You do not need to collect sales tax in every state. You only collect in states where your business has established “nexus” — a legal connection created by physical presence or a certain level of economic activity in that state. Forty-five states plus the District of Columbia impose a general sales tax, but selling nationwide does not automatically create an obligation in all of them. Since the Supreme Court’s 2018 decision in South Dakota v. Wayfair, states can require remote sellers to collect based on sales volume alone, so a growing business can pick up new obligations quickly as it crosses thresholds.
What Creates a Sales Tax Collection Obligation
Nexus is the connection between your business and a state that gives the state authority to make you collect its sales tax. You can have nexus through more than one route at once.
Physical Presence
If your business has a tangible footprint in a state, you have nexus there. That includes an office, retail location, warehouse, or employees who live or regularly work in the state. Less obvious triggers count too: storing inventory in a third-party fulfillment center (common for Amazon FBA sellers), sending sales reps to visit customers, or attending a trade show can create a physical connection. If your business or its property is physically present, the state can require you to collect.
Economic Activity
Before 2018, a business with no physical presence in a state generally had no collection obligation there. The Supreme Court changed that in South Dakota v. Wayfair, Inc., upholding South Dakota’s law requiring collection from remote sellers who deliver more than $100,000 in goods or services into the state or complete 200 or more separate transactions annually.1Supreme Court of the United States. South Dakota v. Wayfair, Inc., et al.
Most states have adopted their own economic nexus laws, but the thresholds vary. The most common trigger is $100,000 in sales. Alabama and Mississippi use $250,000. California and New York use $500,000, and New York also requires at least 100 transactions. Many states that originally included a 200-transaction alternative have dropped it, focusing only on the dollar amount. Others keep both triggers, meaning you could owe after 200 small orders even if your total revenue in the state stays well below $100,000.
The obligation to register and collect typically kicks in immediately or very shortly after you cross the threshold. Monitor your sales into each state on a rolling basis. Waiting until year-end to check leaves businesses exposed to back taxes and penalties.
Click-Through and Affiliate Arrangements
About two dozen states have a separate trigger tied to referral relationships. If you pay a commission to someone in the state for sending customers your way through a website link or referral code, that arrangement can create click-through nexus. Each state sets its own dollar threshold, ranging from $10,000 in referral-generated sales in some states to $100,000 in others. Click-through nexus is separate from economic nexus, so you can trigger one without the other.
States Where You Generally Don’t Collect
Five states impose no general statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon, sometimes called the NOMAD states. Sales exclusively to customers in these states generally do not create a state-level collection obligation.
Alaska is the important exception. While there is no state sales tax, more than 100 local boroughs and municipalities levy their own. The Alaska Remote Seller Sales Tax Commission coordinates collection from out-of-state sellers on behalf of participating local governments, so crossing the applicable thresholds into those Alaska jurisdictions can create a local collection obligation. The other four NOMAD states have no meaningful local sales tax system that reaches remote sellers, though Montana allows a limited local resort tax in certain tourist areas.
When the Marketplace Collects for You
If you sell through Amazon, eBay, Etsy, Walmart Marketplace, or similar platforms, the platform itself is responsible for collecting and remitting sales tax in nearly every state with a sales tax.2Streamlined Sales Tax. Marketplace Facilitator Marketplace facilitator laws treat the platform as the seller for tax purposes. You don’t separately collect tax on orders that flow through the platform, and in most states you don’t report those sales on your own returns.
That relief only covers sales made through the facilitated platform. If you also sell through your own website, at craft fairs, or through any channel where a marketplace facilitator isn’t handling the transaction, you’re fully responsible for collecting and remitting tax on those sales. Some states still require you to file returns reporting zero tax due for marketplace-facilitated sales. Keep records showing which sales went through a facilitator and which didn’t, so you can demonstrate exactly what was handled by whom during an audit.
What to Do in States Where You Do Have Nexus
Once nexus exists, three questions follow: register, charge the right rate, and figure out what’s taxable.
Register Before You Collect
You must register for a sales tax permit in a state before you start collecting tax there. Collecting without a permit is illegal in most states, and so is having nexus and failing to register. Most states handle registration online through their department of revenue websites, usually with no fee.
If you need to register in several states at once, the Streamlined Sales Tax (SST) central registration system lets you do it through a single application. Member states cannot charge registration fees to sellers who register through this system, and they must provide amnesty for past uncollected sales tax as long as the seller continues to collect and remit properly for at least 36 months after registering.3Streamlined Sales Tax Governing Board. Streamlined Sales and Use Tax Agreement Not every state is an SST member, so you’ll still need to register directly in some.
Charging the Right Rate
Most states use destination-based sourcing: you charge the tax rate that applies where your customer receives the product. About a dozen states, including Arizona, California, Illinois, Mississippi, Missouri, Ohio, Pennsylvania, Tennessee, Texas, Utah, and Virginia, use origin-based sourcing for in-state sales, meaning you charge the rate at your business location. Origin-based sourcing almost always applies only when both seller and buyer are in the same state; interstate and online sales into a destination-based state still use the buyer’s rate. There are more than 13,000 sales tax jurisdictions across the country, and most multistate sellers use tax automation software to handle the rate lookups.
Knowing What’s Taxable
Nexus and rate don’t matter if what you sell isn’t taxable. The general rule in most states is that sales of tangible personal property are taxable unless specifically exempted. Services work the opposite way: usually exempt unless a state specifically lists them as taxable. The number of taxable services varies from fewer than 20 in some states to well over 100 in others.
Digital products are less predictable. States are split on whether downloads, streaming subscriptions, and software-as-a-service are taxable. States following the Streamlined Sales Tax framework generally tax downloaded digital products but may not reach streaming services or cloud-based software unless their statutes specifically say so.4National Conference of State Legislatures. Taxation of Digital Products Other states define “digital product” broadly enough to cover subscriptions and online access. Common exemptions include groceries (definitions vary), prescription medications, and clothing in a handful of states. These exemptions only cover the specific items listed; a state that exempts groceries may still tax prepared meals and snacks.
When you sell to another business that plans to resell the product, the sale is typically exempt if the buyer provides a valid resale certificate with their state registration number. Keep the certificate on file. Without it during an audit, you’ll be treated as if you should have collected the tax.5Multistate Tax Commission. Uniform Sales and Use Tax Resale Certificate – Multijurisdiction The Multistate Tax Commission’s uniform resale certificate is accepted in most states.
Filing and Paying
After you register, the state assigns you a filing frequency — monthly, quarterly, or annually — based on volume. You report total sales, taxable sales, exempt sales, and tax collected through the state’s online portal, and pay electronically. Deadlines typically fall on the 20th of the month following the reporting period. Late returns trigger penalties that generally range from 5% to 25% of the unpaid tax, plus interest. Filing a zero return is still required if you have an active permit; skipping a filing because you had no taxable sales is treated as a delinquency.
If You Should Have Been Collecting and Weren’t
If you’ve had nexus in a state and haven’t been collecting or remitting, the problem doesn’t go away on its own. For unregistered businesses, the statute of limitations on unpaid sales tax generally doesn’t start running until a return is filed, so the lookback period is effectively unlimited.6Multistate Tax Commission. Lookback Periods for States Participating in National Nexus Program
Most states offer a path forward that’s less painful than waiting to be caught. Voluntary Disclosure Agreements, available through the Multistate Tax Commission’s National Nexus Program or directly with individual states, typically limit the lookback period to three or four years and waive penalties (sometimes interest) in exchange for registering and paying the back taxes for that limited period. Registering through the Streamlined Sales Tax system provides amnesty for past uncollected tax in all SST member states, as long as you maintain compliance for 36 months afterward. And some states periodically run time-limited amnesty programs that waive penalties and reduce interest for taxpayers who come forward and pay in full; these are unpredictable and short-lived, so they shouldn’t be your primary strategy, but they’re worth watching for.7Multistate Tax Commission. State Tax Amnesties
For registered businesses that have been filing but made errors, the standard audit lookback is typically three to four years. A business that comes forward voluntarily faces a defined, manageable liability; one that waits to be discovered may owe tax stretching back to its first sale in the state.