If you’re a U.S. ecommerce business, sales tax and sales tax return filing are among the biggest compliance challenges to stay on top of. Third-party software and tax professionals can quickly become expensive, and it’s essential to understand precisely what they’re doing to ensure you’re getting value for money.
In this article, we break down:
- Sales tax nexus and why it matters
- State and local sales tax structures
- Simplified filing options
- Which states are easiest vs. hardest to file in
Understanding Sales Tax Nexus
Sales tax nexus refers to the connection between a business and a state that requires the company to collect and remit sales tax there. There are two main types:
Physical nexus: Triggered by having a physical presence in the state, such as an office, warehouse, employee, or inventory.
Economic nexus: Triggered by making a specific volume of sales into a state (usually $100,000 in revenue or 200 transactions annually), even without physical presence.
Conducting regular sales tax nexus reviews is crucial to identifying where you are obligated to collect and remit tax. Never collect tax in all states “just in case”—it can lead to unnecessary sales tax return filing costs and penalties.
Local Taxes Make Filing Harder
There are over 11,000 different sales tax jurisdictions in the U.S. While some states have a simple flat-rate system, others require you to file by destination, meaning you must allocate tax to specific cities, counties, and districts. This is especially complex for remote sellers shipping across multiple states.
Fortunately, some states have no local taxes or offer simplified programs. Here’s how they compare:
Pros and Cons: DIY Sales Tax Return Filing vs. A Professional Tax Filing Service
If you’re unsure whether to handle sales tax filing on your own or hire a professional tax filing service, here’s a quick breakdown of the pros and cons of each approach:
Do-It-Yourself Filing
Pros:
- Low or no cost if you only file in a few states
- Complete control over the filing process
- Good learning opportunity for business owners
Cons:
- Time-consuming, especially as you scale into more states
- Risk of errors or missed filings that could lead to penalties
- Complex local tax reporting in many states may be overwhelming.
- Requires ongoing monitoring of tax law changes and due dates
Using a Tax Filing Service (like RJM)
Pros:
- Saves significant time and reduces errors
- Ensures timely and compliant sales tax return filing across all states
- Access to expert guidance and automated tools
- Can help with nexus tracking, registrations, and audits
Cons:
- Cost increases with complexity and the number of states
- Less direct visibility into filing details (depending on the provider)
Bottom line: If you’re just starting out and selling in a single state, filing yourself might be manageable. But once you’re dealing with multiple jurisdictions, a professional tax filing service like RJM Tax Exemption offers online sales tax filing packages and can be a valuable investment.
States with No Local Sales Tax (Easiest to File)
- Connecticut – 6.35%; $100 registration fee; simple filing.
- Delaware – No sales tax; no filing required. Delaware does have a gross receipts tax that needs to be filed if your business is there.
- Hawaii – 4% Gross Excise Tax; $20 license fee.
- Maine – 5.5%; free to register; flat rate.
- Maryland – 6%; free registration. Although a new system, regular glitches occur and their customer service is often very slow. The system is not as simple as other systems.
- Massachusetts – 6.25%; no local tax. Straightforward TAP profile system.
- Michigan – 6%; no fee; early filing discounts of at least $72 per year. You can quickly file through their system, OR need a letter to gain full access.
- New Hampshire – No sales tax.
- Oregon – No sales tax.
- Rhode Island – 7%; $10 registration.
States with Limited Local Sales Tax (Moderate Filing Difficulty)
- Indiana – 7%; no local tax. Depending on the product classification, certain cities or localities may charge different tax rates.
- Kentucky – 6%; special-purpose tourism taxes only.
- Mississippi – 7% + local; centralized sales tax return filing. Only Jackson and one other location charge additional local taxes. Remote sellers with no physical location should register for use tax. There are two parts to the application process: registering for a TAP profile account and then registering for the correct tax account. Don’t forget to complete the second part!
- Nebraska – 5.5% + local; centralized return. The filing system is quite old, but simple enough to navigate.
- Nevada – 6.85% + local; centralized return. Nevada does not have too many jurisdictions; it’s relatively straightforward.
- New Jersey – 6.625% flat rate in nearly all circumstances.
- North Dakota – 5% + local; simple to file.
- Ohio – 5.75% + local; streamlined. A new system was recently launched, which is easy to file. However, it does not auto-calculate the sales tax when you enter the gross sales, which can make returns slightly longer.
- Pennsylvania – 6% + local. Only two localities have additional sales tax – Philadelphia and Allegheny, making this a simple one to learn.
- Utah – 4.85% + local; unified filing.
- Vermont – 6% + local; via state portal.
- West Virginia – 6% + local; centralized system.
- Wisconsin – 5% + local; no extra filings.
States with Local Taxes + Added Complexity (Harder to File)
- Arkansas – Statewide sales tax of 6.5% with counties and cities imposing additional local taxes. Both need to be reported, requiring extra attention when filing your return. It’s also essential to file the correct tax return. Returns show Sales tax, Vendor’s Use Tax, and Consumer’s Use Tax. Remote sellers with no physical location must file the Vendor’s Use Tax. Errors will lead to Arkansas sending warning letters and even fines if they are frequent.
- Florida – 6% + county surtaxes. Florida’s returns are complicated and not straightforward. Localities have three different surtax rates that are not simple to file on a return. It can take some time to learn.
- Georgia – 4% statewide sales tax with additional localities. Some localities in Fulton and DeKalb can get complicated due to having their own city rates and overlapping jurisdictions.
- Idaho – Resort taxes vary by location, but all taxes can be filed in one place and are simple to navigate.
- Illinois – Illinois requires you to add non-physical locations manually before filing each return, making the process painful. You also need to enter the date you started selling to the area, and if you make an error, only a phone call can fix it.
- Iowa – Destination-based + local reporting.
- Kansas – Requires local sourcing per jurisdiction.
- Minnesota – 6.875% + local. The local taxes can be overly complicated, with additional zones needing to be filed. However, they do inform you if you made an error and point you in the right direction.
- New Mexico – Gross Receipts Tax model. Local taxes are simple to add, but the return takes more time.
- North Carolina – This very old system can be very time-consuming. Localities have a tax rate of 2% or 2.25%, with some imposing an additional tax of 0.5%. The local page where tax is entered is outdated and long-winded, and it is very easy to make errors.
- Oklahoma – Dozens of local combinations.
- South Carolina – The local taxes are entered strangely. There is a table where you must enter the exact figure multiple times depending on the local rate. This can lead to confusion when analyzing the return and make it tough to spot if any errors have been made.
- South Dakota – Lots of local taxes to report, but a simple site to navigate.
- Texas – 6.25% + local options. If the local options are not already included, they need to be added. Some jurisdictions have multiple special rates, making this a long one to file. Texas does offer a simplified filing system where you always pay 1.75% for localities and don’t need to report them individually. We highly recommend taking advantage of this.
States with Fragmented Local Sales Tax Return Filing or Complex Systems (Most Difficult to File)
- Alabama – 300+ jurisdictions unless using SSUT. If you sell many products and only register for a normal Seller’s Use Tax account, you will have to register in nearly all of Alabama’s localities individually, making this a horrible state to file in. Luckily, they offer a simplified sellers’ filing programme, so you just pay a flat 8%. Make sure you get this one at the start!
- Alaska – No state tax, but 100+ local participants.
- California – A very tricky state to file, with a mixture of destination- and origin-based sales tax reporting. You need to report local taxes for the counties and cities. If the products are fulfilled from a California fulfillment center, the county local tax is origin-based, BUT any additional city taxes will be destination-based — not easy!
- Colorado – is the worst state to file, although several improvements have been made recently. You will need to register with Colorado’s TAP site for the license and an account with SUTS. You should always file with SUTS, as the CO main website will cause you to underreport due to “home rule” cities. You need to add jurisdictions on Site 1 to file on SUTS. Around ten towns cannot file through SUTS, so you must file individually.
- Louisiana – Fortunately, they started the Remote Seller Commission, where you can file for all parishes in one place. Previously, you had to register for all 64. However, if you are based in the state, you may still need to register for all.
- Missouri – is another terrible state to file in. The system requires you to add all the jurisdictions you sold to before you file. This incredibly slow, long-winded system takes a couple of days to process, so make sure you do it at the start!
Final Thoughts
Filing yourself may be manageable if you’re just starting out and only have nexus in one or two flat-rate states. But as your business grows and you must file in multiple complex states, automation or expert help with a tax filing service becomes critical.
RJM Tax Exemption offers:
- Free sales tax nexus surveys
- Sales tax registration services
- Sales tax return filing support and management
Let us help you simplify compliance and focus on growing your business.
Contact our team at RJM Tax Exemption to get started.
Disclaimer
This blog is for informational purposes only and does not constitute legal or tax advice. Consult a qualified tax professional for advice specific to your situation.
