Introduction
If you run a B2B company, one of the hardest questions to answer is also one of the most important: Do we need to charge state sales tax on sales to other businesses?
The rules vary by state, industry, and whether your customer has a valid exemption certificate. Get it wrong, and you risk audits, penalties, and angry clients. Get it right, and tax compliance becomes simple and predictable.
This guide breaks everything down step-by-step, using plain English and current U.S. laws.
Quick Answer
Business-to-business sales may require charging state sales tax depending on what you sell, where your business has nexus, and whether your buyer provides a valid resale or exemption certificate. B2B transactions are not automatically exempt—taxability is determined by state rules, product type, and documentation.
Table of Contents
- What Determines Whether B2B Must Charge Sales Tax?
- Understanding Nexus (Physical vs. Economic)
- When B2B Sales Are Taxable
- When B2B Sales Are Exempt
- Common B2B Scenarios Explained
- State-by-State Differences
- Documentation You Must Collect
- Examples of B2B Sales Tax in Action
- FAQs
- Conclusion
1. What Determines Whether B2B Must Charge State Sales Tax?
B2B companies often assume sales tax only applies to B2C. That’s incorrect. In the U.S., sales tax rules vary across states such as California and Texas, and taxability depends on three factors:
1. Your nexus
- Physical presence (office, warehouse, employees)
- Economic presence (sales thresholds)
2. The type of product or service
- Tangible goods
- Digital goods
- SaaS / software
- Professional services
3. Whether the buyer qualifies for an exemption
- Resale
- Manufacturing
- Nonprofit organizations
- Government agencies
If any of these variables shift, tax obligations change too.
2. Understanding Nexus (The Trigger for B2B Sales Tax)
Nexus is your taxable connection to a state.
Types of Nexus
Physical Nexus
You have physical nexus if you:
- Own or lease property
- Store inventory
- Employ remote or in-state workers
- Participate in trade shows
Economic Nexus
Most states tax remote sellers once they exceed a threshold such as:
- $100,000 in sales or
- 200+ transactions
(Thresholds vary by state.)
If you have nexus in a state, you may need to collect its sales tax—even on B2B transactions.
3. When B2B Sales Are Taxable
B2B is not a blanket exemption. You must charge sales tax when:
1. You sell taxable goods or services
Examples:
- Hardware, equipment, or supplies
- SaaS in states that tax digital products
- Software downloads
- IT services (in some states)
2. You have nexus in the buyer’s state
If you exceed the economic threshold in Texas or have a warehouse in California, you owe compliance there.
3. The buyer is the end user
If the business uses the product rather than reselling it, the sale may be taxable.
4. The buyer does not provide a valid exemption certificate
No certificate = treat as taxable.
4. When B2B Sales Are Exempt
Many B2B transactions are exempt, but only with proper documentation.
Common B2B Exemptions
- Resale: Buyer will resell the product.
- Manufacturing: Buyer uses the product in producing goods.
- Nonprofit / Charity: If state law allows their exemption.
- Government purchases: Federal and many state agencies.
- Interstate commerce (in limited cases): Physical goods shipped out of state.
Key Rule:
Exemption is not automatic. Your business must collect a state-approved exemption certificate.
5. Common B2B Scenarios Explained
Scenario 1: Selling equipment to another business
Taxable unless:
- Buyer resells it, or
- Buyer uses an exemption certificate
Scenario 2: SaaS sold to a business
SaaS is taxable in many states (e.g., Texas, New York).
May be exempt if:
- State doesn’t tax SaaS
- Buyer resells access
Scenario 3: B2B professional services
Often exempt, but:
- Some states tax specific services (IT, telecom, maintenance).
- Bundled services may become taxable.
Scenario 4: Digital goods
E-books, digital files, and online tools are taxable in several states.
Again: exemption requires documentation.
6. State-by-State Differences (High-Level Overview)
| State | Does B2B Pay Sales Tax? | Special Notes |
| California | Yes, if taxable goods/services and no exemption | Strong nexus rules |
| Texas | Yes | SaaS is taxable |
| New York | Yes | Digital goods taxable |
| Florida | Yes | Professional services generally exempt |
| Oregon | No statewide sales tax | No B2B sales tax |
| Delaware | No statewide sales tax | No B2B sales tax |
Note: Always verify with each state’s rules. States update regulations regularly.
7. Documentation You Must Collect
To avoid charging sales tax on exempt B2B transactions, obtain:
Core Documents
- Resale Certificate (e.g., state-specific form)
- Multistate Exemption Certificate (e.g., MTC)
- Manufacturing Exemption Certificate
- Direct-Pay Permit
Best Practices
- Verify certificate validity
- Store digitally for audits
- Renew annually if required
Without proper documentation, the sale becomes taxable even if it should be exempt.
8. Real-World Examples (Practical Clarity)
Example 1: Software Company Selling to Businesses
A SaaS company with economic nexus in Texas must charge sales tax to a business customer unless they show a valid resale certificate. Texas taxes SaaS, so the default is taxable.
Example 2: Manufacturer Buying Equipment
If a manufacturer buys raw materials for production and provides a manufacturing exemption certificate, the purchase is usually exempt.
Example 3: Agency Buying Laptops
A marketing agency buys laptops from a vendor in California.
Because the agency uses (not resells) them, the purchase is taxable.
9. FAQs
Do B2B companies have to charge sales tax in the U.S.?
Yes—if the product or service is taxable in the buyer’s state and no exemption certificate is provided.
Is a resale certificate required for B2B exemptions?
Yes. Without it, the seller must charge sales tax even if the buyer claims resale.
Are SaaS and digital goods taxable in B2B sales?
In many states, SaaS and digital products are taxable—regardless of whether the sale is B2B or B2C.
Does a business need to charge sales tax if the customer is in a tax-free state like Oregon?
No, if the buyer takes delivery in Oregon. But if the seller has nexus in the buyer’s state, tax may still apply elsewhere.
Are services sold to businesses taxable?
Sometimes. It depends on the state and type of service.
Conclusion
If you’ve wondered “Does business-to-business have to charge state sales tax?” the answer is clear:
Sometimes yes, sometimes no—taxability depends on nexus, product type, and whether the buyer provides proper exemption documentation.
For most B2B companies, the safest path is to:
- Know where you have nexus
- Understand state rules for your products
- Collect valid certificates for every exempt sale
Need help applying these rules to your business? I can walk you through your exact scenario step-by-step.
