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.

If you have any questions, please don’t hesitate to ask.