Sellers use tax is the tax an out-of-state business collects on goods shipped into a state where it has no physical location, and you’re required to collect it once your sales into that state cross its economic nexus threshold, most commonly $100,000 a year. To the buyer, it looks identical to regular sales tax on the receipt. The legal obligation to collect the money and send it to the state falls on the remote seller. Since the Supreme Court’s 2018 decision in South Dakota v. Wayfair, nearly every state with a sales tax can impose this obligation on sellers with no physical presence inside its borders.1Supreme Court of the United States. South Dakota v. Wayfair, Inc.
How It Differs From Sales Tax and Consumer Use Tax
Regular sales tax applies when a business with a physical presence in a state, such as a storefront, warehouse, or office, sells to a local customer. Sellers use tax covers the same transaction economically, but it applies when the seller sits outside the buyer’s state and ships the goods in. The distinction matters mostly to the revenue department tracking which businesses owe what. The buyer pays the same amount either way.
Consumer use tax is the third piece and catches what falls through. If you buy something from an out-of-state seller who doesn’t collect any tax, you technically owe that tax yourself and are supposed to report it on your state return. Most individuals don’t, which is exactly why states pushed hard to make remote sellers do the collecting. The whole post-Wayfair framework exists to shift that burden onto sellers, who can be tracked and audited.
When You Have To Start Collecting
Before 2018, a business only had to collect sales tax in states where it had a physical presence: employees, inventory, a retail location. South Dakota v. Wayfair overturned that rule and let states require collection based on economic activity alone.2Congress.gov. State Sales and Use Tax Nexus After South Dakota v. Wayfair The South Dakota law at the center of the case used thresholds of $100,000 in gross sales or 200 separate transactions in a calendar year, and most states initially copied those numbers.1Supreme Court of the United States. South Dakota v. Wayfair, Inc.
The rules have shifted since. A growing number of states have dropped the 200-transaction threshold entirely and now rely only on a dollar test. As of early 2026, roughly half the states with economic nexus laws use a sales-dollar threshold alone, most commonly $100,000. A handful set the bar higher: California and Texas at $500,000, Alabama and Mississippi at $250,000. A small seller running high-volume, low-dollar transactions is less likely to trip a threshold today than under the original Wayfair-era rules.
Five states impose no general sales tax at all: Alaska, Delaware, Montana, New Hampshire, and Oregon. Alaska is a partial exception. There’s no state-level sales tax, but some local jurisdictions collect their own, and a remote seller sales tax commission administers collection for participating localities. For the other four, sellers use tax simply doesn’t apply.
Not monitoring your sales into each state is where businesses run into real trouble. Revenue departments track shipping records, payment processor data, and marketplace reports. Blow past a threshold without registering and you’re accumulating a liability that grows with interest every month. Back taxes discovered during an audit don’t come with a warning period. You owe from the date you should have started collecting.
What Marketplace Sales Change
If you sell through Amazon, eBay, Etsy, Walmart Marketplace, or a similar platform, you may not need to collect sellers use tax on those transactions at all. Every state that imposes a sales tax has enacted marketplace facilitator laws that shift the collection and remittance duty from the individual seller to the platform. The marketplace calculates the tax, adds it to the buyer’s total, and sends it to the state.
This is the single most misunderstood area of sellers use tax. Many small sellers spend time and money setting up tax collection on marketplace sales the platform is already handling. If you sell exclusively through a marketplace facilitator, your compliance burden drops sharply. It gets complicated when you also sell through your own website, at trade shows, or through other direct channels. Those sales are your responsibility, and the economic nexus thresholds still apply to them. Some states count marketplace sales toward your nexus threshold even when the marketplace collected the tax, so you may trigger a registration requirement in a state where you’ve never personally collected a dime.
Registering Before You Collect
Once you’ve crossed an economic nexus threshold, you need to register for a sales tax permit in that state before you start collecting. Most states offer online registration through the department of revenue website. You’ll typically provide your Federal Employer Identification Number (or Social Security number for sole proprietors), legal business name, entity type, contact information, and an estimated start date for sales into the state.3Internal Revenue Service. Get an Employer Identification Number Many states also ask for projected sales volume to set your filing frequency.
If you need to register in several states at once, the Streamlined Sales Tax Registration System offers a single free application covering all 24 participating member states.4Streamlined Sales Tax Governing Board, Inc. Sales Tax Registration SSTRS You pick which states you need, complete one form, and each state processes your registration individually. Returns still get filed directly with each state. Not every state participates, so you’ll likely need to register directly with some regardless.
Collecting tax without a valid permit is illegal in most states, and so is failing to register once you’ve hit the threshold. In most states, applying for a permit is free.
Charging the Right Amount
Most states use destination-based sourcing, meaning you charge the sales tax rate where the buyer receives the goods rather than where your business sits. About a dozen states use origin-based sourcing for their in-state sellers, but even those states generally require remote sellers to use destination-based rules. For sellers use tax purposes, you’re almost always looking at the buyer’s address.
Combined state and local rates typically fall between about 4% and 10%, though a few jurisdictions push above 10% once county and city rates stack. That rate can change at the street level. One side of a city boundary may carry a different local surcharge than the other. Manually tracking thousands of local tax jurisdictions is not realistic for a business selling nationwide, which is why automated tax calculation software earns its keep.
Common Exemptions
Not everything is taxable. Most states exempt prescription medications. A majority fully or partially exempt groceries. A smaller group exempts clothing, at least below a dollar threshold. The specific mix varies enormously by state. Charging tax on an exempt item creates a refund obligation. Failing to charge tax on a taxable item creates a liability you absorb yourself.
Resale Certificates
When another business buys from you intending to resell the goods, the transaction is generally exempt from sales tax. The buyer provides a resale certificate documenting that intent. Keep these on file. During an audit, a missing resale certificate means you’ll owe the tax on that transaction as if it were a retail sale. Verify certificates at least annually, because one from a business that has lost its sales tax permit won’t protect you.
Digital Goods and SaaS
Physical products are the traditional territory of sellers use tax, but digital goods and software-as-a-service subscriptions increasingly fall under the same rules. As of 2026, roughly 25 jurisdictions tax SaaS in some form, while others explicitly exclude it. The rules vary not just state to state but sometimes city to city, and a few states distinguish between business customers and individual consumers when deciding whether SaaS is taxable.
If you sell downloaded software, streaming access, e-books, or cloud subscriptions, assume nothing about taxability. One state may tax streaming video but not cloud storage. Another may tax SaaS sold to consumers but exempt it when sold to businesses. Professional tax guidance pays for itself quickly here, because the rules change faster than most sellers can track.
Filing, Paying, and Keeping Records
After collecting tax, you report and remit it through each state’s online filing portal. A typical return asks for total gross sales into the state, tax collected, and any deductions for exempt sales. Filing frequency depends on your sales volume: high-revenue sellers usually file monthly, mid-range sellers quarterly, and very low-volume sellers annually. States assign your frequency when you register and adjust it if sales change.
Timely filing matters more than most sellers realize. Penalties for late filing or late payment commonly run 5% to 25% of the unpaid tax, depending on the state and how late you are. Some states impose a minimum penalty of $50 to $100 regardless of how small the amount owed. Interest accrues on top. About half the states also offer a vendor discount, a small percentage of the tax collected that you keep as compensation for the administrative work. These discounts, typically 1% to 3% of the tax due, only apply when you file and pay on time.
Even if you had zero sales in a state during a filing period, you still need to file a return showing no activity. Skipping a zero-dollar return can trigger delinquency notices and eventually lead the state to estimate what you owe, which is never in your favor.
Keep every invoice, receipt, resale certificate, exemption document, and filed return for at least three to four years from the filing date. That window matches the statute of limitations most states use for sales tax audits. Some states allow longer lookback periods in cases of fraud or failure to file, so keeping records longer is smart.
Fixing Past Non-Compliance
If you discover you should have been collecting sellers use tax in a state but weren’t, coming forward voluntarily is almost always better than waiting to be caught. Most states offer voluntary disclosure agreements that typically waive penalties in exchange for paying the back taxes and interest for a limited lookback period, often three to four years. Being discovered during an audit usually means the full penalty applies with no negotiating room.
The Multistate Tax Commission runs a Multistate Voluntary Disclosure Program that lets you resolve liabilities in several states through one coordinated process rather than approaching each state individually.5Multistate Tax Commission. Multistate Voluntary Disclosure Program For a business that has been selling into a dozen states without collecting tax, the centralized approach saves substantial time and often produces better outcomes than piecemeal negotiations.
One caveat matters here: if you collected tax from customers but failed to remit it to the state, voluntary disclosure offers far less leniency. States treat collected-but-unremitted tax as theft of government funds, and both the lookback period and penalty exposure are significantly worse.