State Sales Tax for Online Sellers

State Sales Tax for Online Sellers

If you sell products online, understanding your state sales tax obligations is critical. Since the landmark 2018 Supreme Court decision in South Dakota v. Wayfair, online sellers may be required to collect and remit sales tax in states where they have no physical presence.

The Wayfair Decision: What Changed

Before South Dakota v. Wayfair, Inc. (2018), states could only require businesses with a physical presence (store, warehouse, employees) in the state to collect sales tax. The Wayfair decision overturned this rule, holding that states can require online sellers to collect sales tax based on economic nexus — meeting certain sales thresholds in the state.

Understanding Nexus

Physical Nexus

You have physical nexus in a state if you have:

A store, office, or warehouse

Employees or independent contractors working there

Inventory stored there (including Amazon FBA warehouses)

Attending trade shows or craft fairs (in some states, even temporarily)

Economic Nexus

Most states now require sales tax collection if you exceed either threshold:

$100,000 in sales into the state, OR

200 transactions in the state (some states have eliminated the transaction threshold)

Thresholds are typically measured over the current or previous calendar year. Five states have no sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon (though Alaska allows local sales taxes).

Marketplace Facilitator Laws

If you sell through platforms like Amazon, eBay, Etsy, or Walmart Marketplace, the marketplace is generally responsible for collecting and remitting sales tax on your behalf in states with marketplace facilitator laws (now adopted by nearly all states with sales tax).

However, you may still need to:

Collect sales tax on sales made through your own website

Register for sales tax permits in states where you have nexus

File returns even if the marketplace collected the tax

Sales Tax Registration

Once you determine you have nexus in a state, you must:

Register for a sales tax permit with the state's department of revenue

Collect the correct rate — sales tax rates vary by state, county, city, and special district

File returns on the required schedule (monthly, quarterly, or annually depending on sales volume)

Remit the tax collected by the filing deadline

Never collect sales tax without a valid permit — doing so may be illegal in some states.

What Is Taxable?

Taxability varies by state:

Tangible goods — generally taxable in all states with sales tax

Digital products — taxable in about 30 states (software downloads, e-books, streaming)

SaaS (Software as a Service) — taxable in some states, exempt in others

Clothing — exempt in some states (Pennsylvania, New Jersey, Minnesota) or exempt below certain thresholds (New York)

Food and groceries — exempt or reduced rate in many states

Services — generally not taxable, but some states tax specific services

Compliance Tools and Resources

Managing multi-state sales tax manually is extremely difficult. Consider:

Automated sales tax software — platforms like TaxJar, Avalara, or Vertex calculate, collect, and file for you

Streamlined Sales Tax (SST) — a multi-state agreement that simplifies registration and filing (24 member states)

State voluntary disclosure programs — if you have uncollected past-due sales tax, these programs may reduce penalties

Penalties for Non-Compliance

Failing to collect and remit sales tax can result in:

Back taxes — you may be personally liable for uncollected tax

Interest and penalties — typically 5-25% of the unpaid tax plus monthly interest

Audit assessments — states are increasingly auditing online sellers

Criminal charges — in extreme cases, willful failure to remit collected tax can be a criminal offense

Disclaimer: This guide is for informational purposes only. Sales tax law is complex and constantly evolving. Consult a tax professional for advice specific to your business.