Sales Tax is a complicated and tricky matter to tackle. I find this topic always comes up when I’m working with a client on their small business.
What Should You Charge Sales Tax For?
Sales tax should always be charged to your customer when you sell tangible goods. (i.e clothes, food at a restaurant, electronics) You do not have to charge sales tax if you are providing a service. For example a marketing consultant who provides social media consulting. Now, if during that service you sell a product, you need to charge sales tax on that product. Let’s say the marketing consulting sold a software program to the client, the marketing consultant would only have to charge sales tax on the software program.
Origin-Based State vs Destination-Based State
Since Illinois is an origin-based state, this means you will charge the Illinois sales tax rate only if your customer is located in and you are shipping to Illinois. Now, if you have a brick and mortar store in Illinois, you would always charge the Illinois sales tax rate.
Let’s say you are in a destination based state like Hawaii, you will charge sales tax based on where the product is being shipped to. For example, I sell a product and deliver it to a customer in Illinois from Hawaii. I would have to charge the customer the sales tax from Illinois and not Hawaii. As you can see, this can be very cumbersome for a small business owner to keep track of every time they make a sale out of state.
Please make sure you do your research before you charge your customer sales tax and review the facts surrounding the transaction. You can also check out a great sales tax calculator which will help you determine how much sales tax you charge based on where the sale took place. Check it out here.