Sales tax is the one tax a new business can owe on money it never kept. A Hacker News commenter put the rule plainly:
You don't have the option to tell the customer "Hey, we're not going to collect sales tax. Please send it in yourself."
So when do you need to start charging sales tax? Asked exactly that about selling artwork in New York, a Money Stack Exchange contributor answered: "Generally, from the beginning" (littleadv on Money Stack Exchange). That is close to right for the US, and wrong for most new Canadian businesses, which get a $30,000 head start. This guide covers both, with the rules checked against each tax authority.
When do you need to start charging sales tax? The short answer
In the US, you need a sales tax permit from your home state before your first taxable sale, regardless of size, and other states' permits once you pass their economic nexus thresholds. In Canada, you register for GST/HST once your taxable sales pass $30,000 in a calendar quarter or over four consecutive quarters, plus provincial PST or QST where it applies.
United States: your home state comes first
Every state with a sales tax requires sellers doing business there to register before collecting. California's wording is typical: "Retailers engaged in business in California must register with the California Department of Tax and Fee Administration (CDTFA) and pay the state's sales tax, which applies to all retail sales of goods and merchandise except those sales specifically exempted by law" (CDTFA).
There is no national rule for what is taxable, especially for services: some states tax many, some tax few, and some treat repair, installation and remodeling differently from retail sales. Texas, for example, does not tax labor to repair residential real property but does tax repairs to commercial property (Texas Comptroller). The SBA's advice is to "check with state and local governments to know your business' tax obligations," and it keeps a directory of state revenue departments (SBA).
What to do in your first weeks:
- Find out whether what you sell is taxable in your state.
- If it is, register for a permit (often called a seller's permit or sales tax license) before your first sale.
- Set up your invoices to show tax separately, and record what you collect in a "sales tax payable" account.
- Note your filing frequency when the permit arrives. Your state tells you whether you file monthly, quarterly or yearly.
United States: when other states can make you collect
Until 2018, a state could only make you collect its sales tax if you had a physical presence there. In South Dakota v. Wayfair, the Supreme Court changed that, allowing states to require collection from out-of-state sellers based on their sales into the state (Supreme Court opinion). That rule is called economic nexus.
For one business owner, the change meant more than a new form:
we ran the numbers and determined that we now need to file in about 75% of the states. This is a huge burden. Even calculating the tax is a nightmare, not to mention filing.
Many guides still describe the typical threshold as "$100,000 or 200 transactions." That is going out of date. States confirmed to have dropped the transaction count:
| State | Current test | Source |
|---|---|---|
| South Dakota | Transaction count removed effective July 1, 2023 | SD Department of Revenue |
| Indiana | "$100,000 threshold" only, effective January 1, 2024 | Indiana DOR |
| Utah | 200-transaction test applied only before July 1, 2025 | Utah State Tax Commission |
| Illinois | 200-transaction test removed effective January 1, 2026 | Illinois Department of Revenue |
| North Carolina | Gross sales over $100,000 sourced to the state | NC Department of Revenue |
Thresholds change, so check each state's revenue department rather than a 50-state chart. For a local business that sells only in its own state, economic nexus usually doesn't come up. It matters once you ship goods or sell taxable services to customers elsewhere.
If you should have been collecting and weren't, the tax is generally still owed. As the same commenter quoted above put it: "If, in your mind, you didn't collect any sales tax, too bad because you had to." Registering promptly keeps the bill to the sales you can still charge tax on.
When do you have to register for GST/HST?
In Canada, you must register for GST/HST once you are no longer a small supplier and you make taxable sales in Canada. The Canada Revenue Agency's test uses $30,000 of taxable sales, measured two ways (CRA):
| If | Then | When you start |
|---|---|---|
| You don't exceed $30,000 over four consecutive calendar quarters | "You are a small supplier." You don't have to register, though you may choose to | Optional |
| You exceed $30,000 in a single calendar quarter | You "have to charge GST/HST on the supply that made you exceed $30,000" | Effective no later than the day of that sale |
| You exceed $30,000 over four or fewer consecutive quarters, but not in a single quarter | You are "no longer a small supplier at the end of the month following the quarter in which you exceed $30,000" | Effective no later than your first sale after that |
In both cases the CRA says, "You will have to register within 29 days of your effective date of registration." Calendar quarters start on January 1, April 1, July 1 and October 1.
Two examples (illustrative numbers):
- One big quarter: a contractor bills $12,000 in January and $11,000 in February. A $9,000 job in March takes the quarter to $32,000. GST/HST applies to that $9,000 job, and the registration clock starts that day.
- Steady growth: a cleaning company bills $8,000 every quarter. After four quarters it has passed $30,000, though no single quarter did. It stops being a small supplier at the end of the month after the fourth quarter and registers from its first sale after that.
What counts toward the $30,000: the CRA says to include revenues from your worldwide taxable supplies, from all your businesses and those of your associates, but not financial services, sales of capital property, or goodwill from selling a business. Taxi and commercial ride-sharing drivers must register even below the threshold.
HST provinces: in New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island, the federal and provincial parts are combined as HST and collected through the same CRA registration (CRA).
Provincial sales taxes: PST and QST
Four provinces charge their own sales tax on top of the 5% GST, each with its own registration rule:
| Province | Tax | Small business rule | Source |
|---|---|---|---|
| British Columbia | PST, 7% | Small sellers with "$10,000 or less in gross revenue" from eligible retail sales in the previous 12 months and the next 12, plus other conditions, don't have to register | BC Bulletin PST 003 |
| Saskatchewan | PST, 6% | "Businesses operating in Saskatchewan must register to obtain a PST number" | Government of Saskatchewan |
| Manitoba | RST, 7% | Businesses with annual taxable sales under $30,000 that buy from Manitoba-registered sellers don't have to register, with exceptions | Manitoba Finance |
| Quebec | QST, 9.975% | Same $30,000 small supplier test as GST/HST; you register for both together | Revenu Québec |
Rates are from the CRA's rate table. Alberta and the territories have no provincial sales tax.
Keep collected tax out of your profit
Whichever country you're in, the tax you collect is never yours. Record it in a sales tax payable account, not as income, and consider moving it to a separate bank account as payments come in. Owners who mix it into revenue feel richer than they are until the return is due. If you're just getting started, our guide on what to do after forming an LLC covers the rest of the first-month setup.
Where Ruth fits
Ruth is Clef's AI bookkeeper, and she works by text. She sorts your transactions as they come in and, at the end of each period, prepares your sales tax return for you or your CPA to file. She never files on her own. See how Ruth works.
This is general information, not tax advice. Sales tax rules change and depend on your state or province, so confirm yours with your tax authority or your accountant.
Frequently asked questions
Does my small business need to collect sales tax?
In the US, if you sell goods or taxable services in a state with a sales tax, you generally need that state's permit before your first taxable sale there, whatever your size. In Canada, you must register for GST/HST once you are no longer a small supplier, meaning your taxable sales pass $30,000 in a single calendar quarter or over four consecutive calendar quarters.
What is economic nexus?
It is a state's rule that an out-of-state seller must collect its sales tax once sales into the state pass a set threshold, even with no office or warehouse there. The Supreme Court allowed it in South Dakota v. Wayfair in 2018. Thresholds differ by state, and several states have dropped the old 200-transaction test.
What happens if you don't collect sales tax?
If you were required to collect it, the state can generally still treat you as owing it, even if you never charged your customers. That is why registering late often means paying the tax out of your own margin, plus penalties and interest. Your state's revenue department can explain how to come forward.
When do you have to register for GST/HST?
When you are no longer a small supplier. If your taxable sales pass $30,000 in a single calendar quarter, you must charge GST/HST on the sale that took you over. If they pass $30,000 over four consecutive quarters but not in one quarter, you stop being a small supplier at the end of the month after that quarter. Either way, register within 29 days.
Do I charge sales tax on services?
It depends on the state or province. Some US states tax many services, some tax very few, and many treat repair and installation work differently from retail sales. Check your state's revenue department, or in Canada, the CRA and your province.