Sales Tax Glossary
Essential sales tax terms and definitions for online sellers.
D
- Destination-Based Taxation
- A tax system where sales tax is calculated based on where the customer receives the product (the destination), not where the seller is located. Most states use destination-based sourcing for remote sales. Learn more →
E
- Economic Nexus
- A connection between a business and a state based solely on sales volume or transaction count, regardless of physical presence. Typically triggered when you exceed $100,000-$500,000 in annual sales to that state. Learn more →
- Exemption Certificate
- A document provided by a buyer to prove they are exempt from paying sales tax on a purchase. Common for wholesale purchases (resale certificates) and sales to tax-exempt organizations like nonprofits.
F
- Filing Frequency
- How often you must file sales tax returns with a state—typically monthly, quarterly, or annually. States assign frequency based on your tax liability volume. High-volume sellers file monthly, while low-volume sellers may file annually. Learn more →
M
- Marketplace Facilitator
- A platform that facilitates sales between third-party sellers and customers, and is responsible for collecting and remitting sales tax on behalf of sellers. Examples include Amazon, eBay, and Etsy. Learn more →
N
- Nexus
- A legal connection or link between a business and a state that creates a sales tax obligation. Nexus can be physical (having a store, office, or inventory in the state) or economic (exceeding sales thresholds). Learn more →
O
- Origin-Based Taxation
- A tax system where sales tax is calculated based on where the seller is located (the origin), not where the customer is. Only applies to in-state sales in a minority of states. Learn more →
P
- Physical Presence
- Having a tangible connection to a state, such as a retail store, warehouse, office, employees, or inventory. Physical presence creates nexus and triggers sales tax obligations in that state.
R
- Resale Certificate
- A type of exemption certificate used when purchasing goods for resale rather than personal use. Allows businesses to buy inventory tax-free because the end customer will pay tax when they purchase the item.
S
- Sales Tax Permit
- Official authorization from a state to collect sales tax from customers. Also called a sales tax license or seller's permit. Required in each state where you have nexus before you can legally collect tax.
- Sourcing
- The rules that determine which tax rate to apply based on either the origin (seller location) or destination (customer location). Most remote sales use destination-based sourcing.
T
- Taxable Transaction
- A sale subject to sales tax. Most tangible personal property is taxable, though some categories (like groceries or clothing) may be exempt in certain states. Services are typically not taxable except in specific states.
U
- Use Tax
- A tax on items purchased from out-of-state sellers who don't collect sales tax. Technically, buyers are responsible for paying use tax on these purchases, though enforcement is rare for individuals.
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