Online sales tax rules vary by state, but the framework is consistent: 45 states and the District of Columbia require online sellers to collect sales tax once the seller crosses that state’s economic nexus threshold, while five states impose no statewide sales tax at all. Which state’s rules apply to a given sale, how much tax is owed, and who actually collects it depend on where the buyer receives the product, how much you sell into that state, and whether the sale runs through a marketplace like Amazon or Etsy.
The current system took shape after the Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc., which let states require tax collection from out-of-state sellers based on sales volume rather than physical presence.1Legal Information Institute. South Dakota v. Wayfair, Inc. Every state with a sales tax has since adopted some version of that economic nexus standard.
States With No Statewide Sales Tax
Five states levy no statewide sales tax on any transaction: Alaska, Delaware, Montana, New Hampshire, and Oregon. If your only customers live in Delaware, Montana, New Hampshire, or Oregon, you have no state-level collection obligation from those sales.
Alaska is different. The state itself imposes no sales tax, but many Alaska boroughs and cities do, and they coordinate collection through the Alaska Remote Seller Sales Tax Commission. Remote sellers with $100,000 or more in statewide gross sales during the prior calendar year must register and remit local tax, and that registration obligation exists even when the specific products shipped are nontaxable in the buyer’s jurisdiction.2Alaska Remote Seller Sales Tax Commission. FAQs for Sellers A buyer in one Alaska town may pay a local rate while a buyer twenty miles away pays nothing, so the delivery address controls.
When You Have to Start Collecting: Economic Nexus
Economic nexus is the trigger that tells you when a state can require you to collect its sales tax. Once you do enough business into a state, you have a sufficient connection to justify the obligation, even without any physical presence there.
The $100,000 Threshold and Higher-Bar States
The most common threshold is $100,000 in gross annual sales, modeled on the South Dakota law the Supreme Court upheld. Several states set the bar considerably higher. California and Texas each require $500,000 in sales before economic nexus applies, and New York requires $500,000 combined with more than 100 separate transactions. Mississippi and Alabama use $250,000. For a small seller, the gap between a $100,000 and a $500,000 threshold can be the difference between owing tax in a dozen states versus thirty or more.
States also differ on the measurement period. Some look at the prior calendar year, some at the current year, and most trigger the obligation as soon as you cross either one. You can’t wait until December to check. Track sales by destination state on a rolling basis.
Transaction Count Thresholds Are Disappearing
South Dakota’s original law included an alternative 200-transaction trigger, and many states copied it. That trend has reversed. As of 2026, roughly half the states with a sales tax have either eliminated the transaction threshold or never adopted one. Fifteen states, including California, Colorado, Washington, and North Carolina, have dropped the transaction count. Thirteen others, including Texas, Florida, and Pennsylvania, never established one. Illinois eliminated its transaction threshold effective January 1, 2026.
The shift matters most for sellers with lots of low-value orders. Under a 200-transaction rule, a shop selling $5 stickers could hit nexus after just $1,000 in revenue. If you sell low-cost items in high volume, check whether a state still maintains a transaction count before assuming you’re below its threshold.
Physical Presence Still Counts
Economic nexus supplemented physical nexus, it didn’t replace it. A warehouse, office, employee, or inventory stored in a state generally creates a collection obligation regardless of sales volume. Inventory in a third-party fulfillment center counts. Using Amazon’s Fulfillment by Amazon (FBA) program, which distributes inventory across warehouses nationwide, can create physical nexus in every state where Amazon stores your goods. A single remote employee working from home in another state is usually enough on its own.
Marketplace Facilitator Laws
Every state with a sales tax now has a marketplace facilitator law, and for most small online sellers this is the single biggest simplification. These laws shift the responsibility for collecting, reporting, and remitting sales tax from the individual seller to the platform hosting the sale. If you sell through Amazon, eBay, Etsy, Walmart Marketplace, or a similar platform, the platform calculates the correct rate based on the buyer’s delivery address, collects at checkout, and remits to the state.3Streamlined Sales Tax. Marketplace Seller State Guidance
There is a catch. Some states still require sellers to file returns even when a facilitator collected every penny. The return may show zero tax due, but the filing obligation exists. In those states, you report your gross sales and then deduct the marketplace-facilitated portion. Missing a zero-dollar return can still trigger penalties. And if you sell both through a marketplace and directly through your own website, the direct sales are still your responsibility. A seller whose sales run entirely through a qualifying marketplace facilitator generally has no separate registration obligation with the Alaska Remote Seller Sales Tax Commission, for instance.2Alaska Remote Seller Sales Tax Commission. FAQs for Sellers
Which Tax Rate Applies to a Given Sale
The rate on any online purchase depends on where the transaction is “sourced.” The overwhelming majority of states use destination-based sourcing for online and interstate sales, meaning the rate is set by where the buyer receives the product. The combined state, county, and local rates at the delivery address apply.
That layering is why checkout totals can look unpredictable. A package delivered on one side of a city line might carry a 7.5% combined rate while the same item delivered a few blocks away carries 8.25% because of a special transit district. Automated tax software handles the lookups in real time and is close to a necessity once you’re processing more than a handful of orders.
A handful of states, including Arizona, Missouri, Ohio, Tennessee, and Virginia, use origin-based sourcing for sales within their own borders. In those states, an in-state seller charges the tax rate at the warehouse’s location regardless of where in the state the buyer lives. That rule only reaches intrastate sales. Interstate online sales almost universally use destination-based sourcing.
What Gets Taxed and What Doesn’t
Product taxability is one of the most frustrating parts of multi-state compliance. What’s exempt in one state may be fully taxable in the next.
Groceries and Prepared Food
Most states that impose a sales tax exempt unprepared grocery items such as raw produce, bread, and dairy. Prepared food, meaning anything sold heated, combined by the retailer from multiple ingredients, or served with utensils, is typically taxable. Candy and soft drinks often fall outside the grocery exemption. The lines are specific: a bakery roll may be exempt, but the same roll sold on a plate with a fork may not.
Clothing
A few states fully exempt clothing, including Minnesota, New Jersey, Pennsylvania, and Vermont. Others exempt clothing only up to a per-item price cap: New York exempts items under $110, Massachusetts under $175, and Rhode Island under $250. Most states tax clothing at the standard rate.
Digital Products and SaaS
Digital goods are a patchwork. Whether you owe tax on an ebook, a music download, a streaming subscription, or a software-as-a-service (SaaS) product depends entirely on the state. Roughly 25 states tax SaaS in some form, but the definitions vary. Some states treat digital downloads the same as physical goods. Others draw a sharp line between a downloaded file (taxable) and a cloud-hosted subscription (not taxable). Streamlined Sales Tax member states use a standard definition of “specified digital products” covering digital audio, video, and books, but each member can still choose to tax or exempt those categories.
Shipping and Handling
Whether shipping is taxable often depends on how it appears on the invoice. Some states tax shipping when bundled into the product price but exempt it when listed as a separate line item. Others tax all delivery charges regardless of presentation. Where shipping is separately stated, some states require the charge to reflect the actual cost of delivery rather than an inflated handling fee. For “free shipping” built into the product price, the full amount is generally taxable in states that tax the sale price.
The Streamlined Sales Tax Shortcut
Twenty-three states, plus Tennessee as an associate member, belong to the Streamlined Sales Tax Governing Board, which standardizes sales tax rules across member states to reduce compliance work.4Streamlined Sales Tax Governing Board. FAQs – Information About Streamlined Member states agree to uniform tax base definitions, simplified exemption administration, consistent sourcing rules, and state-level administration of local taxes, so sellers don’t deal with individual cities and counties separately.
The practical tool is the Streamlined Sales Tax Registration System, a free centralized portal that registers you in all member states through a single application.5Streamlined Sales Tax Registration System. Streamlined Sales Tax Registration System Businesses that qualify as “volunteer sellers,” generally those with no physical presence, under $50,000 in property, and under $50,000 in payroll in the member state, can access certified service providers that handle tax calculation and filing at no cost.4Streamlined Sales Tax Governing Board. FAQs – Information About Streamlined Some member states also offer amnesty for past uncollected taxes when you register through the system.
Registering, Filing, and What Happens If You Don’t
Once you have nexus in a state, register for a sales tax permit before you start collecting. Most states charge no fee. A few charge a modest amount, roughly $10 to $100. Collecting tax without a valid permit is illegal in many states, even if you plan to remit every dollar, so registration comes first.
Filing frequency is assigned by the state based on sales volume. Low-volume sellers may file annually or quarterly; higher-volume sellers file monthly. States generally tell you your assigned frequency when they issue the permit. Late-filing penalties commonly run 2% to 10% of the tax due, and interest starts accruing immediately. Some states also impose flat minimum penalties regardless of the amount owed. Willful failure to collect or remit can carry criminal penalties.
The riskiest position is crossing a nexus threshold and simply not registering. States share data with marketplaces and payment processors, and audit activity targeting online sellers has increased steadily since Wayfair. When a state catches up, it can assess back taxes, penalties, and interest going back to the date nexus was established. Most states offer voluntary disclosure agreements that let you come forward, register, and settle past liability on more favorable terms than waiting to be found.
A Note on Use Tax
Every state with a sales tax also has a companion use tax. When an online seller doesn’t collect, because it’s below the nexus threshold or based abroad, the buyer technically owes use tax at the same rate, usually reported on the state income tax return. Compliance is low, but the obligation exists, and states like California and Utah include a use tax line on the income tax form.