Sales tax glossary

The retail sale of two or more distinct products/services sold for a single non-itemized price. Jurisdictions often consider the entire bundle taxable if any component is taxable. Understanding bundled transactions is crucial for accurate tax calculation and compliance.

Products delivered electronically, including software downloads, digital media, and online subscriptions. Their taxability varies significantly by jurisdiction, creating unique compliance challenges for sellers operating across multiple regions.

Services delivered electronically, including data processing, web hosting, and cloud-based solutions. These services face complex tax treatment that varies by jurisdiction and often crosses traditional boundaries, requiring careful compliance monitoring.

A threshold of economic activity that creates a tax obligation in a jurisdiction, typically based on revenue or transaction volume. Most commonly triggered when sales exceed $100,000 or 200 transactions in a jurisdiction.

Documentation provided by a purchaser to make a tax-free purchase. Sellers must collect and maintain these certificates to support non-taxed sales during audits. Proper management is essential for compliance.

A value-added tax system implemented across numerous countries that applies to most transactions. Businesses collect tax on sales and can claim credits for GST paid on purchases, ensuring tax is collected at various supply chain stages.

A city, county, or municipality with independent taxing authority that manages taxability and compliance separately from the state. These jurisdictions often have unique filing requirements and tax rules for digital products.

An exemption allowing purchasers of software/SaaS to buy tax-free when used across multiple locations. The purchaser becomes responsible for calculating and remitting use tax based on actual usage across jurisdictions.

The connection between a seller and a jurisdiction that creates a tax obligation. Can be triggered by physical presence or economic activity, requiring businesses to register, collect, and remit sales tax in that jurisdiction.

A comprehensive analysis of business activities to determine where tax obligations exist. Examines physical presence, economic activity, employee locations, and transaction volumes to identify registration and collection requirements.

A specialized tax applied to lease or rental transactions in specific jurisdictions like Chicago. Covers equipment rentals, vehicle leases, software licenses, and hardware rentals, affecting pricing and compliance strategies.

Tangible personal property that can be seen, weighed, measured, or touched. Traditional basis for sales tax systems with clearer taxability rules compared to digital products, though interstate commerce creates unique challenges.

Tax obligations created by having employees, property, or agents physically located in a jurisdiction. For SaaS companies, even temporary employee presence can trigger nexus and compliance requirements.

Businesses selling into jurisdictions where they have no physical presence. Must monitor economic nexus thresholds and maintain compliance across multiple jurisdictions, particularly important in the e-commerce era.

A mechanism shifting tax reporting and payment responsibility from the supplier to the recipient. Common in international transactions and B2B services, requiring careful documentation and compliance procedures.

A percentage tax on the sales price of taxable goods and services. Collected by sellers but typically passed through to end customers, with varying names and structures across jurisdictions.

The complete process of meeting sales tax obligations across jurisdictions. Includes registration, collection, filing returns, and maintaining required records, requiring ongoing monitoring of regulatory changes.

Tools automating the sales tax compliance process from registration through filing. Helps manage exemption certificates, calculation, and changing regulations across multiple jurisdictions.

Statutory exceptions allowing tax-free purchases of otherwise taxable items. Common examples include resale certificates and Multiple Points of Use exemptions for software products.

Rules determining which jurisdiction's tax rates and rules apply to a transaction. Can be destination-based (delivery location) or origin-based (seller's location), affecting tax calculation and compliance.

Classification system determining how products and services are treated for tax purposes. Defines taxability status, rates, exemption eligibility, and reporting requirements across jurisdictions.

Electronic transmission of invoices meeting specific government requirements. May require validation through government portals or specific formats, with varying mandates by country.

Creating invoices that include all details required by tax authorities. Must include registration numbers, local language/currency requirements, and proper handling of special rules like reverse charges.

Percentage applied to taxable sales in each jurisdiction. Often combines state, county, city, and special district rates, requiring regular updates as rates change.

Process of establishing a formal relationship with tax authorities for collecting and remitting taxes. Requires business information, documentation of nexus triggers, and projections of expected sales volume.

Determination of whether specific goods, services, or digital products are subject to sales tax. Requires analysis of multiple factors and varies significantly across jurisdictions.

Services subject to sales tax in various jurisdictions. Category continues to expand as authorities adapt tax bases, with digital services facing particularly complex treatment.

Method used by tax authorities to determine taxability of bundled items. Evaluates what the customer is primarily purchasing, with the dominant component's tax treatment applying to the entire transaction.

Complementary to sales tax, applied when no sales tax was collected on a taxable purchase. Typically self-assessed by the purchaser when buying from sellers without nexus in their jurisdiction.

Unique identifiers assigned to businesses for VAT purposes. Essential for transaction reporting, cross-border sales documentation, and input tax recovery in VAT jurisdictions.

Minimum annual turnover requiring VAT registration. Varies by country and business type, helping determine registration requirements and compliance obligations.

Consumption tax applied at each production and distribution stage. Allows businesses to claim input tax credits while ensuring tax collection on value added, common in EU and many countries worldwide.

Contract between seller and tax authority to address past tax obligations. Typically offers reduced penalties and limited lookback periods when businesses voluntarily come forward to resolve compliance issues.