Sales tax for online sellers in the US, explained simply

Sales tax in the US is set by states, and often by counties and cities too. There is no national sales tax. That means an online store shipping across the country can face many sets of rules: different rates, different lists of what is taxable, and different deadlines.

The good news is that you do not need to understand every state on day one. You need to know when you have to collect tax in a state, how to collect it correctly at checkout, and how to file what you collected.

This is not legal or tax advice. Sales tax rules, rates and thresholds change, and your situation depends on what you sell, where and how. Use this guide to understand the terms, then confirm with an accountant or tax professional and with each state’s department of revenue before you act.

Nexus: when a state can make you collect

Nexus is a connection with a state that is strong enough for the state to require you to collect its sales tax. There are two main kinds.

Physical nexus

You generally have physical nexus in a state where you have a presence, for example:

An office, shop, studio or warehouse
Employees, and in some states contractors or sales reps
Inventory stored there, including inventory held in a third-party fulfillment warehouse

For most small sellers, the first state is simply the one you live and work in.

Economic nexus

Since the Supreme Court’s 2018 decision in South Dakota v. Wayfair, states can require out-of-state sellers to collect sales tax once their sales into the state pass a threshold, even with no physical presence.

Many states use $100,000 in sales into the state over the current or previous calendar year. Some states also count the number of transactions (commonly 200), though several have dropped that test, and a few states set a higher dollar threshold. States also differ on whether the threshold counts total sales, taxable sales only, or sales made through marketplaces.

What this means in practice:

Track your sales by state, every month.
When you get close to a threshold, check that state’s current rules.
Once you pass it, register for a permit in that state before you start collecting there.

Alaska, Delaware, Montana, New Hampshire and Oregon have no statewide sales tax, although some Alaska localities do have their own.

Registering for a permit

Before you collect sales tax in a state, you generally need to register with that state for a sales tax permit (also called a seller’s permit or sales tax license). Many states consider it unlawful to collect sales tax without one. Registration is usually online and often free, though some states charge a small fee.

When you register, the state assigns you a filing frequency (monthly, quarterly or annually), usually based on how much tax you expect to collect.

Marketplace facilitator laws

If you sell on a marketplace such as Amazon, Etsy, eBay or Walmart Marketplace, the marketplace is usually the marketplace facilitator. States with a sales tax have laws that make the marketplace responsible for collecting and remitting sales tax on the sales it facilitates.

That means:

On marketplace orders, the marketplace usually collects the tax from the buyer and pays it to the state.
On your own website, you are still responsible for collecting tax where you have nexus.
Some states count your marketplace sales toward their economic nexus threshold, even though the marketplace collected the tax. Others do not. Check each state you sell into.

What is taxable, and at what rate

Two questions decide the tax on each order.

Is the product taxable? Most tangible goods are taxable, but states make exceptions. Clothing is exempt or partly exempt in some states, groceries in many, and some states treat items like candy, supplements or digital products in their own way. Shipping and handling charges are taxable in some states and not in others, and it can depend on how you show them on the invoice.

What rate applies? The combined rate can include state, county, city and special district taxes. Most states are destination-based: you charge the rate where the buyer receives the order, worked out from the full address, not just the ZIP code, because ZIP codes can cross tax boundaries. A few states are origin-based for sellers located inside them, meaning in-state sellers charge the rate at their own location.

Collecting tax at checkout

A good checkout should:

Work out the rate from the delivery address
Apply the right rules for each product’s tax category
Handle tax on shipping where required
Show the tax as a separate line on the receipt
Handle tax-exempt buyers, such as resellers with a valid resale certificate, and keep a copy of the certificate

Sales tax you collect is not your money. You hold it for the state, so keep it apart from your revenue in your books and, ideally, in a separate bank account.

Filing and paying

For each state where you hold a permit, you file a return on the schedule the state assigned, report your sales and the tax collected, and pay it. Most states expect a return even for a period with no sales (a “zero return”), and late or missed returns bring penalties and interest.

A monthly routine:

Export orders, refunds and the tax collected, by state and by jurisdiction.
Check that refunds and returns reduced the tax correctly.
Review your sales by state against economic nexus thresholds.
File and pay each return before its due date, or send the reports to your accountant.
Keep records and exemption certificates for the period your states require.

Where AjVik fits

AjVik’s sales tax tools calculate sales tax automatically at checkout from the delivery address, show it as a separate line on receipts, and give you reports of the tax collected, ready for you or your accountant. AjVik does not file returns or remit tax for you; you stay responsible for registering and filing in the states where you have nexus. Our free sales tax calculator helps with quick tax-inclusive and tax-exclusive price sums.

Software applies the rules it is given. Where you have nexus, what is taxable for your products, and when to register are still questions for your accountant.