Sales Tax for Online Sellers: The Rules That Catch People Out
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Economic nexus: when you start owing
A state can require you to collect its sales tax once you cross an economic nexus threshold — a level of sales into that state, regardless of where you are.
The most common threshold is $100,000 in sales or 200 transactions into that state in a year, though several states have dropped the transaction count and some use $500,000.
The transaction count catches low-price sellers hardest: 200 sales of a $15 item is $3,000 of revenue and can still create an obligation in states that still count transactions.
Marketplace facilitator laws — the good news
If you sell through Amazon, Etsy, eBay or Walmart, those platforms are legally required to collect and remit sales tax on your behalf in essentially every state. You do not need to register or file for those sales.
The obligation returns the moment you sell through your own storefront — Shopify, WooCommerce, a Squarespace shop or direct invoicing. Shopify will calculate and collect the tax for you, but it does not remit or file it; that remains yours.
What you actually have to do
- Track sales by state. Your platform reports this. Watch for states approaching a threshold.
- Register with the state department of revenue once you cross nexus. Collecting tax without a permit is illegal in most states.
- Charge the right rate — determined by the delivery address, including county, city and special district additions, not just the state rate.
- File returns on schedule, monthly, quarterly or annually depending on volume. Most states require a zero return even when you collected nothing.
- Keep records of what you collected and remitted, by state.
Work out any rate with the sales tax calculator, including working backwards from a tax-inclusive total.
The rate is not the state rate
Your combined rate is the state rate plus county, city and special district additions, which is why checkout systems ask for a full address. Crossing a city boundary can change the rate by a full percentage point.
Five states charge no statewide sales tax at all — New Hampshire, Oregon, Montana, Alaska and Delaware, the NOMAD states. Alaska is the exception worth knowing: no state rate, but local boroughs may levy up to about 7.5%.
What is often exempt
- Groceries — exempt or reduced in most states, though Alabama, Mississippi and South Dakota tax them fully.
- Prescription medicine — exempt almost everywhere; over-the-counter often is not.
- Clothing — fully exempt in Minnesota, New Jersey and Pennsylvania; exempt below a threshold in New York and Massachusetts.
- Services — historically untaxed, though a growing number of states now tax digital services and subscriptions.
- Wholesale sales to a reseller with a valid resale certificate — keep those certificates on file.
Practical advice for a small seller
- Do not panic-register in all fifty states. Registration creates a filing obligation even at zero sales, and fifty zero returns is a real administrative burden.
- Register where you actually have nexus, and monitor the rest.
- Sell mostly through marketplaces? Your obligation may already be almost entirely handled.
- Consider automation once you cross a few states. TaxJar and Avalara handle rates, filing and thresholds; the cost is usually less than the time.
- Ask a CPA if you are unsure. One consultation is far cheaper than back taxes with penalties and interest, which states do assess.
Frequently asked questions
Do I have to charge sales tax on online sales?
Yes, once you exceed a state’s economic nexus threshold — commonly $100,000 in sales or 200 transactions into that state per year. Below the threshold, and for sales through a marketplace that collects for you, generally not.
What is economic nexus?
A connection to a state based on sales volume rather than physical presence, established by the 2018 Wayfair decision. Once you cross it, that state can require you to register, collect and remit its sales tax.
Does Amazon or Etsy handle sales tax for me?
Yes. Marketplace facilitator laws make those platforms responsible for collecting and remitting on your behalf in essentially every state. Sales through your own site remain your responsibility.
Which states have no sales tax?
New Hampshire, Oregon, Montana, Alaska and Delaware — the NOMAD states. Alaska has no state rate but allows local rates up to about 7.5%.
What happens if I have not been collecting?
States can assess back taxes with penalties and interest. Many offer voluntary disclosure agreements that limit the lookback period and waive penalties for sellers who come forward before being contacted — worth discussing with a CPA promptly.
Free tools for this
Everything above, worked out for your own numbers in a few seconds.
Related guides
This guide is general information from ToolNest, not financial, legal or tax advice. Figures are estimates based on the assumptions stated and current at the time of writing. For decisions that matter, speak to a qualified professional in your own country.