Setting Up US Sales Tax — End to End
US sales tax works on a different principle from VAT/GST, and one idea drives the whole setup: nexus. You only charge sales tax in states where you have a registration (nexus); the rate is the buyer’s state; and whether an item is taxable depends on the item and the buyer. This article shows how to configure REDA so all three are handled automatically — with a catalogue and a couple of contrasting sales to prove it.
Access you'll need. Setting up the tax rulebook requires the Accounting Admin v2 or Accounting Controller v2 permission set. The Accounts Payable v2, Accounts Receivable v2, and Read Only v2 sets can view the setup but not change it.
The configuration chain
| # | What | Why it exists | Source |
|---|---|---|---|
| 1 | Jurisdiction | US + each state | Seed |
| 2 | Tax Type | Sales Tax, Use Tax | Seed |
| 3 | Tax Profile | Taxable goods vs exempt | Seed |
| 4 | Tax Rule | One per state — the state’s rate, keyed to the destination state | Seed |
| 5 | Product taxability | The Apply Default Tax flag marks your product taxable (see Step 5) | You |
| 6 | Party Tax Profile | Taxable customer / resale-exempt / consumer | Seed + you assign |
| 7 | GL Mapping | Sales Tax Payable account | Seed |
| 8 | Registration + defaults | Your nexus — one per state where you must collect | You |
Our example catalogue
| Product / service | Typical treatment | How it’s configured |
|---|---|---|
| Office furniture (tangible goods) | Taxable | Apply Default Tax flag on |
| Professional consulting | Exempt in most states | Flag off — no rule fires, zero tax |
| Goods sold to a reseller | Exempt (resale certificate) | Taxable product; the invoice lines are marked Tax Exempt |
Step 1 — Jurisdictions
The seed creates US plus all 50 states. Sales tax is a state
(and local) tax, charged at the destination — the buyer’s state
— so the state jurisdictions are what the rules key to.
Step 2 — Tax Types
| Tax Type | What it is |
|---|---|
US-SALES-TAX | Collected from the customer on a taxable sale, remitted to the state |
US-USE-TAX | Self-assessed on a purchase where the seller didn’t charge sales tax |
US sales tax is not recoverable like VAT — it’s a tax on final consumption, so there’s no input-credit asset; a non-resale purchase is a real cost.
Step 3 — Tax Profiles
| Tax Profile | For products that are… |
|---|---|
US-STD-GOODS | Taxable (tangible personal property, most goods) |
US-EXEMPT-GOODS | Exempt (many services, groceries/prescriptions where exempt) |
US-STD-GOODS and classify products with fiscal profiles. Until then, a product
classified to a profile matches no shipped rule — taxability runs on the flag.
Step 4 — Tax Rules (one per state)
Each state ships a rule carrying that state’s combined rate, keyed to the destination jurisdiction. The rule fires when the buyer is in that state and the product is flagged taxable. A few examples:
| Rule | Destination | Combined rate |
|---|---|---|
US-SALES-TAX-CA | California | 8.82% |
US-SALES-TAX-TX | Texas | 8.19% |
US-SALES-TAX-NY | New York | 8.52% |
| …one per state, all 50. (The no-sales-tax states — Oregon, Montana, New Hampshire, Delaware, and state-level Alaska — ship as 0% rules, so a sale there computes zero rather than falling through.) | ||
The seeded rates are state + average local. For rooftop-accurate local rates, override the rate on a state’s rule or add city/county jurisdictions — but the state rate is the right starting point.
Step 5 — Classify your catalogue
With the shipped catch-all rules, classification is one checkbox per product — Apply Default Tax:
| Product | Apply Default Tax | Result |
|---|---|---|
| Office furniture | On | The buyer’s state rule fires (where you have nexus) |
| Professional consulting | Off | No rule fires — zero tax, every state |
No fiscal profiles are needed for this pattern — and note the strictness cuts both ways: a product with the flag off and no fiscal profile simply gets no tax, which is exactly what you want for exempt services.
Step 6 — Party Tax Profiles
| Party Profile | Use for |
|---|---|
US-TAXABLE-B2B | A normal taxable business customer |
US-EXEMPT-RESELLER | A buyer who gave you a resale / exemption certificate — the profile records the certificate basis |
US-CONSUMER | An end consumer (taxable) |
Two things about the reseller case. The profile is the record: it carries the exemption and its basis (“Resale certificate — buyer holds valid reseller permit”), so the justification lives on the account. The switch that stops the tax is on the invoice: mark the resale lines’ Tax Base as Tax Exempt, and the engine skips them entirely — no rules, no tax. (The shipped state rules don’t filter by buyer profile; rules can be scoped to a buyer’s Party Tax Profile if you want that automated per customer.)
Step 7 — GL mapping
One mapping covers the common case — sales tax you owe the state:
| Side | Posts to | Account kind |
|---|---|---|
| Sales | 2371-SALES-TAX-US — Sales Tax Payable | Liability (you remit to the state) |
Step 8 — Register where you have nexus
This is the step that defines US behaviour. Create an Entity Tax Registration for each state where you have nexus — physical presence, or economic nexus (typically > $100k or 200 transactions a year in that state).
The payoff — nexus, rate & taxability, automatically
You have nexus in California and Texas, not in Florida. Sell $1,000 of office furniture (taxable). The configured data decides:
| Sale | Sales tax | Why |
|---|---|---|
| To a customer in California | $88.20 (8.82%) | Nexus in CA + taxable product |
| To a customer in Texas | $81.90 (8.19%) | Nexus in TX + taxable product |
| To a customer in Florida | $0.00 | No nexus in FL — you can’t collect |
| To a reseller in California | $0.00 | Lines marked Tax Exempt (resale certificate on file) |
| Consulting (any state) | $0.00 | Product not flagged taxable — no rule fires |
The California sale’s journal:
| Account | Debit | Credit |
|---|---|---|
| Accounts Receivable | $1,088.20 | |
| Revenue | $1,000.00 | |
Sales Tax Payable — 2371-SALES-TAX-US | $88.20 |
2371-SALES-TAX-US by jurisdiction; each state’s remittance traces to its
Source Line Tax rows. Register a new state the day you cross
its economic-nexus threshold and REDA starts collecting there — not before.
Use tax — the purchase side
When you buy taxable goods and the seller didn’t charge sales tax (an out-of-state vendor with no nexus in your state), you owe use tax — the same rate, self-assessed. Configure it like a purchase-side tax so REDA accrues the liability rather than letting the cost slip through untaxed.
If sales tax is wrong, check the chain
- Nexus. No registration in the buyer’s state → no tax (by design). Crossed a threshold? Add the registration.
- Destination set. The customer’s (ship-to) state drives the rate — it must be set.
- Product taxability. Is Apply Default Tax ticked on the product? Off (with no fiscal profile) means zero tax by design. And a product classified to a fiscal profile matches no shipped rule — the seeded state rules are catch-alls.
- Exempt lines. A line whose Tax Base is Tax Exempt is intentionally untaxed — the resale pattern; check the buyer’s certificate is on file.
Where to go next
- Entity Tax Registration — nexus recorded as registrations.
- UK VAT — VAT contrasted with sales tax.
- Tax Jurisdictions — US states as taxing jurisdictions.
- Tax Rules — how state rate rules match.
- Tax Seeding Wizard — load US state packs quickly.
Frequently asked questions
Because you have no nexus (registration) in that state. In the US you only collect where you’re registered — that’s the law (post-Wayfair, economic nexus is typically $100k or 200 transactions a year per state). Register the state and REDA starts collecting.
Assign their Account the US-EXEMPT-RESELLER party profile with the certificate recorded as its exemption basis — that’s your audit record — and mark the resale lines Tax Exempt on their invoices, which is what actually stops the tax. To automate it per customer, scope your state rules to the taxable buyer profiles so exempt-profile buyers fall outside them.
The seed uses state + average local rates. For rooftop accuracy, override the rate on the state’s rule, or add county/city jurisdictions and rules. Many businesses run on the state-level rate plus periodic updates.
It depends on the state — most professional services are exempt, but some states tax specific services and digital products. With the shipped setup, flag a service’s Apply Default Tax on if it’s taxable where you sell, off if not. If the same service is taxable in one state and exempt in another, build profile-scoped copies of those states’ rules against US-STD-GOODS and classify the service with a fiscal profile.
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