Most states in the United States apply sales tax to the sale of goods (and sometimes services) to the end users of the products.  This contrasts with the handling of taxes in other countries or regions such as Europe where a Value Added Tax (VAT) is applied to product sales and purchases.

In the US, sales taxes are collected by the seller on sales to the final consumer of a product, (or in some cases a service).  States collect sales tax on sales within their borders and attempt to collect sales tax on goods and services provided to consumers in their state from out-of-state. 

There are many different views on when a company is responsible for collecting sales tax for a state that they are not physically located in.  This document does not address determining whether or nor you need to collect sales tax in a particular state.  The term for this is “Nexus”.  The general assumption by the states is that all sales are “consumer” sales and that it is the responsibility of the seller to confirm that the sales is not subject to sales tax.  Depending on the state the seller can claim a sale is non-taxable due to export (shipping good out of state) or because the sale is to a reseller for “resale”.  In both cases the states usually require the seller to maintain documentation to confirm the above. 

In the case of goods being sold for “resale” to a reseller, the state requires that the seller collect a copy of  the resale certificate provided by the state to the purchaser.  This resale certificate confirms that the purchaser is actually buying items as a  “reseller” and that tax should not be collected for the sale.    The resale certificate document may be referred to as a “resale certificate” a “reseller certificate” or a sales tax certificate (these terms are used interchangeably).

The general rule is that you should collect tax for locations in which you have nexus, unless you have a resale certificate on file for the customer for the location to which you are shipping product.

The most complicated situation is when the purchaser of the goods is having you drop ship or vendorship the goods to a state that considers you having Nexus.  In this case you need to have a valid reseller certificate on file for the state you are shipping the goods to, from the customer you are selling the goods to.  To make things more complicated, some states will accept the reseller certificate from the home state of your customer when you are drop shipping to their state (this advanced option is described later in this document).

As mentioned before, Nexus issues are complex, and the system merely supports the calculation and collection of sales and other taxes.  It is your responsibility to determine which tax districts you have Nexus in, and to correctly load and maintain the customer, shipto,sales tax certificate and other information used by the system. 

The Taxcode file in the system should be loaded and maintained based on where your company has Nexus.  The Taxcodes and rates that you enter for them, (together with the Taxtype and the Item taxable flag or tax category), are what determine how much tax is charged for a specific order when it is shipped to a specific location. 

There is a Nexus control record that is maintained in the Textdata file.  This record is used for placing resale sales orders on hold when you do not have a valid resale certificate on file for the shipping address, and you are shipping into a state where you have nexus.  The Nexus control record is used only for tax certificate processing. It is NOT used by the system when calculating the amount of tax to be calculated and applied to sales orders or invoices.