Online sales tax works like this: once your business crosses a state’s threshold for sales activity — typically $100,000 in annual sales into that state, or any physical presence there — you have to register with that state, charge sales tax on orders shipped to buyers inside it, and send the collected money back to the state on its filing schedule. The rules got their current shape from the Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc., which let states demand collection from sellers with no physical footprint in the state.1Supreme Court of the United States. South Dakota v. Wayfair, Inc., et al. Every state that has a sales tax now applies its own version of those rules. Five states — Alaska, Delaware, Montana, New Hampshire, and Oregon — have no statewide sales tax at all, though Alaska lets local jurisdictions charge their own.2Tax Foundation. State and Local Sales Tax Rates, 2026
When You Have to Start Collecting
A state can only make you collect its sales tax if your business has enough connection to that state. Tax professionals call that connection nexus, and it comes in two forms.
Physical Nexus
Physical nexus is the older standard. A warehouse, office, employees, or stored inventory inside a state gives you physical nexus there. The trap most sellers miss: a single remote employee working from their home in another state can create physical nexus for sales tax purposes in that state. The majority of states take this position, and enforcement tightened after the pandemic. Hiring one remote worker in a new state can be enough to obligate you to register and collect there.
Economic Nexus
Economic nexus is what Wayfair created. The Court upheld South Dakota’s rule that out-of-state sellers had to collect tax once they exceeded $100,000 in sales or 200 transactions into the state in a calendar year, and most states adopted similar thresholds. Since then the picture has shifted. At least 15 states have dropped the 200-transaction prong and kept only the dollar threshold, and as of January 2026 Illinois joined that group. Roughly 16 states and territories still count transactions, which means a seller doing high volume at small order values can trip the wire well before hitting $100,000 in revenue.
The $100,000 figure is the common one, but not universal. Pennsylvania and Washington have used $10,000 figures for certain notice-and-reporting requirements, and thresholds vary state by state, so once your out-of-state sales start climbing, you need to check each state individually rather than assume a single number applies everywhere.
Alaska deserves a separate note. The state has no sales tax, but it lets boroughs and cities levy their own, and those local jurisdictions have adopted economic nexus rules of their own. Deliveries into certain Alaska localities can create a collection duty even though “Alaska” as a state charges nothing.
What About Sales Through Amazon, Etsy, or eBay
If your orders go through Amazon, eBay, Etsy, Walmart Marketplace, or a similar platform, the platform is almost certainly collecting and remitting sales tax on those sales for you. Nearly every state with a sales tax has passed a marketplace facilitator law that puts the collection obligation on the platform instead of the individual seller.3Streamlined Sales Tax. Marketplace Facilitator State Guidance The platform figures the rate at the buyer’s location, charges the tax at checkout, and sends it to the state under its own name.
That covers the marketplace channel, but two things surprise sellers. First, marketplace sales still count toward your economic nexus thresholds for your own direct sales. If Amazon orders push your total sales into Ohio past $100,000, orders through your own Shopify store to Ohio buyers may now need you to collect, even though Amazon handled the Amazon side. Aggregate sales across every channel are what the threshold measures.
Second, even when the platform is handling the tax, many states still want you registered and filing returns that report your gross sales through the marketplace.3Streamlined Sales Tax. Marketplace Facilitator State Guidance The return may show zero tax due, but the filing itself matters. In an audit you’ll need to show that every dollar was collected and remitted by the facilitator.
Which Rate You Charge and What’s Taxable
Two questions come up the moment you know you owe tax in a state: which rate applies, and does the product qualify for an exemption.
Destination Versus Origin
Most states use destination-based sourcing for online sales, so the rate is set by where the buyer receives the product. Ship from Texas to Nashville, and Nashville’s rate applies. About a dozen states use origin-based sourcing for in-state transactions — Arizona, Illinois, Mississippi, Missouri, Ohio, Pennsylvania, Tennessee, Texas, Utah, and Virginia are among them — but this mostly affects intrastate sales. Interstate e-commerce is generally destination-based regardless of where the seller sits.
What’s Taxable
Not everything you sell is taxed. Many states exempt groceries, prescription drugs, and some clothing, but the fine print gets granular. A state might exempt plain T-shirts and tax fur coats, or exempt grocery staples and tax prepared meals and candy. Digital goods add more inconsistency. Some states tax downloaded music and ebooks like physical products, others exempt them.
Software-as-a-service subscriptions are among the messiest categories. Some states treat cloud software as a taxable product, some treat it as a nontaxable service, and some tax it only under specific conditions, such as whether it’s off-the-shelf or custom-built. Product classification is the seller’s responsibility. Getting it wrong leads to under-collection, and the seller is the one on the hook when an auditor catches it.
Home-Rule States
A handful of states let cities and counties set their own sales tax rules independently. Alabama, Alaska, Arizona, Colorado, and Louisiana all have some form of home-rule authority. A product can be taxable at the state level, exempt in one city, and taxable at a different rate in the next city over. Crossing a nexus threshold in these states can mean registering and filing not just with the state but with individual localities, each with its own forms, rates, exemption rules, and deadlines.
Getting Registered
You need a permit or certificate of authority from each state where you have nexus before you can legally collect tax. Collecting sales tax without a valid permit is illegal in every state, with consequences ranging from civil fines to criminal penalties depending on the jurisdiction. Most states offer free online registration. Some charge modest application fees, and a few require security deposits or surety bonds.
One question on the application matters more than it looks: the date you first established nexus. States use that date to decide whether you owe back taxes for the period between when nexus began and when you finally registered.
Registering in Many States at Once
If you need permits across many states, the Streamlined Sales Tax Registration System lets you register in all participating member states through a single free application.4Streamlined Sales Tax. Sales Tax Registration SSTRS Each state sends its own permit and filing instructions, usually within 15 business days. Filing and payment still happen with each state separately. Non-member states require direct registration.
Resale Certificates
Your sales tax permit also lets you buy inventory tax-free using a resale certificate. When you buy goods to resell, you give the supplier your permit number and certify the purchase is for resale, and the supplier skips the sales tax. Using a resale certificate to dodge tax on things your business actually consumes can trigger penalties of 50% or more of the tax owed, plus the tax and interest.
When a customer hands you a resale certificate, check that it contains the buyer’s name and address, permit number, a description of what they’re buying, a statement that it’s for resale, the date, and a signature. Keep properly completed certificates on file. Without documentation, if the buyer turns out to have misused the certificate, the unpaid tax falls on you.
Filing Returns and Paying the Tax
Each state assigns a filing frequency based on your sales volume. High-volume sellers usually file monthly, mid-range sellers quarterly, low-volume sellers annually. States reassess periodically, so growth can move you from annual to quarterly with little notice. Most states require electronic filing through their online portal, where you report total gross sales, exempt sales, and net taxable amount. Payment goes through electronic funds transfer or the state’s online payment system.
File even in periods when you collected zero tax. Skipping a zero-dollar return counts as a missed filing, and many states charge flat minimum penalties for late or missing returns whether or not any tax was due. Late payment penalties across states typically run from 5% to 25% of the unpaid tax, with interest on top from the original due date. Some states add flat-fee minimums, so a return one day late with a small balance can cost $50 or more in penalties alone.
Vendor Collection Discounts
Close to 30 states reward on-time filers with a small discount on the tax they remit. These vendor collection allowances typically run from 0.25% to 5% of tax collected and are meant to offset the cost of acting as the state’s unpaid tax collector.5Federation of Tax Administrators. State Sales Tax Rates and Vendor Discounts The discount only applies if you file and pay on time.
Sales Tax Holidays
Around 17 states run temporary sales tax holidays, most in late summer for back-to-school shopping.6Tax Foundation. Sales Tax Holidays by State During these periods, categories like clothing, school supplies, computers, and severe-weather preparedness items become temporarily exempt up to specified price caps. Sellers reconfigure their tax settings for the qualifying products during the window and switch back afterward. Qualifying items, price thresholds, and dates differ by state, and some states finalize their holiday details with little lead time.
Don’t Forget Use Tax
Use tax is the quiet counterpart to sales tax, and it’s one of the more common audit triggers. When your business buys something from an out-of-state vendor who doesn’t charge sales tax and you use that item in your operations rather than reselling it, you owe use tax to your home state. Office furniture from an online retailer that didn’t collect your state’s tax, software from an overseas vendor, equipment bought at an out-of-state trade show and shipped back to your warehouse — each of these can create a use tax liability.
The rate matches your state’s sales tax rate. You typically report it on your regular sales tax return or on a separate use tax return. Most states give credit for any sales tax already paid to another state on the same purchase, so you’re not taxed twice. The gap between what businesses owe in use tax and what they actually report is large, and state auditors know it.
If You Should Have Been Collecting All Along
If you’re realizing now that you should have been collecting tax in states where you have nexus, most states offer voluntary disclosure agreements. You come forward, register, and settle back-tax obligations in exchange for reduced or waived penalties and a limited lookback period. Instead of every year you should have been collecting, the state may only ask for the most recent three or four.
The Multistate Tax Commission runs a coordinated program called the Multistate Voluntary Disclosure Program that lets you negotiate with multiple states through a single process. The key eligibility rule across nearly every program: the state cannot have already contacted you about an audit or assessment. Once a state reaches out first, the voluntary disclosure option typically disappears, along with the penalty relief and lookback limits that come with it. If you suspect you have unfiled obligations in multiple states, acting before any of them contacts you is the single most valuable move you can make.