February 10, 2026

Origin vs Destination Sales Tax: What Businesses Need to Know

When a business in Texas sells to a customer in California, which state's tax rate applies? The answer depends on whether each state uses origin-based or destination-based sourcing -- and the rules are different depending on whether you are an in-state or remote seller.

Origin-Based Sourcing

In origin-based states, the sales tax rate is determined by the seller's location -- specifically, the address where the business is located or from which goods are shipped. This simplifies things for in-state businesses because they only need to know their own local rate.

However, origin-based sourcing only applies to in-state transactions in most cases. If you are a remote seller (selling into a state where you have economic nexus but no physical presence), you typically must use destination-based sourcing even in origin-based states.

Destination-Based Sourcing

In destination-based states, the sales tax rate is determined by the buyer's location -- the delivery address for shipped goods or the customer's address for digital products. This is the more common approach and the default for remote sellers in nearly all states.

Destination-based sourcing is more complex for sellers because they must determine the correct rate for every unique customer location. With thousands of jurisdictions and rates changing quarterly, this is where API-based rate lookups become essential.

Origin-Based States

The following states use origin-based sourcing for in-state sales. Note that each of these states switches to destination-based sourcing for remote sellers:

Arizona Illinois Kansas Mississippi Missouri New Mexico Ohio Pennsylvania Texas

Ecommerce Impact

For ecommerce businesses, the origin vs destination distinction has major operational implications:

Multi-State Sellers

Businesses selling across state lines must track which states they have nexus in, whether each state is origin or destination-based, and apply the correct sourcing rules per transaction. After the South Dakota v. Wayfair decision, economic nexus thresholds trigger collection obligations in most states.

Marketplace Sellers

If you sell through a marketplace (Amazon, Shopify, etc.), the marketplace may handle tax collection as a marketplace facilitator. However, for direct sales, you are responsible for applying the correct sourcing rules.

Compliance Complexity

The combination of origin-based and destination-based rules across different states creates significant complexity:

Same product, different rules: A sale from Texas to a Texas customer uses origin-based sourcing. A sale from Texas to a California customer uses destination-based sourcing.
Rate determination varies: For destination-based states, you need the buyer's exact delivery address to determine the correct rate, not just the state.
Filing requirements differ: Each state has its own return forms, filing schedules, and remittance procedures.

Simplifying with an API

Rather than building and maintaining a matrix of sourcing rules across all 50 states, businesses can use the SalesTaxAPI Lookup API to determine the correct rate for any transaction. Provide the destination address (state + ZIP), and the API returns the applicable combined rate with a full breakdown of state, county, city, and district components.