Sales & Use Tax

Sales tax is a transaction tax imposed on the retail sale of tangible personal property and specified services, collected by the seller from the buyer and remitted to the state. Use tax is its complement, imposed on the buyer when taxable property is purchased without sales tax being charged - typically from an out-of-state seller - and used within the state. Together they are designed to tax consumption once, regardless of where the purchase occurred.

The compliance landscape is fragmented. There are 45 states plus the District of Columbia imposing sales tax, layered with thousands of local jurisdictions, some of which administer their own tax separately from the state. Rates vary within states by locality; taxability varies by product and service category; and definitions diverge in ways that defy intuition, with familiar examples in the differing treatment of food, clothing, software, digital goods, and services.

Software and digital products deserve particular attention. States differ on whether software as a service is taxable at all, and those that tax it may characterize it as a taxable service, as prewritten software delivered electronically, or as a data processing service subject to partial exemption. A single SaaS company can face genuinely different answers in adjacent states.

Exemption management is the other recurring exposure. Sales for resale, manufacturing inputs, and sales to exempt organizations require valid exemption certificates on file; missing or expired certificates convert an exempt sale into an assessment on audit, with the tax, interest, and penalties falling on the seller who failed to collect. Use tax self-assessment on purchases is the mirror-image exposure, and it is frequently the largest finding in a state audit because most companies do not systematically review purchases for untaxed taxable items.