Q1. What is the difference between a vendor discount and a sales tax credit?

A vendor discount is a specific incentive for timely filing, while a sales tax credit is a broader term for any amount that reduces your tax liability. The vendor discount is a type of credit.

Q2. Is the vendor discount available for all types of sales tax returns?

Not always. The availability and rules for a sales tax vendor discount can vary by the type of tax (e.g., state vs. local) and the filing method (e.g., electronic vs. paper).

Q3. Do all states offer a vendor discount?

No. As the article shows, many states do not offer any form of vendor discount or collection allowance. It's crucial to check the rules for each state where your business operates.

Q4. Can I lose my vendor discount?

Yes. Most states require that you file and remit your tax payments on time to qualify for the discount. Late payments or filings will usually result in the forfeiture of the vendor discount.

Q5. How does my business claim a sales tax vendor discount?

For most states, the discount is automatically calculated and deducted when you file your sales tax return, especially if you file electronically. However, it’s always wise to double-check to ensure you're getting the full amount you’re entitled to.

Unlock Hidden Cash: Your Guide to Sales Tax Vendor Discounts

What are Sales Tax Vendor Discounts and Why Do They Matter?

Think of a sales tax vendor discount as a “thank you” from the state. It’s an incentive that compensates businesses like yours for the time and effort it takes to collect, report, and remit sales tax. It’s a way to keep things running smoothly for everyone, offering a small but meaningful percentage of the tax you collect back to you. This is a powerful tool, especially for a small business operating on tight margins. Even a small sales tax vendor discount can add up to significant savings over a year. The states know that technology can make things easier, but the human touch is what truly ensures accuracy and compliance.

Some states, like Florida, make it easy to claim your sales tax vendor discounts by linking them to electronic filing. On the other hand, some local jurisdictions might have their own unique policies, so it’s important to look at the details. We’ve compiled a state-by-state guide to help you get a handle on the specifics of sales tax vendor discounts and how they apply to your business. Navigating these rules can be complex, but knowing what you’re entitled to is the first step toward smart financial management.

The Big Picture: How Sales Tax Vendor Discounts Work

The rules for claiming a sales tax vendor discount vary from state to state. Generally, if you file and pay your sales tax return by the due date, you can retain a percentage of the tax you collected, up to a certain maximum amount. This is often called a collection allowance or an accounting credit. For example, a state might offer a 1% discount, but cap it at $50 per return. Other states may not have a discount at all, or only offer it to businesses that file electronically.

You might be wondering, “Why do some states offer these incentives while others don’t?” Well, it’s all about encouraging promptness and reducing administrative burdens. This is where your attention to detail really pays off. When you stay on top of your deadlines, you not only avoid penalties, but you also put a little extra cash back into your pocket. It’s an easy win that can feel like a great payoff. Understanding the specific rules for your state is the key to unlocking these benefits. For a deeper dive into the complexities of state tax, consider our article on The Role of Sales Tax Nexus for Your Online Business.

Navigating State-Specific Sales Tax Vendor Discounts

As a business owner, you have a lot on your plate. Keeping track of the unique requirements of each state can be a challenge. That’s why we’ve put together a detailed breakdown of the available sales tax vendor discounts across the country.

A State-by-State Look at Vendor Discounts

Here’s the detailed guide to sales tax vendor discounts for each state, based on recent data.

State	Sales Tax Timely Filing Discounts
Alabama	Sellers can claim a 5% discount on the first $100 of sales tax owed, and 2% on the remaining balance, up to a monthly cap of $400. A similar discount applies to local sales taxes, though non-state-administered localities may have different rates. Eligible simplified sellers use tax collectors can keep 2% of the first $400,000 in collected taxes, not to exceed $8,000 per month. Electronic payments must be sent before 4:00 p.m. (CT) on the due date to qualify. This discount does not apply to local or consumer use taxes. Other tax types may have their own unique discount structures.
Alaska	Discounts vary by location. For instance, the Kenai Peninsula Borough offers a 5% on-time credit, capped at $1,000 per quarter.
Arizona	A 1% accounting credit (up to $10,000 annually) is available for paper TPT filers. Those who file all TPT returns electronically can get a 1.2% credit, with a higher yearly limit of $12,000. This credit is for state transaction privilege tax only, not local TPT.
Arkansas	A 2% discount is permitted, up to a monthly maximum of $1,000. The same 2% discount is available for local sales tax accounts (up to $1,000 per city and county reported), but not for local use tax accounts.
California	No discount.
Colorado	Through the end of 2025, there’s a 4% discount on the tax due, with a $1,000 limit per filing period. As of January 1, 2022, this is not available to businesses with over $1 million in taxable sales per filing period. The state will eliminate this service fee for all retailers starting January 1, 2026. Discounts for local sales tax can range from 0% to 4%.
Connecticut	No discount.
Delaware	Not applicable.
Florida	Sellers can take a 2.5% discount on the first $1,200 owed, with a maximum discount of $30 per report. This is only for those who file and pay online.
Georgia	A 3% discount applies to the first $3,000 of state and local sales tax, and 0.5% for any amount beyond that. Businesses required to file electronically will not receive the discount if they use a paper return or payment.
Hawaii	No discount.
Idaho	No discount.
Illinois	The retailer’s discount is 1.75% of tax collected. The monthly discount for sales and use tax returns is capped at $1,000, effective January 1, 2025. Discounts are calculated automatically for taxpayers who use MyTax Illinois for electronic filing.
Indiana	There’s a 1% collection allowance for retail merchants.
Iowa	No discount.
Kansas	Out-of-state retailers in Missouri, Nebraska, and Oklahoma can get a discount on collected Kansas Retailers’ Compensating Use Tax. The rates are: 2% for Missouri vendors, 2.5% (max $75/month) for Nebraska vendors, and 1% (max $2,500) for Oklahoma vendors.
Kentucky	Vendor compensation is 1.75% on the first $1,000 and 1.5% on the rest, with a monthly limit of $50.
Louisiana	State sales tax compensation is 1.05% of the total tax due. As of January 1, 2025, the monthly maximum drops to $750 from $1,500. Due to a state sales tax rate change, the effective vendor’s compensation rate will be 0.84% starting on that same date. The $750 limit applies per dealer, regardless of the number of business locations. The discount does not apply to taxes levied under La. R.S. 47:321.1. Local compensation was reinstated on July 1, 2025, after a temporary repeal.
Maine	No discount.
Maryland	The discount is 1.2% on the initial $6,000 of collected tax and 0.9% on any amount above that, capped at $500 per return.
Massachusetts	No discount.
Michigan	The discount for on-time filing applies to 2/3 of the collected sales and use tax at the 6% rate. If the tax is paid by the 12th of the month, a 0.75% allowance (max $20,000) is given. For payments between the 13th and 20th, the allowance is 0.5% (max $15,000). Accelerated filers paying by the 20th can calculate their discount using the formula: Tax x .6667 x .005, with no maximum. The discount varies based on filing frequency and tax amount.
Minnesota	No discount.
Mississippi	A 2% discount on tax liability is offered, limited to $50 per calendar reporting period and not to exceed $600 per year.
Missouri	A 2% discount on the tax due is available.
Montana	Not applicable.
Nebraska	A 3% discount is available on the first $5,000 of monthly sales tax collected, which equals a maximum of $150 per month, per location.
Nevada	Vendors can keep 0.25% of the state sales tax they collect.
New Hampshire	Not applicable.
New Jersey	No discount.
New Mexico	No discount.
New York	Quarterly and annual filers can receive a 5% vendor collection credit, with a maximum of $200 per reporting period. Monthly filers are not eligible for this credit.
North Carolina	No discount.
North Dakota	Sales tax permit holders can retain 1.5% of the combined state tax, up to $110 per month. Wholesalers can deduct 1.5% of tax due, with a monthly cap of $100.
Ohio	A discount of 0.75 of 1% is available on the tax liability reported on line 6 of the Universal Sales Tax return.
Oklahoma	No discount.
Oregon	No discount.
Pennsylvania	The discount is 1% of the collected tax, or a specific dollar amount, whichever is less. The cap is $25 for monthly filers, $75 for quarterly, and $150 for semi-annual filers.
Rhode Island	No discount.
South Carolina	When tax is under $100, the discount is 3%. When it is $100 or more, the discount is 2%. For paper filers, the yearly cap is $3,000, while electronic filers can get up to $3,100 per fiscal year. Out-of-state sellers who voluntarily register can receive a maximum discount of $10,000 per fiscal year.
South Dakota	Electronic filers may receive a 1.5% discount on the gross tax due, capped at $70 per return until June 30, 2025. This credit is temporarily suspended from July 1, 2025, to June 30, 2028.
Tennessee	A vendor’s compensation deduction is offered to out-of-state businesses that are not legally required to be registered but file on time. The deduction is 2% on the first $2,500 of state tax due, and 1.15% on any amount above that. A similar discount was temporarily available for required vendors from July 1, 2022, to June 30, 2023.
Texas	A 0.5% discount is available, and monthly and quarterly filers can receive an additional 1.25% discount for prepayments.
Utah	Monthly electronic filers can get a 1.31% discount on the total tax due. Quarterly and annual filers are not eligible for this discount.
Vermont	No discount.
Virginia	The compensation rate is 0.8%, 1.2%, or 1.6% on the first 3% of the state tax due, depending on monthly taxable sales volume. No compensation is offered for the rest of the state sales tax or for any local taxes. Specific discount rates are: 1.116% for dealers with monthly sales up to $62,500; 0.837% for those with sales between $62,501 and $208,000; and 0.558% for those with sales of $208,001 and higher. There is no discount if the average monthly sales tax liability exceeds $20,000.
Washington	No discount.
West Virginia	No discount.
Wisconsin	For taxes payable on or after October 1, 2023, the discount is equal to the tax amount for taxes up to $10. It is a flat $10 for taxes between $10 and $1,333. For taxes over $1,333, the discount is 0.0075 times the total tax, with a cap of $8,000 per period. For taxes payable before September 30, 2023, the discount was equal to the tax for amounts up to $10, a flat $10 for taxes between $10 and $2,000, and 0.005 for taxes over $2,000, capped at $1,000 per period.
Wyoming	Vendors can keep a credit of 1.95% of the total tax due, up to a maximum of $500 per filing period per vendor. To qualify, returns and payments must be postmarked by the 15th of the month.
District of Columbia	No discount.

State

Sales Tax Timely Filing Discounts

Alabama

Sellers can claim a 5% discount on the first $100 of sales tax owed, and 2% on the remaining balance, up to a monthly cap of $400. A similar discount applies to local sales taxes, though non-state-administered localities may have different rates. Eligible simplified sellers use tax collectors can keep 2% of the first $400,000 in collected taxes, not to exceed $8,000 per month. Electronic payments must be sent before 4:00 p.m. (CT) on the due date to qualify. This discount does not apply to local or consumer use taxes. Other tax types may have their own unique discount structures.

Alaska

Discounts vary by location. For instance, the Kenai Peninsula Borough offers a 5% on-time credit, capped at $1,000 per quarter.

Arizona

A 1% accounting credit (up to $10,000 annually) is available for paper TPT filers. Those who file all TPT returns electronically can get a 1.2% credit, with a higher yearly limit of $12,000. This credit is for state transaction privilege tax only, not local TPT.

Arkansas

A 2% discount is permitted, up to a monthly maximum of $1,000. The same 2% discount is available for local sales tax accounts (up to $1,000 per city and county reported), but not for local use tax accounts.

California

No discount.

Colorado

Through the end of 2025, there’s a 4% discount on the tax due, with a $1,000 limit per filing period. As of January 1, 2022, this is not available to businesses with over $1 million in taxable sales per filing period. The state will eliminate this service fee for all retailers starting January 1, 2026. Discounts for local sales tax can range from 0% to 4%.

Connecticut

No discount.

Delaware

Not applicable.

Florida

Sellers can take a 2.5% discount on the first $1,200 owed, with a maximum discount of $30 per report. This is only for those who file and pay online.

Georgia

A 3% discount applies to the first $3,000 of state and local sales tax, and 0.5% for any amount beyond that. Businesses required to file electronically will not receive the discount if they use a paper return or payment.

Hawaii

No discount.

Idaho

No discount.

Illinois

The retailer’s discount is 1.75% of tax collected. The monthly discount for sales and use tax returns is capped at $1,000, effective January 1, 2025. Discounts are calculated automatically for taxpayers who use MyTax Illinois for electronic filing.

Indiana

There’s a 1% collection allowance for retail merchants.

Iowa

No discount.

Kansas

Out-of-state retailers in Missouri, Nebraska, and Oklahoma can get a discount on collected Kansas Retailers’ Compensating Use Tax. The rates are: 2% for Missouri vendors, 2.5% (max $75/month) for Nebraska vendors, and 1% (max $2,500) for Oklahoma vendors.

Kentucky

Vendor compensation is 1.75% on the first $1,000 and 1.5% on the rest, with a monthly limit of $50.

Louisiana

State sales tax compensation is 1.05% of the total tax due. As of January 1, 2025, the monthly maximum drops to $750 from $1,500. Due to a state sales tax rate change, the effective vendor’s compensation rate will be 0.84% starting on that same date. The $750 limit applies per dealer, regardless of the number of business locations. The discount does not apply to taxes levied under La. R.S. 47:321.1. Local compensation was reinstated on July 1, 2025, after a temporary repeal.

Maine

No discount.

Maryland

The discount is 1.2% on the initial $6,000 of collected tax and 0.9% on any amount above that, capped at $500 per return.

Massachusetts

No discount.

Michigan

The discount for on-time filing applies to 2/3 of the collected sales and use tax at the 6% rate. If the tax is paid by the 12th of the month, a 0.75% allowance (max $20,000) is given. For payments between the 13th and 20th, the allowance is 0.5% (max $15,000). Accelerated filers paying by the 20th can calculate their discount using the formula: Tax x .6667 x .005, with no maximum. The discount varies based on filing frequency and tax amount.

Minnesota

No discount.

Mississippi

A 2% discount on tax liability is offered, limited to $50 per calendar reporting period and not to exceed $600 per year.

Missouri

A 2% discount on the tax due is available.

Montana

Not applicable.

Nebraska

A 3% discount is available on the first $5,000 of monthly sales tax collected, which equals a maximum of $150 per month, per location.

Nevada

Vendors can keep 0.25% of the state sales tax they collect.

New Hampshire

Not applicable.

New Jersey

No discount.

New Mexico

No discount.

New York

Quarterly and annual filers can receive a 5% vendor collection credit, with a maximum of $200 per reporting period. Monthly filers are not eligible for this credit.

North Carolina

No discount.

North Dakota

Sales tax permit holders can retain 1.5% of the combined state tax, up to $110 per month. Wholesalers can deduct 1.5% of tax due, with a monthly cap of $100.

Ohio

A discount of 0.75 of 1% is available on the tax liability reported on line 6 of the Universal Sales Tax return.

Oklahoma

No discount.

Oregon

No discount.

Pennsylvania

The discount is 1% of the collected tax, or a specific dollar amount, whichever is less. The cap is $25 for monthly filers, $75 for quarterly, and $150 for semi-annual filers.

Rhode Island

No discount.

South Carolina

When tax is under $100, the discount is 3%. When it is $100 or more, the discount is 2%. For paper filers, the yearly cap is $3,000, while electronic filers can get up to $3,100 per fiscal year. Out-of-state sellers who voluntarily register can receive a maximum discount of $10,000 per fiscal year.

South Dakota

Electronic filers may receive a 1.5% discount on the gross tax due, capped at $70 per return until June 30, 2025. This credit is temporarily suspended from July 1, 2025, to June 30, 2028.

Tennessee

A vendor’s compensation deduction is offered to out-of-state businesses that are not legally required to be registered but file on time. The deduction is 2% on the first $2,500 of state tax due, and 1.15% on any amount above that. A similar discount was temporarily available for required vendors from July 1, 2022, to June 30, 2023.

Texas

A 0.5% discount is available, and monthly and quarterly filers can receive an additional 1.25% discount for prepayments.

Utah

Monthly electronic filers can get a 1.31% discount on the total tax due. Quarterly and annual filers are not eligible for this discount.

Vermont

No discount.

Virginia

The compensation rate is 0.8%, 1.2%, or 1.6% on the first 3% of the state tax due, depending on monthly taxable sales volume. No compensation is offered for the rest of the state sales tax or for any local taxes. Specific discount rates are: 1.116% for dealers with monthly sales up to $62,500; 0.837% for those with sales between $62,501 and $208,000; and 0.558% for those with sales of $208,001 and higher. There is no discount if the average monthly sales tax liability exceeds $20,000.

Washington

No discount.

West Virginia

No discount.

Wisconsin

For taxes payable on or after October 1, 2023, the discount is equal to the tax amount for taxes up to $10. It is a flat $10 for taxes between $10 and $1,333. For taxes over $1,333, the discount is 0.0075 times the total tax, with a cap of $8,000 per period. For taxes payable before September 30, 2023, the discount was equal to the tax for amounts up to $10, a flat $10 for taxes between $10 and $2,000, and 0.005 for taxes over $2,000, capped at $1,000 per period.

Wyoming

Vendors can keep a credit of 1.95% of the total tax due, up to a maximum of $500 per filing period per vendor. To qualify, returns and payments must be postmarked by the 15th of the month.

District of Columbia

No discount.

Why This Matters for Your Business

These sales tax vendor discounts aren’t just a small bonus—they are a critical part of a savvy business strategy. When you’re managing cash flow, every dollar counts. Claiming your sales tax vendor discounts is a simple way to increase your bottom line without changing your core operations. It just takes a little knowledge and consistency.

As much as technology helps, there’s no substitute for expert insight. Automated software is fantastic, but it can’t anticipate every rule change or unique circumstance. A human touch, with years of experience, is what makes the difference between simply filing and truly optimizing your tax position. Read our blog post on The Human Touch vs. Sales Tax Automation: Which is Right for You? to see why expertise is key.

Conclusion: Get Your Sales Tax Vendor Discounts

Navigating the complexities of sales tax can be a headache, but understanding sales tax vendor discounts is a game-changer. These incentives can provide tangible financial benefits for your business just for meeting your obligations. The key takeaway is that diligence pays off.

Don’t let these potential savings slip through your fingers. While technology can streamline the process, a human expert can help you ensure you’re taking full advantage of every possible discount and credit. For a personalized strategy tailored to your business, contact us for a free consultation. At My Sales Tax Firm, we combine smart solutions with the human expertise you need to succeed.