Safe Harbor (Estimated Tax)
Definition
A rule that protects a taxpayer from underpayment penalties if their prepayments meet a defined minimum, generally measured against either the current years liability or the prior years tax, with a higher prior-year test for higher earners. The precise percentages are set by the IRS and should be checked for the year concerned.
Related Terms in US Tax
Nexus
The connection between a business and a US state sufficient to create a tax obligation there. Physical nexus arises from premises, staff or inventory; economic nexus arises from exceeding a states sales or transaction thresholds, which differ by state and are published by each revenue department.
Marketplace Facilitator
A platform that facilitates third-party sales and is required by state law to collect and remit sales tax on those sales instead of the seller. It relieves sellers of collection on marketplace orders but not of their own direct-channel obligations or registration requirements.
Use Tax
A tax owed by the purchaser on taxable goods or services bought without sales tax being charged, typically from an out-of-state seller. It is the counterpart to sales tax, set at the same rate, and is self-assessed on the buyers return.
Resale Certificate
A document a buyer gives a supplier to purchase inventory free of sales tax because the goods will be resold rather than consumed. The seller must keep the certificate on file; without valid documentation the seller carries the uncollected tax on audit.
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