This is part 1 of a 4-part series. Other articles in the series:
Part 2: “Understanding Sales Tax Nexus for Out-of-State Sales”
Part 3: “Should Sales Tax be Added to Your Design Services Fees and/or Shipping Charges?”
Part 4: “Sales Tax Implications of Selling Retail Merchandise Versus Selling To-The-Trade Only Products”
©️Dakota Design Company 2017-2025 | All rights reserved. This content may not be reproduced, distributed, or used without permission. This post was human written by Dakota Design Company and evaluated by CVW Accounting.
Sales tax is a complex topic, and one that prompts many questions from interior design business owners.
First, if you are purchasing to-the-trade-only products, and selling them to your clients, you already will have a sales tax permit (that allows you to make purchases without paying sales tax). You should understand how to invoice your clients for the appropriate amount of sales tax on transactions and how and when to remit the sales tax you collect to your state Department of Revenue for state and local sales tax. For any designer who needs a refresher on these sales tax basics, please read this post that covers all this need-to-know information.
Calculating sales tax on a product or service can be fairly simple. You need to know the tax rate that applies in your area (more about this below). Most states’ Department of Revenue websites include a sales tax calculator (look for something called Sales Tax Rate Calculator, or look for Calculate Sales Tax Rate).
By entering the applicable zip code, and the dollar amount of the sale, you’ll easily be able to calculate the proper sales tax amount per the applicable tax jurisdiction. Or, you can just find out the percentage rate and have your accounting software compute the tax amount automatically.
But there is a complicating factor that all interior design business owners should understand:
Some states compute sales tax based on where the client (the purchaser) takes possession of the item sold. This is called a destination-sourced sale. Other states compute sales tax based on where the business is located (the seller). This is called an origin-sourced sale.
The additional complexity is that we are referring here only to taxation within your home state (in-state sales, also called intra-state sales, or sales that occur entirely within one state).
Computing sales tax for purchases going to out-of-state clients is a whole different ball game (inter-state sales, or sales between different states), and one that we will cover in an upcoming blog.
→ So, some states are destination-based sales tax states, where the sales tax rate is dependent on the address of the purchaser/end-user and where the purchaser takes possession of the item.
→ And some states are origin-based. That means the sales tax rate is dependent on the address of the business that is doing the selling.
While in most states, the bulk of the sales tax is comprised of an across-the-board rate for the state, there may be a smaller additional portion that includes a local tax, added on for counties or municipalities. The state-wide rate plus the local rate equals the total amount of the sales tax to be charged and collected. So, it is important to understand whether these local taxes should be computed according to where the purchaser or where the seller is located.
Below is a list of the destination-based states. If your business operates in one of these states, you will charge sales tax based on where your client takes possession of the item. Remember, this is a consideration for in-state sales only. Out-of-state sales carry different implications.
Alabama, Arkansas, Colorado, Connecticut, District of Columbia, Florida, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Rhode Island, South Carolina, South Dakota, Vermont, Washington, West Virginia, Wisconsin, Wyoming
There are far fewer states that are origin-based. If you operate your business in one of the following states, you should charge all of your in-state clients the rate for where your business is located. That will include a combination of state, county, city, and district taxes. Here are the origin-based sales tax states:
Arizona, California, Illinois, Mississippi, Missouri, Ohio, Pennsylvania, Tennessee, Texas, Utah, Virginia
A few notes about a few specific states … New Hampshire, Oregon, Montana, and Delaware, do not charge any sales tax on purchased goods. Alaska does not have a state-wide sales tax either, but some Alaskan cities DO impose sales tax on purchases. The acronym to help remember which states these are is NOMAD (New Hampshire, Oregon, Montana, Alaska, and Delaware).
California is a bit unique. Yes, it is an origin-based sales tax state where the state, county, and city taxes are based on the point where the sale originates with the seller, but district taxes are added based on the location of the buyer (destination-based).
Operating in a destination-based state can be a bit more complicated than running a business in an origin-based state, because there may be many applicable sales tax rates for clients depending on where they live, based on their tax jurisdiction. In a purely origin-based situation, a seller needs only to be concerned with their own tax jurisdiction rate.
Remember, remote selling—selling to clients in a different state from the one where you operate your business—involves additional considerations. See this blog post.
While we have tried to include some sound basic information here about in-state sales tax rates, we certainly have not covered all the particular nuances of state sales tax policies.
Disclaimer: We are not accountants or tax attorneys., This blog is for informational purposes only and should not be considered legal or financial advice. Please consult with an accountant or tax professional for guidance on your specific situation. You can also contact the support team at your state’s Department of Revenue. Each state’s DOR web page should include an email address and toll-free phone number (under Contact Us) for you to reach out with specific questions about business sales tax in your area.
Sources used:
TaxJar. (2024, March 1). Origin-based and destination-based sales tax rates. https://www.taxjar.com/sales-tax/origin-based-and-destination-based-sales-tax