Is sales tax based on shipping address?

• Sales tax rates are based on sourcing rules.
• Sales tax is based on the ship-to address for interstate online sales.
• Sales tax is based on the billing address in some states and situations.
• Sales tax is based on the seller’s address in some states and situations.

Whether sales tax is based on the shipping address, the billing address, the seller’s address, or another location depends on the sales tax sourcing rules as well as the type of transaction. 

• Destination sourcing rules base sales tax on the jurisdiction where the customer takes possession of the purchased goods. For online and other delivery sales, this is usually the shipping address (aka, ship-to address). 

• Origin sourcing rules base sales tax on the location where the order was taken or fulfilled, usually the seller’s location or the ship-from address. 

• Mixed sourcing rules apply destination sourcing to some transactions and origin sourcing to others. Mixed sourcing rules are state specific. 

For interstate online sales of digital goods and tangible goods, all states base sales tax rates on the shipping address (destination sourcing). The billing address is generally used for sales tax only when no other address is provided.  

Sales tax can be based on the billing address when there’s no clear shipping address, delivery address, or location of first use. This is most likely to arise with online sales of digital products or services — because retailers need a shipping address to deliver physical goods.

“Basing sales tax on the billing address is a fallback situation,” explains Scott Peterson, VP of Government Relations at Avalara. “Except in the case of mobile phones, which are sourced to the place of primary use, it can only be used when the seller doesn’t have enough information to collect the destination rate. The first requirement is for the seller to see if they have a ship-to address on record.”  

There are three scenarios when tax is based on the seller’s address:

• In-store purchases 

• Curbside pickup orders — aka, click-and-collect or buy online pickup in store (BOPIS)

• In-state delivery orders in origin sourcing states   

Origin sourcing rules apply only in certain states, and only to in-state delivery transactions (when the buyer and seller are both located in the state). Several states use origin sourcing for in-state internet, mail, or phone sales. For example:

• Ohio requires Ohio vendors to source internet, mail order, or phone sales to Ohio consumers to the location where the order was received, if known. 

• Illinois uses the shipping address (destination sourcing) for goods shipped from out of state but uses the seller’s address (origin sourcing) for deliveries originating in the state. Illinois sales tax sourcing rules are complex and controversial.

• Texas requires in-state businesses to collect local sales tax based on the location where the sale or use is “consummated.” This may be the location where the order was received or fulfilled. (Read more about Texas sales tax sourcing.)

• Virginia requires in-state sellers to collect sales tax at the business location while out-of-state dealers collect the rate in effect at the delivery address.

Here’s more of what you need to know about sales tax sourcing rules. 

Whether sales tax applies to shipping, handling, and delivery charges depends on state laws and can be shaped by the following:

• The delivery method
• Whether the products being shipped are taxable or exempt
• Whether the shipping charges are separately stated or included in the sale price

In many states, charges to ship taxable goods are taxable while charges to ship exempt goods are exempt. Our state-by-state guide to the taxability of delivery charges has more details. 

If you engage in drop shipping, you’ll want to know how drop shipping affects sales tax.  

Retailers are required to collect and remit sales tax in states where they have sales tax nexus, which can be created through physical presence and economic activity in a state, referrals from inside the state, or ties to in-state affiliates. 

If you sell online and have nexus with more than one state, you need to apply the proper sales tax rate to each transaction. With 12,000 sales and use tax jurisdictions in the U.S., that’s a big job.

Automating sales tax collection can reduce the burden of compliance. Learn how Avalara helps retailers of all sizes streamline sales calculation, collection, and remittance.

This blog post has been updated. It was originally published in June 2023.