The Tricky 10: States with the Most Complex Sales Tax Filing Rules
Taxes in the United States are complicated enough, but there are 10 states in particular that are known for the complexity of their filing and remittance laws. They've even earned themselves a nickname: The Tricky 10.
While these rules may be hard to keep track of, they aren’t mysterious. In this article we’ll detail nine factors that can complicate the tax filing process for your business. Then, we’ll reveal members of The Tricky 10 and what you need to know when filing in one of these states. With that information in hand, you’ll be ready to handle your online sales tax compliance like a champ.
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9 questions to ask before filing your online sales taxes
Taxes might be one of the least glamorous parts of running a business, but it’s critical to keeping your operations up and running.
When setting up and filing your sales tax returns, ask yourself the following questions to ensure you’re preparing and submitting your forms properly:
Where does your business have nexus?
Which tax return forms does your business need to prepare?
What payment methods do your state and local governments accept?
What filing methods do your state and local governments use?
Are there additional local returns you need to file due to home rule?
What are the due dates and filing schedules?
Have there been any recent tax rate changes?
Does the state you’re filing in have any location or outlet reporting requirements?
Do you have the correct forms for the kind of inventory you sell?
01. Where does your business have nexus?
To determine where you need to collect and remit sales tax, you must figure out where your business has nexus. Sales tax nexus is the connection between a seller and a state that requires the seller to register, collect, and remit sales tax on sales made in the state. Certain business activities such as having a physical presence in a jurisdiction or reaching a sales threshold may establish nexus with the state. In the past, this connection, nexus was usually triggered only when a business had a physical presence (e.g., offices, warehouses, employees). However, as of June 2018, that definition changed.
That summer, the case of South Dakota v. Wayfair, Inc. came before the U.S. Supreme Court. As a result of the case, an obligation to collect and remit sales tax can also be established through economic nexus. This includes affiliate relationships or click-throughs that meet a certain sales or transaction threshold. Now, more states are revisiting their definition of nexus and making changes to reflect the powerful role ecommerce plays in our modern economy.
Action item: Know the states where you have tax obligations. Start by researching nexus laws in states your business has a physical presence or meets economic nexus thresholds. Once you’ve listed these states, it’s a good idea to confirm your list with a certified accountant. Then, add the states from your list to your online store using Wix Stores’ integration with Avalara. Avalara’s tax compliance software automatically calculates sales tax for each location you sell to, so your customers always get real-time rates as they shop and check out.
02. Which tax return forms does your business need to prepare?
“To each, their own” has never seemed so true. States have all sorts of policies in place for the tax filing process. For example, there are five home rule states (Alabama, Alaska, Arizona, Colorado, and Louisiana). Home rule means the city, county or other local governments within these states can levy and collect their own taxes. If you’re a merchant paying taxes in any of these states, you may find yourself filling out multiple tax returns.
Action item: Research which tax return forms states require, especially home rule states. Keep an eye out for rules that ask for multiple forms based on the government level.
03. What payment methods do your state and local governments accept?
Every government jurisdiction has its own way of doing things. Some accept checks, some welcome online payments and some are fine with both. Depending on the state, the amount you owe will determine which method you can use to pay.
Action item: Double-check which payment methods your state and local governments allow. Make sure this method is valid for the amount you owe.
04. What filing methods do your state and local governments use?
Similar to payment methods, state and local governments vary in how they prefer to receive your tax forms. While more jurisdictions are transitioning to electronic filing systems, there are still some paper holdouts. Remember, just because a state or local government body uses an electronic payment method, doesn’t necessarily mean you can file online (and vice versa).
Action item: Check the filing method regulations for the states and localities where you owe taxes.
05. Are there additional local returns you need to file due to home rule?
As mentioned above, home rule lets a local government function like a state, specifically when it comes to setting tax rates and overseeing collection. In home rule states, you might need a separate business registration and reporting process for the city and/or county where you have tax obligations.
Action item: Understand if you owe taxes in home rule states. If so, research the tax filing rules for the localities where your business is obligated to collect.
06. What are the due dates and filing schedules?
Many of us are familiar with the April 15 deadline for personal income taxes. When it comes to sales tax, there isn’t a parallel universal date for filing. Filing schedules could be monthly or quarterly depending on factors like geographic location (another instance where states and local governments set their own rules) and your sales threshold.
Action item: Find out the filing due dates for each state and local government where you owe taxes. Mark all of these dates on your business calendar.
07. Have there been any recent tax rate changes?
Because tax rates are set by legislators, percentages can change with new laws. Furthermore, states often tax different products at different rates, which can make it all the more difficult to keep up with how much you owe.
Action item: Save time and get the most current tax rates using Wix Stores’ integration with Avalara. Once you add the states you do business in, Avalara automatically calculates sales tax rates for you and your customers at checkout.
08. Does the state you’re filing in have any location or outlet reporting requirements?
If your business has several retail locations (outlets or kiosks), pay special attention to this question. Some states require location reporting, meaning a business must report separately for each site.
Action item: Know the status of location reporting in the states where you file taxes.
09. Do you have the correct forms for the kind of inventory you sell?
If you sell a variety of products, it’s important to understand which tax category they fall under. In some instances, a state or locality will specify a few different forms to file and remit sales based on the type of product.
Action item: Confirm if you can use one standardized tax form for all products you sell, or if different subcategories of your inventory need their own corresponding forms.
10 states to watch out for when filing your sales taxes
There are many challenges that come along with filing sales tax returns. These hurdles crop up in particular within 10 states, known as The Tricky 10. If you have nexus in any of The Tricky Ten, check out these pointers before you file. Keep in mind, if you’re using Wix Stores’ integration with Avalara, additional setup is required for home rule states.
1. Arizona
Transaction privilege tax in lieu of state sales tax
Home rule state
Early filing discounts
Complex state forms
City and county tax broken out for individual locations
Deduction breakdown requirements
Annual prepayment required (amount based on previous year’s liability)
Mandatory electronic filing for registered customers with multiple locations
2. California
Optional local jurisdictions
Multiple schedules
Monthly prepayment with quarterly return
Deduction breakdown requirements
Location/outlet reporting requirements
Annual prepayment required (amount based on previous year’s liability)
3. Colorado
Home rule state
Early filing discount
Dozens of local, self-administered taxes
Special rules for short-term rental filings
Location/outlet reporting requirements
Deduction breakdown requirements
Consumer use tax notice and reporting for non-collecting sellers
4. Florida
Early filing discount
Sales tax holidays (disaster preparedness, back to school)
Complex rate calculation, including the Florida Discretionary Sales Surtax (a county sales tax)
Minimum monthly prepayment required
5. Illinois
Early filing discount
Gross receipts tax
Retailers’ Occupation Tax and Service Occupation Tax; state and local
Sales based on the retailer’s location, not the delivery location
Local tax complexity: City of Chicago
Tax rate varies depending on transaction type
Complex regulations regarding locations based on selling activities
Multiple forms sometimes required
Deduction breakdown requirements
Location/outlet reporting requirements
Prepayment required based on revenue threshold
6. Louisiana
Home rule state
Sales tax holiday (Second Amendment)
Jurisdictions defined by parish
Deduction breakdown requirements
Consumer use tax notice and reporting for non-collecting sellers
7. Missouri
New, complex rates every quarter
Each tax type requires a separate return
Spreadsheet-based returns
Many local jurisdictions and local governments overlap (and “local” has many definitions)
Sales tax holiday (Energy Star appliances, back to school)
Prepayment required based on revenue threshold
8. New York
PrompTax required for large sales tax vendors
Different forms required for different filing frequency
Offset quarterly filing requirements for some vendors
Retail sales breakdown reporting requirement
9. Tennessee
Complex rate calculation, including the Tennessee Local Option Tax and/or the Tennessee Single Option Tax
Annual sales tax holiday
Deduction breakdown requirements
Location/outlet reporting requirements
10. Texas
An annual sales tax holiday (plus sales tax holidays for Energy Star appliances, emergency preparedness, water-efficient products)
Prepayment required based on revenue threshold
Location/outlet reporting requirements
Proposed consumer use tax notice and reporting for non-collecting sellers
High volume of auditors with expedited enforcement plans
Daniella Dukes
Payments Team Lead
Daniella leads the Payments Marketing Team for Wix.com. Since 2019, she's been crafting sharp content that helps over 700K Wix Merchants get paid, wherever they sell—online, in person and on the go.
In partnership with Avalara.
Source: The Tricky 10: States with the Most Complex Sales Tax Filing Rules by Avalara | Updated 11.01.2019
