Sales and use tax in the United States is complicated because each state and locality sets its own rules, rates, and compliance requirements. A key factor in applying the right tax is determining the situs of a sale—the location where a transaction is legally considered to occur. For goods, situs is usually where possession or title transfers, such as the store for over-the-counter sales or the buyer’s location for shipped deliveries. For services, it depends on where they are performed or, in the case of digital services, where they are billed or used. Since the Supreme Court’s Wayfair decision, most states follow destination-based sourcing, taxing sales at the customer’s location even if the seller has no physical presence there. Businesses must accurately identify situs to know which tax applies, when nexus is triggered, and how to stay compliant. Incorrect sourcing can lead to misapplied taxes, reporting errors, and penalties.
What Is Situs and Why Should It Be Identified?
The situs of a sale refers to the location where the sale of goods or the supply of services is deemed to occur. Identifying the situs is critical for:
- Determining whether sales tax or use tax applies
- Identifying the correct state and local tax rates
- Deciding when and where nexus is triggered
- Complying with state-specific registration and filing requirements
Failing to determine situs correctly can result in applying the wrong tax, incorrect reporting, and non-compliance penalties.
Situs in Case of Sale of Goods
For tangible goods, the situs is generally the location where title or possession of goods is transferred from seller to buyer. Depending on the type of transaction, the situs rules differ:
- Over-the-counter sales:
When a customer purchases goods in person at a store, the situs is the location of the store. This is considered a local, in-state transaction and the relevant state and local sales tax applies. - Shipped goods:
If goods are shipped to a customer in another state, the situs is generally the destination of the goods, i.e., the buyer’s location. This means the sale is sourced to the state where the goods are delivered, and the seller may be required to collect that state’s sales tax.
If a business sells through a marketplace facilitator, the tax must be collected based on the delivery address of the buyer. In such cases, it is the facilitator’s responsibility to collect and remit sales tax.
Situs in Case of Supply of Services
In the case of services, the situs depends on the nature of the service and where it is rendered or received.
- In-person services:
These include services like home repairs, plumbing, or consulting that are physically delivered at a location. In such cases, the situs is the location where the service is performed. For example, if a service provider performs a task at the customer’s site in a different state, that state is considered the situs of the sale. - Digital or electronically delivered services:
For services delivered online or electronically—such as streaming, digital downloads, or SaaS—most states consider the customer’s billing address or the address of use as the situs. However, in many cases, the billing address may not reflect the actual usage location, so sellers must exercise judgment and keep appropriate records to ensure accuracy.
Understanding how different types of services are treated for situs purposes is crucial, especially as more businesses offer digital or remote services across state lines.
Relevance of Origin-Based Taxation Post-Wayfair
Traditionally, many states followed origin-based sourcing, where the tax applied at the seller’s location. This meant sellers only had to collect and remit tax based on where they operated.
However, after the Wayfair decision, the landscape shifted towards destination-based sourcing, where the tax is applied based on the customer’s location. Now, even businesses located in states that don’t have a sales tax may be obligated to collect tax if they exceed economic nexus thresholds in other states.
This shift underscores the importance of determining the correct situs. Whether the sale is taxed at origin or destination directly affects tax collection, filing, and compliance obligations.
Stay Tuned for More
This alert is part of the M2K Advisors US Sales Tax Series, created to simplify the complexities of sales and use tax compliance in the United States. Future alerts in the series will cover:
- Sales tax exemptions
- Nexus determination
- Registration and ongoing compliance
- Voluntary disclosure agreements (VDAs)
- Sales tax implications for software and SaaS businesses
Each part of the series is designed to help businesses make informed, compliant decisions as they expand their presence across state lines.
For updates, visit www.m2kadvisors.com.
