Can an LLC Really Collect Sales Tax? – Yes, But Avoid This Mistake + FAQs

Can an LLC collect sales tax? Yes – an LLC (Limited Liability Company) can and must collect sales tax upfront on taxable sales when required by law.

In fact, LLCs have the same sales tax responsibilities as any other business type. However, sales tax rules vary widely across the United States.

LLC Sales Tax Basics: Yes, LLCs Can Collect Sales Tax

Short Answer: Yes. Any business, including an LLC, can collect sales tax from customers at the point of sale. In fact, if your LLC sells taxable goods or services in a state that imposes sales tax, you are legally required to collect that tax from the buyer upfront (usually as an extra charge on the sale). The LLC then remits the collected tax to the appropriate state (or local) tax authority.

Why is this required? Sales tax is a pass-through tax — the customer ultimately pays it, but the business (your LLC) acts as an agent to collect and transmit it to the government. Being an LLC doesn’t change this duty. Unlike income tax (which an LLC pays based on its earnings), sales tax never belongs to the business; it’s trust money collected on behalf of the state. Failing to collect when required can lead to serious penalties.

Key point: Simply forming an LLC does not exempt you from collecting sales tax. Whether you operate as an LLC, sole proprietorship, partnership, or corporation, the obligation to charge sales tax depends on what you sell and where you sell it, not your business structure. An LLC has the authority to collect sales tax once it registers with the state’s tax agency and obtains a sales tax permit. In practical terms, if your LLC is selling a taxable product in a state with sales tax, you add the appropriate sales tax to the price at checkout. This is commonly seen on receipts as a separate line item (e.g., “Sales Tax”) added to the subtotal.

When Must Your LLC Collect Sales Tax? (Understanding Nexus and Tax Obligations)

Knowing that an LLC can collect sales tax is one thing – understanding when it must collect is critical. Two main factors determine when your LLC is required to collect sales tax in a given state: nexus and taxable sales.

Sales Tax Nexus: Why Location Matters

Nexus is a legal term meaning a significant connection to a state. Your LLC must collect that state’s sales tax if it has sales tax nexus there. There are two primary types of nexus:

• Physical Nexus: Having a physical presence in a state. If your LLC has an office, store, warehouse, employees, or inventory in a state, that typically creates physical nexus. For example, if your LLC is based in Texas and operates a retail store there, you unquestionably have nexus in Texas and must collect Texas sales tax on taxable sales. Physical nexus can also be created in multiple states – for instance, storing inventory in an Amazon warehouse in California gives your LLC nexus in California (a common scenario for e-commerce LLCs using fulfillment services).

• Economic Nexus: Having significant sales volume in a state, even without physical presence. In the wake of the 2018 South Dakota v. Wayfair Supreme Court decision, states can require out-of-state sellers to collect tax if sales exceed certain thresholds. For example, your LLC might be physically located in one state but sell products online to customers in many states. If your sales into State X exceed that state’s dollar or transaction threshold, you have economic nexus in State X and must start collecting its sales tax. Thresholds vary by state (more on this in the state-by-state section below). In many states, the threshold is $100,000 in sales or 200 transactions in a year, but some states set different amounts (e.g., California $500,000, New York $500,000 or 100 sales, Texas $500,000, while Kansas has no minimum threshold at all – even one sale there can trigger nexus!).

Bottom line: Your LLC must collect sales tax in any state where it has nexus – whether through a physical storefront or significant sales activity. If you have no nexus in a state, you generally should not collect that state’s sales tax from customers (since you have no authority to do so). In those cases, the customer may owe use tax to their state for out-of-state purchases, but your LLC isn’t responsible to charge it at sale.

Taxable Sales vs. Exempt Sales: What Your LLC Is Selling

Even if you have nexus, you only collect sales tax on taxable transactions. States define which products or services are taxable or exempt:

• Tangible personal property (physical goods): In almost every state with sales tax, most physical goods (electronics, furniture, clothing, etc.) are taxable unless specifically exempt. If your LLC sells tangible products, assume they’re taxable unless you find a specific exemption (common exemptions: prescription medicine, groceries or clothing in some states, manufacturing equipment, etc., which vary by state).
• Services: Many states do not tax most services, but some states do tax certain services. For example, Hawaii, New Mexico, and South Dakota tax a broad range of services, whereas states like California or Massachusetts tax very few services. If your LLC provides services (consulting, web design, etc.), you may not need to collect sales tax in many states unless you’re in a state that taxes services or the service is one of the taxable ones (like a repair service, cleaning, or certain digital services in some areas).
• Digital goods/software: States are split on taxing digital products (like e-books, online software subscriptions). About half the states tax digital goods similarly to physical goods. If your LLC sells digital downloads or software, check each state’s rules.
• Exempt customers or uses: Sales to certain buyers may be exempt. For instance, if your LLC sells wholesale to another business that will resell the items, that sale can be tax-exempt with a resale certificate (the buyer provides a valid resale certificate, allowing you not to charge sales tax). Likewise, sales to charitable organizations or government agencies can be exempt if proper documentation is given. These exemptions mean you do not collect sales tax on that sale, even if you have nexus, because the law carves it out.

Upfront Collection: When a sale is taxable and your LLC has nexus in the state, you collect the appropriate sales tax upfront at the time of sale. This could be at the cash register, on your online checkout page, or on an invoice. The tax is typically calculated as a percentage of the sale price determined by the state (and possibly local) rate.

Registering Your LLC for Sales Tax

Importantly, your LLC must register for a sales tax permit in any state before collecting that state’s tax. You can’t just start charging customers tax without being authorized – doing so without a permit is illegal. Register through the state’s Department of Revenue (or equivalent agency) to get a sales tax license. Once registered, your LLC is officially a tax collector for that state. You will then:

• Collect the tax from customers at sale.
• Track and separate those tax amounts in your records.
• Remit (pay) the collected tax to the state on a set schedule (monthly, quarterly, or annually, depending on the state and your sales volume).
• File returns reporting the sales and tax collected.

Failure to register can result in fines or denial of the ability to legally collect, so it’s a crucial step if your LLC is starting to make sales in a new state.

Sales Tax Laws by State: 50-State Overview for LLCs

Sales tax is state-specific, and each state has its own rules that your LLC needs to follow. There is no federal sales tax in the U.S., so understanding the differences in each state (and even local jurisdictions within states) is key to compliance. Here’s an overview of how sales tax laws vary across all 50 states:

States with No Sales Tax

First, know that five U.S. states have no state sales tax at all:

• Alaska – No statewide sales tax. However, local cities and boroughs in Alaska can impose their own sales taxes (often between 1% and 7%). If your LLC operates in Alaska, you may need to collect local sales tax depending on the locale, but you won’t collect any “Alaska state” sales tax (since it doesn’t exist). This means an Alaska-based LLC without nexus elsewhere typically doesn’t charge sales tax except possibly local city tax if applicable.
• Delaware – No state (and no local) sales tax. Delaware is a true sales-tax-free state. An LLC operating entirely in Delaware will not collect sales tax from customers. (Delaware does impose a gross receipts tax on businesses, but that is a separate behind-the-scenes tax, not something you collect from customers at sale.)
• Montana – No state sales tax. Similar to Delaware, Montana LLCs generally do not charge sales tax. A few resort areas in Montana have a small local sales tax on lodging or luxury items, but there’s no broad sales tax on goods. For most typical sales, Montana is sales-tax free.
• New Hampshire – No state sales tax. No local sales taxes either. New Hampshire LLCs do not collect sales tax on sales. (New Hampshire does have taxes on meals and lodging, but no general sales tax on retail goods.)
• Oregon – No state sales tax. No local sales taxes. Oregon LLCs do not charge sales tax to customers. Oregon is another sales-tax haven for shoppers and businesses.

Important: If your LLC is based in a no-sales-tax state (say Oregon) but sells to customers in other states, you might still need to collect tax for those other states. For example, an Oregon LLC selling online to California customers isn’t off the hook just because Oregon has no sales tax; if the Oregon LLC has nexus in California (via economic nexus from enough sales), it must collect California’s sales tax on those sales. Many business owners mistakenly think having an LLC in a tax-free state means never dealing with sales tax – that’s false if you have customers elsewhere. Always consider the destination state’s laws.

States With Sales Tax (45 States + D.C.) – Key Differences

The remaining 45 states (and Washington, D.C.) do impose sales tax. While each has unique details, here are the key state-specific nuances an LLC should be aware of:

• State Tax Rates and Local Taxes: Each state sets a base sales tax rate (e.g., California 7.25%, Texas 6.25%, New York 4%, etc.). Many states also allow local jurisdictions (counties, cities) to add additional sales taxes on top of the state rate. This means the total rate your LLC needs to charge can vary within the state depending on the sale location. For example, in Alabama the state rate is 4%, but local taxes can bring the total charged to anywhere from 5% to 11% depending on the city/county. In Colorado, the state rate is 2.9%, but many cities add their own tax, making combined rates differ widely. On the other hand, some states keep it simple with no local sales taxes at all – e.g., Massachusetts (always 6.25% everywhere in the state), Maryland (6%), Michigan (6%), and Washington D.C. (6%). Takeaway: Your LLC must know the correct rate to charge for the location of the sale. Usually, this is based on the destination of the goods (where the buyer takes possession).

• Destination-Based vs. Origin-Based Taxation: Most states are destination-based, meaning if your LLC is selling to someone in that state, you use the customer’s location to determine the tax rate (especially for online or delivery sales). A few states are origin-based for in-state sales, meaning a local business charges everyone the rate of its own location for intrastate sales. For example, Texas is origin-based: a Texas LLC shipping to a Texas customer in another city charges the tax rate of the LLC’s location (not the customer’s city). Arizona is also origin-based for in-state sales. California uses a hybrid approach – part of the tax (the state portion) is statewide, but local add-ons are based on destination; effectively, California businesses charge a mix but can use their origin for the 1.25% local portion. For interstate (out-of-state) sales, almost all states use destination sourcing. (If this sounds confusing, don’t worry – the main point is to be aware that a handful of states have special sourcing rules. When in doubt, default to using the buyer’s location for tax rate, which is correct for the majority of scenarios, especially online sales.)

• Economic Nexus Thresholds: As mentioned, each state with sales tax has defined thresholds for economic nexus. Here’s a quick snapshot:

  • Most states: Threshold of $100,000 in sales or 200 separate transactions in the state within a year. This group includes states like New Jersey, Virginia, North Carolina, Georgia, Illinois, Pennsylvania, and many others. If your LLC’s sales into any of these states exceed either criterion, you must register and collect sales tax there. If below, you generally don’t need to collect (no nexus yet).
  • Higher-threshold states: A few large states chose a bigger limit. California and Texas both set a $500,000 annual sales threshold (with no transaction count requirement). New York uses $500,000 and 100 transactions. Florida (as of 2021) and Tennessee have $100,000 but no transaction count. Arizona stepped up to $150,000 (2020) then $100,000 (2021). Kansas notably had no minimum threshold – any amount of sales triggers nexus – making it one of the strictest. (Kansas essentially says if you make even one sale into Kansas, you should be collecting Kansas sales tax. This is an outlier policy.)
  • Late adopters: Missouri was the last state to enact economic nexus (effective Jan 1, 2023) with a threshold of $100,000. Every state that has a sales tax now has some form of economic nexus rule in place, so no more free passes simply for being out-of-state.
  • Note: These thresholds typically apply to remote sellers (out-of-state companies). If your LLC is physically present in a state, you have nexus no matter how small your sales. Also, thresholds usually don’t count wholesale sales with resale certificates, just taxable end-consumer sales.

• Product and Service Taxability Differences: Each state decides what is taxable. For example, groceries are taxable in some states (Illinois, prepared food in many states) but exempt or taxed at a lower rate in others (e.g. New York exempts unprepared food, Illinois taxes groceries at 1%). Clothing is taxed in most states, but states like Pennsylvania and New Jersey exempt clothing for everyday use. Software and digital goods: some states tax downloaded software and digital media (Texas, for instance), others don’t. Services: as noted, vary widely. If your LLC’s product line includes potentially exempt items, be sure to research that state’s specific rules or tax codes to know if you should not charge tax on those items or if a special rate applies.

• Local Reporting Nuances: A few states have particularly unique local tax systems that can affect LLCs:

  • Colorado – In Colorado, some cities are “home rule” and administer their own sales tax separate from the state. An LLC selling in Colorado might have to separately register, collect, and remit for certain cities (on top of the state tax) if you have nexus in those cities. Colorado has attempted to simplify this with a centralized portal for remote sellers, but it’s still more complex than most states.
  • Louisiana – Historically complex with parish-level reporting. Louisiana now has a commission for remote sellers to streamline multi-parish collection, but if your LLC operates physically in Louisiana, you may need to file in each parish where you do business.
  • Alabama – Offers a Simplified Sellers Use Tax program for remote sellers to file a flat 8% for the whole state, simplifying things if you qualify. But an Alabama-based LLC with physical stores deals with state and local filings.
  • Alaska – Again, no state tax, but if operating in multiple Alaskan municipalities, you may have to handle each local tax separately or through a unified portal that some Alaskan cities joined for online sales.
  • Hawaii & New Mexico – They don’t call it “sales tax” (Hawaii has a General Excise Tax, New Mexico a Gross Receipts Tax), but effectively your LLC still passes that tax onto customers. These states even tax many services and B2B transactions. Just note the terminology difference; compliance steps (register, collect, remit) are similar.

In summary: Nearly every state has its quirks. It’s essential for your LLC to research each state where you have customers. Generally, if you know the following for each state, you’ll be in good shape:

• Do I have nexus (physical or economic) in that state?
• Is what I’m selling taxable in that state, and are there any special exemptions or different rates (e.g., food, clothing)?
• What is the correct tax rate for the customer’s location (or my location, in origin states)?
• How do I register and file in that state? (Usually via the state’s revenue department website.)

Staying on top of each state’s rules ensures you collect the right amount of tax from the right customers.

3 Common LLC Sales Tax Scenarios (with Examples)

To further clarify when an LLC should collect sales tax, let’s walk through three common scenarios that business owners face. Each scenario illustrates an LLC’s sales tax obligations in practical terms:

Scenario 1: LLC Selling Only in Its Home State

Your LLC operates in a single state and sells to customers in that state (for example, a local retail shop or a service provider serving in-state clients).

• Situation: Your LLC has physical presence only in your home state, and you sell products/services to in-state customers. You have no sales (or only very occasional sales) to other states.
• Obligation: You must collect your home state’s sales tax on all taxable sales to customers in that state. Because you have nexus by simply being in that state, every taxable item you sell locally should have sales tax added. For example, a Florida LLC running a boutique in Florida will add Florida sales tax to each in-store sale.
• Out-of-State Sales: If you happen to get an order from another state but it’s a one-off (and you have no significant activity or presence in that other state), you likely do not collect tax for the other state. In Scenario 1, assume no nexus outside your state, so if a New York customer randomly orders your product online, you wouldn’t charge NY sales tax (the customer would be responsible for use tax).
• Notes: Your focus is on complying with one state’s laws. Register in your state, charge the correct combined state+local rate for customers’ addresses (if destination-based). If your state is origin-based (like Texas or Arizona) and you’re shipping within the state, charge your location’s rate. File returns as required (often quarterly) to your state revenue department.

Example: Georgia LLC with a local shop in Atlanta: It must collect Georgia’s 4% state tax plus the local Fulton County and City of Atlanta taxes on all sales to customers in the store (destination-based, so basically the Atlanta rate on all local sales since customers are there). If it ships an order to a customer elsewhere in Georgia, it charges that customer’s local tax rate (Georgia is destination-based for intrastate). If it somehow gets an online order from Alabama but that’s rare and below Alabama’s threshold (and no physical presence there), it doesn’t charge Alabama tax.

Scenario 1 Summary: An LLC doing business in only one state always collects that state’s sales tax from in-state customers, because it has nexus there. No other state’s tax is collected unless/until the LLC expands nexus to another state.

(See the table below for a quick overview of Scenario 1 obligations.)

Scenario 2: LLC Selling Across State Lines (Interstate & Online Sales)

Your LLC sells to customers in multiple states, such as through an online store or multiple business locations. This is common for e-commerce LLCs or businesses that have expanded beyond one state.

• Situation: Your LLC is based in one state, but you ship products or provide services to customers in other states. You might also have various business activities creating nexus in multiple states (e.g., an employee in State B, significant sales in State C, inventory in State D through a fulfillment center, etc.).
• Obligation: You need to collect sales tax in every state where you have nexus. This means:
  • Home State: You continue to collect in your home state (just like Scenario 1).
  • Other States (Physical Nexus): If you have any physical presence in another state (an office, store, warehouse, traveling sales reps, attending trade shows, etc.), you likely have nexus there and must register and collect that state’s tax on sales to customers in that state.
  • Other States (Economic Nexus): Even without physical presence, track your sales into each state. Once you exceed a state’s economic nexus threshold (like $100k sales or 200 transactions in a year, or whatever that state’s law is), you are required to register in that state and start collecting its sales tax on future sales to customers there. This typically needs to be done soon after crossing the threshold (some states require registration once you hit it in the current or previous year).
• No Nexus States: For states where you have zero presence and haven’t met the economic threshold, you do not collect their tax. For example, if your LLC sells $50,000 worth of goods to Ohio customers (below Ohio’s threshold) and you have no physical ties to Ohio, you don’t charge Ohio sales tax yet. Keep monitoring your totals, though – you might have to begin later if sales grow.
• Notes: Multi-state collection means your LLC will be juggling different tax rates and filing requirements. You might use software or a service to help calculate correct rates by ZIP code and to file returns. Also, beware of local nexus rules: e.g., storing inventory in multiple states via Amazon FBA means you have physical nexus in each state where the inventory is stored and must collect in those states regardless of sales volume.

Example: Online LLC based in Oregon (no sales tax state) selling nationwide: Initially, the LLC enjoys no sales tax in Oregon for local sales. However, it makes $120,000 in sales to California this year – that exceeds California’s $500,000 economic nexus threshold? (No, $120k is below $500k, so not yet). But it also sold $110,000 to Washington State (above Washington’s $100k threshold). That means the LLC must register in Washington and start charging Washington sales tax on sales to Washington customers from the point it crossed the threshold onward. Next year, if California sales go above $500k, it will need to do the same for California. It also stores some inventory in an Amazon warehouse in Texas – that physical presence means it should have been collecting Texas tax from the start of using that warehouse. As you can see, multiple triggers can obligate multi-state tax collection.

Scenario 2 Summary: An LLC selling across state lines collects sales tax in each state where it has a tax nexus – whether through physical operations or by surpassing economic thresholds via online sales. Staying compliant means closely monitoring where your customers are and how much you’re selling in each state.

(See the table below for a quick overview of Scenario 2 obligations.)

Scenario 3: LLC with No Sales Tax Obligations (Exempt or No-Tax Situations)

In some cases, your LLC might not need to collect sales tax at all, or only in limited circumstances. This scenario covers those special cases where sales tax collection isn’t required.

• Situation: Your LLC might be selling products or services that are exempt from sales tax, or selling exclusively to tax-exempt customers, or operating in states without sales tax. Alternatively, your volume or type of sales keeps you below every state’s nexus criteria (e.g., a very small online seller).
• Obligation: If an item or transaction is legally exempt, you do not collect sales tax on that sale. Examples:
  • You sell wholesale to other businesses for resale. With a valid resale certificate from the buyer, your sale is exempt. Your LLC wouldn’t charge sales tax; instead, the tax will be charged when that buyer resells to the end consumer.
  • Your LLC only provides a service that is non-taxable in your state (say, a purely consulting LLC in a state that doesn’t tax services). No sales tax collection is needed on those service fees.
  • You’re operating in a state with no sales tax (and not selling into other states). For instance, a local crafts business in Delaware selling only to Delaware customers will not charge sales tax at all, because Delaware has none.
  • You sell tax-exempt goods (e.g., your LLC sells prescription medications or certain medical devices that are tax-exempt in all states, or grocery staples in a state that exempts food). Those items aren’t taxed for anyone by law.
  • Sales to exempt organizations: If a school or nonprofit with tax-exempt status buys from your LLC and provides the proper exemption certificate, you would not collect sales tax on that sale.
• No Nexus Anywhere: If your LLC truly does not have nexus in any state that has a sales tax (say you’re based in New Hampshire, only sell at local New Hampshire craft fairs, and ship nothing out of state), you wouldn’t collect sales tax (because no state can require it of you under current laws).
• Important Caution: Make sure you have documentation for any exempt sales (resale certificates, exemption letters, etc.), because if audited, you’ll need to prove why you didn’t collect tax on a sale that normally would be taxable. Also, periodically re-evaluate – if your LLC grows or changes its product mix or customer base, previously exempt situations might change (e.g., you start selling something taxable or expand to states with tax).

Example: LLC selling only digital artwork downloads, based in Montana: Montana has no sales tax, and suppose digital goods aren’t taxed in the states where the few buyers reside. The LLC might not collect any sales tax at all on its sales. However, if that LLC starts selling physical prints or merchandise that is taxable, or sales increase into certain states beyond thresholds, the situation changes and it would move into Scenario 2 obligations.

Scenario 3 Summary: An LLC does not collect sales tax if the sales are legally exempt or occur entirely outside any taxing jurisdiction. But these scenarios are the exception, not the norm. Always double-check that you truly fall into an exempt category before deciding not to charge tax, because states assume tax should be collected unless you can show a valid reason why not.

(See the table below for a quick overview of Scenario 3 obligations.)

5 Common Sales Tax Mistakes That Could Cost Your LLC (And How to Avoid Them)

Sales tax compliance can be tricky, and many businesses slip up. Here are five common mistakes LLCs make when handling sales tax collection, and tips on how to avoid them:

1. Failing to Register for a Sales Tax Permit: Some new LLC owners start charging sales tax to customers without actually registering with the state’s tax authority. This is a mistake – collecting without a permit is often illegal. Avoid it: Always register and get your sales tax license before collecting any tax. It’s usually a quick online process with the state’s Department of Revenue. Once you have the permit, only then begin charging sales tax.

2. Not Collecting When You Should (Nexus Oversight): A very common error is not realizing you’ve created nexus in a state, and therefore failing to collect tax in a state where you were required to. This often happens with online sellers after Wayfair – e.g., your sales in a state grew past the threshold last year, but you didn’t start collecting because you weren’t aware. It can also happen if you open a small warehouse or hire an employee in another state and overlook that new nexus. Avoid it: Regularly review where your LLC has operations and track your sales by state. Set alerts for when you approach nexus thresholds. If you cross a line, register and start collecting promptly. Keep up with law changes – states occasionally adjust thresholds or other nexus rules.

3. Collecting When Not Required (and Remitting to the Wrong State): The flip side is charging sales tax unnecessarily – for example, adding sales tax for customers in states where you have no nexus or on items that are actually exempt. This can make your prices higher (hurting sales) and create a mess of trying to remit money to a state that isn’t expecting it. Avoid it: Only charge sales tax in states where you’re sure you have an obligation. If a customer is in a state you’re not registered in, you typically should not charge that state’s tax. Similarly, know which products are non-taxable. For instance, don’t charge tax on non-taxable food items if the state exempts them – customers notice and it’s legally wrong. Use updated tax rate databases or software to apply tax correctly.

4. Using the Wrong Tax Rates or Sourcing Rules: Sales tax rates can change, and they can differ even within a zip code. A common mistake is charging the wrong rate – e.g., not realizing a local tax was added, or applying your home rate to out-of-area sales incorrectly. For origin/destination issues, a business might charge based on their location when they should use the customer’s, or vice versa, leading to under- or over-collection. Avoid it: Keep your tax rate tables up-to-date. Many LLCs use sales tax calculation software or plugins that update rates automatically for jurisdictions. If calculating manually, regularly check state and local tax agency updates (rates often change in January or July). Understand the sourcing rules in your state – if you’re in an origin-based state, confirm how you should charge intrastate versus interstate sales. When in doubt, contacting the state’s revenue department or consulting a tax professional can clarify the correct approach.

5. Not Remitting and Filing on Time (or at All): Some LLC owners dutifully collect the tax from customers, but then fail to remit those funds to the state by the deadline. This might happen due to poor bookkeeping (accidentally using the collected tax money for operating expenses) or simply forgetting to file the return. Missing a filing or payment can trigger penalties, interest, or even license revocation. Avoid it: Treat collected sales tax as no-touch funds – it’s not your revenue, it’s the state’s money. Set it aside (many businesses set up a separate bank account for sales tax collected). Mark your calendar with all sales tax filing due dates (which could be monthly, quarterly, or annual depending on your volume and the state’s assignment). Many states allow or require online filing and payment; utilize those systems and consider automating payments. If a due date slips by, file and pay as soon as you realize, as delays only increase penalties.

(Bonus mistake:) Poor Record Keeping, Especially for Exempt Sales: If your LLC makes some sales tax-free (like wholesale sales, or sales to an exempt org, or out-of-state sales), you need to keep proper documentation (exemption certificates, invoices, shipping records) to prove why tax wasn’t collected. In an audit, if you cannot produce proof, the state might assume you should have collected tax and assess it against you. Avoid it: Keep organized records for at least the number of years in the statute of limitations (often 3-4 years). Use digital scans of resale certificates, clearly mark invoices that were tax-exempt and why, and maintain shipping logs for out-of-state deliveries.

Remember: Sales tax mistakes can be costly to your LLC – states can assess back taxes, penalties, and interest, and in extreme cases, responsible owners can be held personally liable for unremitted tax. The good news is these mistakes are avoidable with a bit of knowledge and proactive management. When in doubt, consult a CPA or sales tax expert, especially as your business grows into new markets.

Frequently Asked Questions (FAQs) about LLCs and Sales Tax

Q: Does my LLC need a sales tax permit in every state?
A: Only in states where your LLC has sales tax nexus. Register for a sales tax permit in each state where you have a physical presence or exceed economic nexus thresholds to legally collect tax.

Q: Is sales tax the same as income tax for an LLC?
A: No. Sales tax is collected from customers on sales and passed to the state. Income tax is a tax on your LLC’s profits. They are separate; an LLC handles both but in different ways.

Q: What if my LLC doesn’t collect sales tax when it should have?
A: The LLC may owe the uncollected tax out of pocket, plus penalties and interest. States can audit and assess back taxes. It’s best to voluntarily comply ASAP or seek a resolution program if available.

Q: Do I charge sales tax for online sales to out-of-state customers?
A: Charge sales tax for out-of-state customers only if your LLC has nexus in their state (via physical presence or exceeding that state’s sales threshold). No nexus means you generally shouldn’t collect that state’s tax.

Q: Can an LLC ever be exempt from collecting sales tax?
A: An LLC itself isn’t exempt just for being an LLC. However, if all your sales are of exempt items or are in non-taxing states, you won’t collect tax. Otherwise, having an LLC doesn’t grant a blanket exemption.

Q: How does an LLC file sales tax returns?
A: After registering, the LLC must file periodic sales tax returns in each state where it’s licensed. This is usually done online through the state’s revenue department portal, reporting taxable sales and taxes collected.

Q: Will forming my LLC in Delaware or Oregon avoid sales tax?
A: No. Incorporating in a no-sales-tax state doesn’t exempt you from taxes elsewhere. You must still collect sales tax from buyers in any state where your sales create nexus, regardless of where your LLC is formed.

Q: Are services provided by an LLC subject to sales tax?
A: It depends on the state and type of service. Many states don’t tax most services, so your LLC wouldn’t collect tax on those. But some states do tax specific services – always check the rules for your service in that state.