the sale is sourced to where the goods ship from. If that is in a district, district sales tax may apply (Place of Sale).
• Which rate. Use the rate where the goods are delivered, not one rate for all California sales. CDTFA does not accept a single or average rate, and a rate above the actual rate creates excess tax reimbursement (District Taxes).
• Buyer's declaration. A seller need not collect a district's use tax on goods delivered to a buyer's principal home or business address outside that district if it accepts, in good faith, a signed declaration meeting Regulation 1823.4 (Sales Across District Lines).
• Seller not engaged in business in that district. The seller still reports and pays tax at the statewide rate. The buyer generally reports and pays the California district use tax. The seller may collect it as a courtesy if it states the tax separately on the invoice and reports it (District Taxes; Sales Across District Lines).

How do I find the exact rate for an address?

Look up the full street address in the state's own tool, not a ZIP code. Use the address the state's rule names: the ship-to address for a destination sale, the place of business or fulfillment location for a Texas origin sale (a ship-to lookup alone does not give the right Texas rate for every order). Each state's tool returns the rate and jurisdiction for an address.

Rates change on published effective dates, so a rate that was right last quarter may not be right now (CDTFA).

How do I make my invoicing software charge the ship-to address's rate?

Open the software's tax settings and find where its tax-rate source comes from. How a platform sets the rate is its own setting, so use its help pages for the steps. It must follow each state's sourcing rule, which can use the delivery address, the place the order was received or filled, or a flat rate the seller elected. Four things to check:

• For destination sales it uses the customer's ship-to address, not your own address or the customer's billing address. For origin or mixed sales, such as a Texas seller with a place of business, it uses the seller location the state names, plus any destination use tax.
• It uses the full street address, not only a ZIP code.
• It does not fall back to your own address when the ship-to field is blank.
• No customer record carries a fixed rate or exemption that overrides the address rate, unless it is there on purpose.

Test it with sample addresses in each state you sell into, including an order shipped to an address that differs from the billing address. Compare the result with the state's lookup (or the flat rate, if a Texas remote seller elected it), and keep the jurisdiction and rate used on each invoice.

Which sales does my registration cover: do I collect anywhere I am not registered?

A registration lets you collect tax on sales sourced to the state that issued it. It does not set the tax on a customer in another state, and it does not say whether you must register there. A New York Certificate of Authority gives the right to collect New York tax (TB-ST-360). Because New York exempts sales delivered outside the state (New York Tax Department), New York tax generally does not apply to goods delivered to a customer in another state. Where the buyer takes possession is part of the test.

Whether that seller must collect in the customer's state is a separate question. A remote seller is generally a seller without physical presence in a state that sells for delivery into it, and it must register once its sales into that state reach the threshold. A seller may also register earlier by choice (Streamlined Sales Tax Governing Board). Which states apply to you is in when you must collect sales tax and the threshold list by state.

For a software seller, whether the product is taxable at all, and which location counts for a subscription with users in several places, is in sales tax on SaaS and software.

I taxed invoices at my own address's rate: how do I fix over-collected tax?

Tax collected above the correct rate is generally returned to the customers who paid it, and the seller then recovers what it remitted from the state. California says directly that a seller cannot keep excess tax. New York's credit covers tax collected and then repaid to customers, and Texas's refund documents include proof that customers were repaid. Whether a seller must repay customers in a given state turns on that state's rules.

1. Sort the invoices. Group them by ship-to state and jurisdiction, starting from a ship-to-state report in your books (tracking sales by state). Compare the rate charged with the correct rate for each address on the invoice date.
2. Keep over and under apart. Do not assume one cancels the other; treat each invoice on its own until the state's rule says otherwise. California offsets excess reimbursement that a seller does not refund only against tax owed on the same transaction (Regulation 1700).
3. Return the overcharge to the customers who paid it. In California, excess reimbursement includes tax computed at a rate higher than the law imposes. Excess not yet paid to the state must go back to the customers or be paid to the state, or CDTFA issues a determination against the seller for it. Receipts, cancelled checks or books showing a credit are evidence of a refund (Regulation 1700; District Taxes; CDTFA-5033).
4. Recover from the state what you remitted. The route differs by state (table below). In California customers cannot claim over-collected tax from the state; the seller files the claim and returns the money to them (CDTFA-1149-A).
5. Fix the rate source before the next invoice goes out, and test it on addresses in each state.

Tax remitted in error went to specific local jurisdictions, so the claim needs the right jurisdiction for each invoice. Matching those claims to returns already filed is in filing sales tax returns.

What if I collected too little: who owes the difference?

It varies by state. In New York, Texas, and for district tax in California, a seller required to collect stays liable for tax it should have collected. The customer's own duty, and any relief, depend on the state.

• New York. Except as Tax Law section 1137 otherwise provides, a person required to collect is personally liable for the tax imposed, collected or required to be collected. The same section gives the vendor the same rights against a customer who does not pay the tax as if it were part of the price (Tax Law section 1133). A customer who did not pay the vendor owes the tax directly to the Tax Department (section 1133(b)). A vendor with no physical presence that registered because of New York's remote-seller rules and in good faith collected and remitted tax at an incorrect local rate owes the extra local tax but no penalty or interest on it, for sales in its first four quarterly periods after it was required to register (Laws of 2019, chapter 39, Part J, section 3; TSB-M-19(4)S).
• Texas. The seller is responsible for collecting and paying the correct amount; if it does not, it can owe additional tax plus penalties and interest (collection FAQ). The customer must also pay directly any local tax the seller did not collect (Publication 94-105); that does not remove the seller's duty.
• California. A seller engaged in business in a district must collect its use tax, and if it charged less than the actual rate, it remains liable for the entire district tax owed, not only the amount collected (District Taxes). Where the seller is not engaged in business there, the buyer generally reports and pays it (Sales Across District Lines).

For a business that is not a sole proprietorship, people behind it can owe the tax too. In New York, the persons required to collect include partners and LLC members, and officers, directors, managers and employees who have a duty to act for the business (Tax Law section 1131). The state generally has three years after a return is filed, and at any time if no return was filed to assess more tax (Tax Law section 1147). Texas and California rules, and their periods, are in filing sales tax returns.

Other states differ, and a shortfall on past invoices raises further questions: can the customer be billed now, and which periods are exposed. Those are in invoices sent without sales tax and catching up on uncollected sales tax.

Example

These examples are illustrative and use US dollars. Rates are round assumptions, not current rates.

A New York shop ships to two addresses

An online shop registered in New York ships $1,500 of goods to a Buffalo customer and $1,500 to a Manhattan customer. New York uses the delivery location, so each invoice carries the combined rate for its own address: the state rate, the local rate there, and the commuter district rate where it applies. Suppose the lookup returns 8.75 percent for Buffalo and 8.875 percent for Manhattan. The tax is $131.25 and $133.13. Charging both at one address's rate is wrong on at least one invoice.

An Oregon seller ships into Texas

An Oregon seller with a Texas permit and no Texas presence has $600,000 of Texas sales in the preceding twelve months, above Texas's $500,000 safe harbor. On a $2,000 taxable order shipped to a Texas address with a 1.5 percent local rate, it collects $125 of state tax plus $30 of local tax, $155 in all. If it had elected the single local rate of 1.75 percent, it collects $125 plus $35, $160 in all.

Software taxed at the home rate

A software seller taxed 300 invoices, $90,000 in total, at 8 percent, the rate at its own address. Assume the product is taxable in every state involved. A check by ship-to address finds:

The $720 is repaid to the 120 customers and recovered through each state's route. The $240 may fall on the seller, depending on the state. California, for one, offsets excess tax that is not refunded only against tax owed on the same transaction, so the $720 would not cancel the $240 there. Each state is checked on its own, invoice by invoice.

Different for you?

• Your software taxed a run of invoices at your own address's rate, in more than one state, and some customers paid too much while others paid too little: each invoice needs a per-state check to decide what to refund or recollect, how to correct returns already filed, and how to fix the rate source. Get bookkeeping help with the invoice review and corrections.
• You never collected in a state where you should have: see catching up on uncollected sales tax.
• Invoices went out with the wrong or no tax and you want to know what to bill now: see invoices sent without sales tax.
• Your sales tax payable no longer matches the return: see sales tax payable that does not match the return.
• You do not know which states you must collect in: start with when you must collect sales tax and the thresholds by state.
• You ship into Texas from another state: see Texas sales tax for out-of-state sellers.
• You sell from Canada or another country into US states: see US sales tax for sellers based outside the US.
• You file returns in several states, or a marketplace collects tax on some of your orders: see filing sales tax returns.
• Your store platform sets the rates: see which states to turn on in an online store.
• You sell software or subscriptions: see sales tax on SaaS and software.