Sellers use tax for remote sellers is the tax you are required to collect from your out-of-state customers, and remit to their state, once your sales into that state cross its economic nexus threshold. The 2018 Supreme Court decision in South Dakota v. Wayfair replaced the old physical-presence rule with one based on economic activity, and the most common trigger is $100,000 in annual sales into a state.1Supreme Court of the United States. South Dakota v. Wayfair, Inc. Forty-five states plus Washington, D.C. now impose these duties on remote sellers, and the compliance details vary enough state to state to catch experienced businesses off guard.
What Sellers Use Tax and Vendor’s Use Tax Actually Mean
Sales tax and use tax are two sides of the same coin. Sales tax applies when a buyer purchases from a seller located in the buyer’s own state. Use tax applies when the buyer purchases from an out-of-state seller and no sales tax was collected at checkout. The rates are identical. The only difference is who pays it and how.
Historically, consumers were expected to track their out-of-state purchases and report use tax on their own returns. Almost nobody did. “Sellers use tax” and “vendor’s use tax” are the labels states apply when they shift that collection duty onto the remote seller instead. Rather than hoping millions of buyers self-report, the state requires the out-of-state business to charge the tax at checkout and send it in. The consumer pays the same amount either way; the mechanism is just more reliable. Terminology varies by state, but the practical effect is the same: if you sell remotely into a state where you have economic nexus, you charge the applicable rate, collect the tax, and remit it to that state’s revenue department.
When You Owe Collection Duties: Economic Nexus Thresholds
Economic nexus is the legal connection a state creates between itself and a remote seller based purely on sales volume. Once your sales into a state hit a specific dollar amount or transaction count within a defined period, that state treats you as obligated to register, collect, and remit. The South Dakota law upheld in Wayfair set the template: $100,000 in gross sales or 200 separate transactions in a calendar year.1Supreme Court of the United States. South Dakota v. Wayfair, Inc. Most states adopted something close to that model, though many have since dropped the transaction-count prong and rely on the dollar threshold alone. A few states set higher bars, such as $250,000 or $500,000, to reduce the burden on smaller sellers.
When calculating whether you have hit a threshold, most states require you to count all sales delivered into the state, including sales that would ultimately be exempt from tax, such as wholesale sales for resale. Marketplace sales made through platforms like Amazon or Etsy often count toward your total as well.2New York State Department of Taxation and Finance. Registration Requirement for Businesses With No Physical Presence in New York State States typically look at the prior calendar year to set the current year’s obligation, but crossing the threshold mid-year can also trigger an immediate duty to register. Once you cross, every subsequent sale into that state is taxable. Failing to collect from that point forward creates a liability you will end up paying out of your own funds.
Five states impose no general sales tax at all: Alaska, Delaware, Montana, New Hampshire, and Oregon. Alaska allows local jurisdictions to levy their own sales taxes, but the other four are entirely sales-tax-free. Remote sellers have no use tax collection duties in those states.
Which Rate to Charge
For remote sellers shipping into another state, nearly every state uses destination-based sourcing. That means you charge the combined state and local rate in effect where the buyer receives the product, not where your warehouse or office is located. Ship a $50 item to a customer in a city with a combined 8.25% rate, and you collect $4.13 in tax on that sale, regardless of the rate at your own location.
Combined state and local rates currently run from under 3% in some parts of Colorado to over 11% in parts of Louisiana, Arkansas, and Oklahoma, with most buyers seeing something between 6% and 9%. A single state can have hundreds of local tax jurisdictions, each with a slightly different combined rate, and address-level accuracy matters, because a customer two blocks from a city boundary may owe a different rate than one inside it. Most remote sellers rely on tax calculation software or certified service providers to handle this in real time at checkout. Doing it manually across multiple states is impractical for all but the smallest businesses.
Selling Through Marketplaces
If you sell through a marketplace like Amazon, Walmart Marketplace, Etsy, or eBay, you may not need to collect use tax on those sales yourself. All 45 sales-tax states and Washington, D.C. have marketplace facilitator laws that shift the collection and remittance duty to the platform. The marketplace calculates the correct rate, collects the tax at checkout, and sends it in on your behalf.
That relief has limits. Sales you make through your own website or through channels not classified as marketplace facilitators remain your obligation to tax, collect, and remit. You also still need to count marketplace sales when determining whether you have hit an economic nexus threshold in a given state, even though the platform is doing the collecting. And if the marketplace passes along incorrect information about your products or delivery locations, some states may hold you partly responsible if the error is something you should have caught.
Registering to Collect
Before you can legally collect use tax from customers in a state, you have to register with that state’s revenue department and receive a permit or certificate of authority. Most states handle registration through an online portal, and the majority charge no application fee. A few charge nominal fees, but the cost rarely exceeds $50 to $100, excluding refundable security deposits that some states require of new registrants.
State registration forms generally ask for your Federal Employer Identification Number, the legal name of the business as it appears on your formation documents, and the names and Social Security numbers of owners or principal officers.3Internal Revenue Service. Get an Employer Identification Number You will also need to identify the date you exceeded the economic nexus threshold, estimate your expected sales volume for the next twelve months, and provide your business address, contact information, and industry classification codes. Getting the nexus date right prevents the state from later questioning why taxes were not collected on earlier transactions.
Streamlined Registration for Multiple States
If you owe collection duties in several states, registering one state at a time is tedious. The Streamlined Sales Tax Registration System lets you register in all 24 participating states through a single free online application.4Streamlined Sales Tax Governing Board. Sales Tax Registration SSTRS Filing and payment still go directly to each individual state, and you must file returns even in periods where you had zero sales into a participating state. For states outside the Streamlined system, you register directly through each state’s own portal.
Filing Returns and Remitting
Once registered, you enter a recurring cycle of filing returns and sending in the tax you have collected. Each state assigns a filing frequency based on your sales volume: monthly for high-volume sellers, quarterly for mid-range sellers, and annually for low-volume sellers. You log into the state’s online portal, report your gross sales, taxable sales, and the amount of tax collected during the period, then submit payment electronically. Most states require payment through ACH transfer.
About half the states offer a small financial incentive for filing and paying on time, known as a vendor discount or collection allowance. These typically range from 0.25% to 5% of the tax collected and are meant to partially offset the administrative cost of acting as the state’s unpaid tax collector. The discount usually disappears if you file late.
After submitting the return and payment, the portal generates a confirmation number or downloadable receipt. Keep these records. They are your proof of compliance for that period, and you will need them if the state ever questions whether you remitted on time.
Exemption Certificates and Recordkeeping
Not every sale requires tax collection, even in states where you have nexus. Sales to wholesalers buying for resale, tax-exempt organizations, and certain government entities are typically exempt. To justify not collecting tax on those transactions, you must obtain a completed resale certificate or exemption certificate from the buyer before or at the time of sale. The certificate must include the buyer’s tax identification number and the specific reason for the exemption. Without it, you have no defense if an auditor flags the untaxed sale, and you will owe the tax out of your own funds.
Expiration periods vary. Some states treat certificates as valid indefinitely unless revoked in writing, others require annual renewal, and a few set windows of three to five years. Accepting an expired certificate is treated the same as having no certificate at all, so you need a system for tracking expiration dates and requesting updated documents from repeat buyers.
Retention requirements for sales tax records, including certificates, returns, and transaction-level data, generally run at least three to seven years depending on the state. Some states require you to keep exemption certificates and filed returns permanently. If a state suspects significant underreporting, the audit statute of limitations may extend, making longer retention a practical safeguard. Digital storage is standard, but make sure your system allows quick retrieval organized by state and transaction date.
If You’re Already Behind: Voluntary Disclosure Agreements
If you have been selling into a state for months or years without collecting tax, a voluntary disclosure agreement is often the best way to resolve the back liability. Most states offer VDA programs that waive penalties and sometimes reduce interest in exchange for the seller coming forward, registering, and paying the taxes owed for a limited lookback period. That lookback is typically three to four years, which can be far shorter than the full period of exposure if you have been selling into the state for longer.
The critical eligibility requirement is that the state must not have contacted you first. If you have already received an audit notice, a letter of inquiry, or any communication from the state about the tax type in question, you are generally disqualified. “Contact” is defined broadly and includes having filed a return or paid any amount of the tax. The Multistate Tax Commission runs a centralized VDA program that covers participating member states through a single application, which simplifies things when you owe back taxes in several states at once.5Multistate Tax Commission. Multistate Voluntary Disclosure Program States that do not participate usually have their own standalone VDA process.
Waiting to be caught is almost always more expensive. Without a VDA, you face the full lookback, penalties on every late filing, and compounding interest. The difference between proactive disclosure and an audit assessment can easily reach five or six figures for a mid-size remote seller.
Penalties and Interest
Failing to register, collect, or remit use tax when required carries escalating financial consequences. The most common structure is a percentage of the unpaid tax for each month the return is late, capped at a maximum. Many states impose 5% of the tax due per month of delinquency, up to a 25% maximum. Some states apply additional flat-dollar minimums on top of the percentage-based penalty.
Interest accrues separately and runs from the original due date until the tax is paid in full. Annual rates on delinquent sales and use tax vary by state and are often tied to the federal prime rate plus a margin, ranging from around 3% at the low end to 18% or more, and interest compounds over time. Unlike penalties, which are sometimes waived through VDA programs or reasonable-cause arguments, interest is rarely forgiven.
The financial risk is not limited to the tax itself. If you should have been collecting from customers but were not, you owe the full amount of uncollected tax out of your own revenue. You cannot go back to past buyers and retroactively charge them. For a business with significant out-of-state sales, years of uncollected tax plus penalties and interest can threaten solvency, which is why experienced accountants push remote sellers to address nexus obligations early rather than treating them as a problem for later.