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What is Origin Sourcing and which states have it?

Overview

In some states, the sales tax is based wholly or in part, on the Origin (Ship FROM) Address in a transaction. Rather than the more common practice of basing sales tax on the Destination (Ship TO) address.

Environment

Avalara AvaTax

Resolution

  • Origin sourcing states apply sales tax to products based on their point of origin, rather than the destination address, on intrastate transactions (transactions inside the same state).
    • For example, if the same product was shipped from Springfield to Chicago, both in Illinois, the tax would be based on the Springfield rather than Chicago.  
    • Interstate transactions (transactions between states) follow normal destination sourcing.  For instance, if a product was shipped from New York to Chicago, the tax applied would be based on the Chicago location.
  • The following states have origin-based sourcing:
    • Arizona
    • Illinois
    • Missouri
    • New Mexico
    • Ohio
    • Pennsylvania
    • Tennessee
    • Utah
    • Virginia
  • Mixed Sourcing:
    • Both Texas and California used mixed sourcing.  Both the origin and destination addresses are used to calculate sales tax on intrastate transactions.
    • In Texas the origin address is used first, but if the local tax rate from the origin address is less than 2%, the destination address is used to apply additional local tax up to the state-mandated 2% limit.
    • In California, the county portion of the tax is origin-based, but the cities and special tax jurisdictions (STJ's) are destination-based.
  • In all of these origin-based states, Avalara AvaTax applies this logic to products only (both digital and tangible personal properly). Services are typically taxed based on the destination address.