Key Takeaways
- You must collect sales tax in states where your business has “nexus”—a significant connection.
- Since 2018, “economic nexus” means meeting a state’s sales or transaction threshold can create an obligation even without physical presence.
- The workflow: determine where you have nexus, register for a permit, collect the right rate, and file returns on schedule.
- Marketplaces like Amazon and Etsy often collect and remit sales tax for you, but your own store usually doesn’t.
Handling sales tax for an online store comes down to a four-step cycle: figure out which states you have “nexus” in, register for a sales tax permit there, collect the correct tax on each sale, and file and remit on the state’s schedule. The wrinkle that trips up most online sellers is economic nexus—the rule that you can owe sales tax in a state based purely on how much you sell there, even if you’ve never set foot in it. Getting this right protects you from back taxes and penalties later.
Sales tax feels intimidating because it’s governed state by state, not federally, so there’s no single rulebook. But the underlying process is consistent everywhere, and once you set it up, software can handle most of the grind.
Nexus: where you actually owe
Sales tax obligations hinge on nexus, meaning a connection to a state strong enough to require you to collect its tax. There are two kinds. Physical nexus comes from a physical presence—an office, employees, or inventory stored in a state (including in a marketplace’s warehouse). Economic nexus comes from crossing a state’s sales threshold, often around $100,000 in sales or 200 transactions a year, though it varies by state. This second type became the law of the land after a 2018 Supreme Court decision and is what catches online sellers off guard.
“The internet erased the border between states for commerce—but not for taxes. Economic nexus is how the states caught up.”
— A modern e-commerce reality
Step 1: Determine your nexus states
Start by listing the states where you have physical presence (home state, inventory locations) and then track your sales by state to see where you’re approaching or exceeding economic-nexus thresholds. This monitoring is ongoing—as your store grows, you’ll cross new thresholds and gain obligations in more states. The SBA’s tax guidance is a useful starting point for understanding state obligations.
Step 2: Register for a permit
Once you have nexus in a state, register for a sales tax permit with that state’s department of revenue before you start collecting—collecting tax without a permit is itself a problem in many states. Registration is usually free or low-cost and done online. You’ll need your business details, and having a free EIN makes the process smoother.
Step 3: Collect the right rate
Sales tax rates vary not just by state but by county and city, and sometimes by product type. Most e-commerce platforms and tax-automation tools can calculate the correct rate automatically based on the buyer’s address, which matters because manually tracking thousands of local rates is impractical. Configure your store to collect tax in each state where you’re registered, and let the software apply the right rate per sale.
Step 4: File and remit on schedule
Each state assigns you a filing frequency—monthly, quarterly, or annually—based on your sales volume. You file a return reporting what you collected and remit the money, even in periods where you collected nothing (a “zero return” is often still required). Missing deadlines triggers penalties, so calendar reminders and automation matter. Keeping this organized is far easier when your books are clean, which is where good accounting software earns its keep, and it pairs naturally with staying on top of your quarterly estimated taxes.
The marketplace shortcut
Good news if you sell on marketplaces: under marketplace facilitator laws, platforms like Amazon, Etsy, and eBay are generally required to collect and remit sales tax on your behalf for sales made through them. That dramatically reduces your burden for those channels. But sales through your own website usually aren’t covered, so you remain responsible for collecting and remitting those yourself. Many sellers have a mix and must handle both realities. Securing customer payment data on your own store is a related responsibility—see PCI compliance.
A realistic example
Consider an illustrative case. Devon sells handmade goods on both Etsy and his own Shopify store. Etsy automatically collects and remits sales tax on his Etsy orders, so it handles those. But as his Shopify sales grew, he crossed the $100,000 economic-nexus threshold in two neighboring states. He registered for permits in his home state and those two, configured Shopify to collect tax there, set up a tax-automation app to apply correct local rates, and put filing deadlines on his calendar. What felt overwhelming became a quarterly routine of a few clicks—because he set up the system before the obligations piled up. (This is general information, not tax advice—consult a tax professional or state revenue department.)
Frequently Asked Questions
Do I have to collect sales tax on online sales?
Yes, in any state where you have nexus. That includes states where you have a physical presence and, thanks to economic nexus rules, states where your sales exceed a threshold (often ~$100,000 or 200 transactions) even without physical presence.
What is economic nexus?
It’s a sales-tax obligation triggered purely by your level of sales into a state—typically exceeding a dollar amount or transaction count—rather than by physical presence. It became widespread after a 2018 Supreme Court ruling and is what most affects online sellers.
Do marketplaces collect sales tax for me?
Generally yes. Marketplace facilitator laws require platforms like Amazon, Etsy, and eBay to collect and remit sales tax on sales made through them. However, sales through your own website usually aren’t covered, so you handle those yourself.
What happens if I don’t collect sales tax?
If you had nexus and failed to collect, you can be liable for the uncollected tax plus penalties and interest—out of your own pocket, since you can’t retroactively charge customers. That’s why monitoring nexus and registering promptly, matters.
The Bottom Line
Handling sales tax for an online store means tracking where you have nexus, registering for permits, collecting the right local rates, and filing on time. Economic nexus can create obligations from sales alone, so monitor your thresholds as you grow. Lean on marketplace facilitator laws and tax-automation tools to carry most of the load, and what once felt intimidating becomes a manageable routine.
