Origin vs Destination Based Sales Tax, Explained
Which rate applies, the seller's or the buyer's? It depends. Here is the distinction.
The difference is whose location sets the rate. Origin based sourcing charges the rate at the seller's location, while destination based sourcing charges the rate at the buyer's address. For remote sales shipped across state lines, destination sourcing is the common rule, which is why identical products can carry different tax.
Two ways to source a sale
Sales tax sourcing decides whose location sets the rate. Origin based sourcing uses the seller's location; destination based uses the buyer's. Which one applies depends on the state and the situation. Related: What Economic Nexus Means and Why It Matters
Keep reading: US Sales Tax Basics for Online Sellers, What Economic Nexus Means and Why It Matters, Why Sales Tax Rates Change So Often. See how SalesTaxly helps you us sales tax rates and lookup for online stores.
Destination is common for remote sales
For sales shipped to a customer in another state, destination based sourcing is the common rule, meaning you charge the rate at the buyer's address. That is why the same product can carry different tax for different customers. Related: Why Sales Tax Rates Change So Often
Why it complicates checkout
Destination sourcing means you cannot use a single flat rate. The correct amount depends on exactly where each order ships, which is why an address level rate lookup matters. Related: Why does the sales tax rate differ between two addresses in the same city?
Know the rule that applies to you
The right sourcing rule depends on your circumstances and the states involved. Understanding which applies keeps you from charging a wrong, and potentially costly, rate.
- Sourcing decides whose location sets the rate
- Remote sales are commonly destination based
- Destination sourcing rules out a single flat rate
- Know which sourcing rule applies to your sales
Julien Jimenez
Julien Jimenez is an independent software builder based in Paris. He designs, ships, and operates focused SaaS products for small businesses and independent professionals. Read the full author page.
Frequently asked questions
Why does destination based sourcing make checkout harder?
Because the correct rate depends on exactly where each order ships, you cannot apply one flat rate. Checkout has to look up the combined rate for each buyer's address.
Which sourcing rule applies to my sales?
It depends on the states involved and your circumstances, but interstate sales to customers are commonly destination based. Confirm the rule for each state rather than assuming a single approach covers everything.
Charge the right US sales tax, every time
US sales tax rates and lookup for online stores. SalesTaxly is built to help you put this into practice.
Look up a rateMore from the SalesTaxly blog
US Sales Tax Basics for Online Sellers
What Economic Nexus Means and Why It Matters
Why Sales Tax Rates Change So Often
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