Forty-six US states and DC all have a sales tax. The fact that each state gets to make their own rules and regulations around sales tax can lead to some confusion. One confusing aspect of sales tax?
Sales tax sourcing.
What does “sourcing” mean in sales tax?
“Sourcing” simply refers to the location where a sale is attributed. This can get tricky in e-commerce because states disagree. Does the sale take place at the seller’s warehouse or, for smaller sellers, garage or kitchen table? Or does it take place when the buyer actually takes possession of the package after delivery?
There are two main categories when it comes to sales tax sourcing:
- Origin-based sales tax sourcing – When the sale is sourced to the seller’s location. In this case, the sale is considered to take place at the seller’s location. This could be the warehouse, distribution center, or even the home from where the package ships. In origin-based sales tax states, you charge the sales tax at your (the seller’s) location.
- Destination-based sales tax sourcing – How most states operate. This is when the sale is sourced to the buyer’s location. These states consider that the buyer takes possession of the item at the location where it is received. For example, the buyer’s doorstep, a UPS store, or a package locker. In destination-based states, you charge the sales tax rate at the location where the buyer takes possession of the package.
Important note: Origin and destination-based sourcing generally only applies to intrastate sales–sales where the package is shipped from and received in the same state. See “Sales Tax Sourcing for Remote Sellers” below on how to handle sales tax sourcing on intrastate sales.
Sales Tax Sourcing Examples
Origin-based sales tax example
You operate your business in Tyler, TX and make a sale to a buyer in Ft. Worth, TX. Texas is an origin-based state, so sourcing rules mean that no matter where in Texas your buyer is located, you would charge the sales tax rate at your location. In the case of Tyler, the combined sales tax rate is 8.25%. You’d charge that rate to all Texas customers.
Destination-based sales tax example
You sell out of your warehouse in Atlanta, Georgia and make a sale to a buyer in Moultrie, Georgia. In a destination-based state, you would need to figure out your buyer’s local Moultrie (city, county, special taxing district) rates and then add those to the Georgia state rate when charging sales tax. As you can see, this gets quite complicated since you need to know if your buyer lives in the city limits, or just within the county. And you need to determine if the area has any special tax rates, such as from a transportation or scientific district. Read more about how to charge the right amount of sales tax here.
Origin-Based Sales Tax States
The below is a list of origin-based sales tax sourcing states.
Important: This table applies to intrastate sales (sales where the buyer and seller are in the same state.) In most intrastate sales (where the buyer and seller are in different states), sales tax sourcing is destination-based.
| Arizona |
| California* |
| Illinois |
| Mississippi |
| Missouri |
| Ohio |
| Pennsylvania |
| Tennessee |
| Texas |
| Utah |
| Virginia |
*California is a “modified-origin” state. Our California State Sales Tax Guide provides more info on sourcing in California.
Destination-Based Sales Tax States
The below is a list of destination-based sales tax sourcing states.
Important: This table applies to intrastate sales (sales where the buyer and seller are in the same state.) In most intrastate sales (where the buyer and seller are in different states), sales tax sourcing is destination-based.
| Alabama | Louisiana | North Dakota |
| Arkansas | Maine | Rhode Island |
| Colorado | Maryland | South Carolina |
| Connecticut | Massachusetts | South Dakota |
| Florida | Michigan | Vermont |
| Georgia | Minnesota | Washington |
| Hawaii | Nebraska | Washington DC |
| Idaho | Nevada | West Virginia |
| Indiana | New Jersey | Wisconsin |
| Iowa | New Mexico | Wyoming |
| Kansas | New York | |
| Kentucky | North Carolina |
Sales Tax Sourcing for Remote Sellers
A “remote seller” in sales tax terms is a business who is not based or doing business out of a state but has nexus there due to something like economic nexus or affiliate nexus.
Fortunately, remote sellers can usually default to destination-based sourcing for all customers.
Some states even offer remote seller programs that allow simplified, statewide sales tax collection. As of 2023, Texas, for example, allows remote e-commerce sellers to simply apply a 1.75% local rate to the state rate for all sales, rather than attempting to figure out the sales tax rate in each county and local area in which they make a sale.
FAQs about Origin and Destination Based Sales Tax
How do I charge the right amount of sales tax?
Knowing the sales tax rate where your customer is located can be challenging in destination-based states. And, if you’re a remote seller, you would generally always charge destination-based sales tax. Here’s more info about ensuring you charge each buyer the correct sales tax rate.
Do I charge sales tax based on my buyer’s shipping address or their payment address?
This is a common dilemma for e-commerce sellers. For an intrastate origin-based sale, you always simply charge sales tax at your location (i.e. the item’s origin.)
For destination-based sales, things get trickier. States generally consider the place where the buyer takes possession of the item to be the location of the sale. So in cases where the buyer’s shipping and payment addresses are different, you’d generally always charge sales tax based on the ship-to address rather than the buyer’s address.