Sales tax works in three moving parts: you figure out where you’re required to collect (nexus), you charge the right combined rate on each sale, and you send the money to the state on the schedule it assigns you. Forty-five states impose a statewide sales tax, and 38 of those let cities, counties, and special districts add their own on top, so the rate a customer pays is usually a stack, not a single number.1Tax Foundation. State and Local Sales Tax Rates, 2026 Five states charge no statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Alaska is the odd one out, because some Alaska local governments do impose their own tax, so a seller shipping into certain Alaska jurisdictions still has a collection obligation.
When You Have to Collect: Nexus
Nexus is the connection between your business and a state that gives the state authority to require you to collect its tax. No nexus, no obligation. With nexus, you register for a permit, charge the correct rate, and remit. A single business can trigger different kinds of nexus in different states at the same time.
Physical Presence
The traditional trigger is physical presence: people, property, or operations inside the state. An office counts. So does a warehouse, inventory sitting in a third-party fulfillment center, an employee working remotely from home, or a sales rep making occasional visits. Businesses that later discover an unregistered physical presence typically face back taxes plus interest, which is why tracking where your inventory sits and where your workers travel matters more than it seems.
Economic Nexus
Since the Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc., states can require collection from sellers with no physical presence based purely on sales volume into the state.2Supreme Court of the United States. South Dakota v Wayfair, Inc. The South Dakota law at issue used a threshold of $100,000 in sales or 200 transactions in a calendar year, and most states adopted something similar. The trend since 2020 has been to drop the transaction count and keep only the dollar threshold; as of mid-2025, at least 15 states had eliminated the 200-transaction test entirely. If you ship into multiple states, you need to watch your sales volume into each and register the moment you cross the line.
Affiliate and Click-Through Nexus
Some states create nexus out of business relationships. Click-through nexus applies when you pay someone in the state a commission for referring customers through a web link that produces a sale. Affiliate nexus applies when a related entity with in-state presence does work on your behalf, like marketing or customer support. Not every state has these provisions, and the details vary, but a single referral arrangement can quietly pull you into a new state’s system.
The Marketplace Facilitator Carve-Out
If you sell through Amazon, Etsy, Walmart Marketplace, or a similar platform, the platform itself is generally responsible for collecting and remitting the tax on those sales. Every state with a sales tax has enacted marketplace facilitator laws shifting the collection burden to the platform.3Tax Foundation. Marketplace Facilitator Laws: Past, Present, and a Better Future For a small seller who would otherwise face registration in dozens of states, that’s a real simplification.
The relief has limits. Some states still require marketplace sellers to register even when the platform collects, and if you have physical presence in a state, you generally have to register regardless of what the platform does.4Streamlined Sales Tax. Marketplace Sellers And the carve-out only covers sales made through the marketplace. Sales through your own website, at a craft fair, or through any other direct channel are still yours to track and collect on.
How Much to Collect: Combined Rates and Sourcing
The rate on a given sale is almost never just the state rate. State rates run from a floor of 2.9% to a ceiling of 7.25%, but county, city, and special district taxes stack on top. Special districts for transit, housing, stadiums, or public safety often add fractions of a percent, and those change frequently as voters approve new levies or old ones expire. The five highest average combined rates in 2026 all exceed 9%, and the top one is above 10%.1Tax Foundation. State and Local Sales Tax Rates, 2026
Origin vs. Destination Sourcing
Which combined rate you charge depends on how the state sources the sale. In origin-based states, you charge the rate at your business location no matter where the buyer is. In destination-based states, you charge the rate where the buyer receives the goods. Destination sourcing is more common and is the standard for remote and online sales, which means a seller may need to look up rates across thousands of local jurisdictions. When there isn’t enough information to determine the delivery location, some states fall back to origin-based sourcing.
Pinpointing the right destination rate usually takes the buyer’s full street address, not just a ZIP code, because a single ZIP can cross multiple tax jurisdictions with different rates. Most sales tax software uses address-level geolocation to match each sale to the right combined rate.
Shipping Charges
Whether you tax shipping depends entirely on the state. Some states treat shipping as part of the sale price and tax it however you list it. Others exempt shipping when you break it out as a separate line item. A few tax delivery charges no matter what. On a high-volume store, getting this wrong compounds quickly.
What’s Taxable and What Isn’t
The default in most states is that sales of tangible personal property (physical items) are taxable unless specifically exempted. Consumer electronics, furniture, clothing in most states, and household goods all sit in that default-taxable bucket.
Common Exemptions
States carve out exemptions to lighten the load on necessities. Unprepared groceries and prescription medications are the most widespread, though the specifics differ. Some states fully exempt groceries; others tax them at a reduced rate. Prepared food, like restaurant meals and deli items, is usually taxable even in states that exempt raw groceries. Medical devices, certain agricultural supplies, and items bought by nonprofits for their exempt purpose commonly fall outside the tax as well.
Digital Products and Services
Taxability of digital goods is one of the fastest-moving corners of sales tax. Software subscriptions, streaming services, e-books, and digital downloads are taxable in roughly half the states, and more states add them to the base each year. Professional services like consulting, legal work, and accounting stay exempt in most states, though a handful tax a broad range of services. When a single transaction bundles a taxable product and an exempt service, states usually tax it based on the primary purpose of the purchase.
Resale Certificates
A business buying goods for resale rather than its own use can hand the seller a resale certificate and skip sales tax on that purchase. The point is to tax the item once, at the final sale to the consumer, rather than at every step up the chain.
If you accept resale certificates, keep them on file. Auditors look specifically for missing or invalid certificates as a source of uncollected revenue. Expiration rules vary: some states treat a certificate as valid indefinitely so long as the business relationship continues, while others expect renewal every three years or so.5Multistate Tax Commission. Uniform Sales and Use Tax Resale Certificate – Multijurisdiction Accepting a fraudulent certificate shifts liability to the buyer; failing to collect one at all can leave you holding the unpaid tax.
Remitting What You Collected
The money you collect isn’t yours. Every state treats collected sales tax as trust funds held for the government. Mixing it into an operating account and spending it is one of the most serious sales tax violations a business can commit, because most states impose personal liability on owners, officers, or anyone with authority over the company’s finances. That liability can reach through corporate protections, so even if the LLC or corporation folds, the state can pursue individuals for the unremitted amount.
Filing Frequency and Deadlines
States assign filing frequency based on your volume. Monthly, quarterly, or annually. High-volume sellers usually file monthly, with payment due around the 20th of the following month. Lower-volume sellers may file quarterly or yearly. The assignment isn’t permanent; as sales grow or shrink, the state may move you to a different frequency. Filing goes through the state’s online portal, where you report gross sales, deduct exempt sales, and calculate net tax owed.
Close to 30 states offer a small vendor discount, sometimes called a timely filing discount, as an incentive for remitting on time. These range from roughly 0.25% to 5% of the tax collected and are forfeited if you file even one day late. Not a big number per return, but over years of monthly filings it adds up, and it’s permanent money lost when you miss a deadline.
Penalties and Interest
Late filing penalties typically run around 5% of unpaid tax per month, capped in most states at 25%. Late payment penalties are generally lower, often 0.5% to 1% per month. Interest accrues on top, usually tied to the federal short-term rate plus a few points. For businesses that never remit at all, penalties can reach 30% to 50% of the tax owed, and intentional non-payment can lead to criminal prosecution in some states.
If you miss a deadline for reasons outside your control, like a natural disaster, serious illness, or a system failure that prevented electronic filing, you can request penalty abatement based on reasonable cause. The IRS standard, which many states mirror, requires showing you exercised ordinary care but still couldn’t comply on time.6Internal Revenue Service. Penalty Relief for Reasonable Cause Relying on a tax professional who made a mistake, not knowing the rules, or running short on cash generally don’t qualify.
Records
Keep detailed records of every transaction: gross sales, exempt sales, tax collected, and remittance confirmations. Most states require retention for at least three to four years, and some longer. In an audit, the burden is on you to prove your returns were accurate. Missing records almost always produce assessments based on the state’s own estimates, which tend not to be generous.
Use Tax: The Companion Obligation
Use tax is the flip side of sales tax. When you buy something from an out-of-state seller who doesn’t collect your state’s sales tax, you technically owe use tax on that purchase at the same rate. The rule applies to both consumers and businesses, but enforcement is much heavier on businesses. A company that buys equipment from an out-of-state vendor without paying sales tax is expected to self-assess and remit use tax on its next return.
Individual use tax obligations are widely ignored in practice, which is part of why states pushed hard for economic nexus and marketplace facilitator laws: collecting at the point of sale is far more effective than asking millions of consumers to self-report. Businesses under audit will almost always face scrutiny on untaxed purchases, so tracking items bought without sales tax and self-remitting use tax pays off.
Fixing Past Non-Compliance
If you discover you should have been collecting in a state but weren’t, a voluntary disclosure agreement (VDA) is usually the best path back. Most states offer VDA programs, often administered through the Multistate Tax Commission’s National Nexus Program, that give real benefits in exchange for coming forward.
The main benefit is a limited lookback period. In a standard audit, a state might reach back many years. Under a VDA, most states cap the lookback at 36 months, with some extending to 48.7Multistate Tax Commission. Lookback Periods for States Participating in National Nexus Program States typically waive penalties entirely under a VDA, though interest on unpaid tax still applies. Given that penalties alone can hit 30% or more of the tax owed, the savings are real. The catch: you have to come forward before the state contacts you. Once an audit notice arrives, the VDA option is gone.