Sales tax is charged by the seller at the point of sale, but the seller is only a collector: the money belongs to the state. A business must charge sales tax in any state where it has a sufficient connection, called nexus, and that state has a sales tax. Forty-five states impose a statewide sales tax, and in those states the seller is responsible for registering, calculating the right rate, collecting from the buyer, and sending the money to the state on schedule.1Tax Foundation. State and Local Sales Tax Rates, 2026 When no seller collects the tax on a taxable purchase, the buyer usually owes it directly as use tax.
Who actually has to charge sales tax falls into a few clear categories: businesses with a physical footprint in a state, remote sellers whose sales into a state cross a dollar threshold, online marketplaces collecting for their third-party sellers, and providers of certain taxable services and digital products. Casual sellers and the five states without a statewide sales tax sit outside this system.
Businesses With a Physical Presence
A business with a tangible footprint in a state has the oldest and clearest obligation to charge sales tax there. This connection, called physical nexus, is created by any real-world activity: running a storefront, leasing office space, keeping inventory in a warehouse, or even parking a delivery truck overnight. If a business occupies space or stores goods in a state that has a sales tax, that state expects it to register, collect, and remit.
People create nexus too. Employees working in a state, sales reps visiting customers, and independent contractors performing services on the business’s behalf all count. A company headquartered in Oregon with a single traveling salesperson covering Idaho has physical nexus in Idaho and must charge Idaho sales tax on those sales. The requirement kicks in before the first transaction, not after. Nearly every state requires a sales tax permit before selling begins.
Remote and Online Sellers
Until 2018, a business without a physical footprint in a state could sell there without charging that state’s sales tax. The Supreme Court changed that in South Dakota v. Wayfair, Inc., ruling that states can require remote sellers to collect sales tax once their sales into the state reach a certain volume, even without any physical presence.2Supreme Court of the United States. South Dakota v. Wayfair, Inc. The decision overturned decades of precedent and set off a wave of state legislation.
Nearly every state with a sales tax now enforces an economic nexus threshold. The most common trigger is $100,000 in gross sales into the state during a calendar year. Some states also set a transaction-count alternative, originally 200 separate sales, but roughly half have dropped the transaction test in recent years and now use the dollar figure alone. A handful of states set higher bars. California requires $500,000. New York requires $500,000 combined with at least 100 transactions. Alabama and Mississippi each set their threshold at $250,000. Once a seller crosses the applicable threshold, it must register with that state’s revenue department and start charging tax on sales into the state.
Ignoring these thresholds doesn’t make them disappear. States audit remote sellers and can assess taxes retroactively, plus interest and penalties that often exceed the original tax owed. If you sell online and ship to multiple states, tracking your sales volume in each state is an ongoing compliance task, not a one-time check.
Marketplaces That Collect for Their Sellers
If you sell through a large e-commerce platform like Amazon, eBay, or Etsy, the platform itself usually charges sales tax for you. Every state with a sales tax has enacted marketplace facilitator laws requiring these platforms to calculate, collect, and remit sales tax on behalf of their third-party sellers.3Tax Foundation. Marketplace Facilitator Laws: Past, Present, and a Better Future The platform takes on the collection and filing responsibility for sales made through its marketplace.
This is genuinely helpful for small sellers. Instead of registering in dozens of states and filing returns in each one, you can rely on the platform. But the relief only covers sales made through that marketplace. If you also sell through your own website, at craft fairs, or through wholesale channels, you’re still personally responsible for collecting and remitting tax on those sales. Sellers who use multiple channels need to track which transactions the platform covers and which ones they handle themselves.
Providers of Taxable Services and Digital Products
Sales tax isn’t limited to physical products. Many states tax certain services, though which ones vary widely. Landscaping, janitorial work, and auto repair are commonly taxed, especially when the provider bills labor and materials together. Admission fees for concerts, sporting events, and amusement parks also carry sales tax in many states.
Digital products are the fastest-growing category. Downloaded software is taxed in nearly every state that has a sales tax. Streaming subscriptions and software-as-a-service are catching up quickly. SaaS is now taxed in roughly half the states with a sales tax, and more states add it every year as they update laws originally written for physical merchandise. If your business sells digital products or subscription services, checking each state’s rules matters, because the landscape is changing quickly.
Professional services like legal advice, medical care, and financial consulting are exempt from sales tax in most states. Educational services, real estate commissions, and insurance also tend to be exempt. The line between a taxable technical service and an exempt professional service can be blurry, and getting it wrong means either overcharging customers or underreporting to the state.
Casual and Occasional Sellers
Selling your old couch on a classified site or holding a garage sale doesn’t automatically make you a tax collector. Most states provide a casual sale exemption for people who sell personal items infrequently. The logic is straightforward: you already paid sales tax when you bought the item, and a one-off resale of used goods isn’t a commercial enterprise.
The exemption has limits. Once your selling activity becomes regular enough to look like a business, whether that means selling frequently, buying items specifically to resell them, or generating significant revenue, states expect you to register for a permit and charge tax. The exact line between “occasional seller” and “business” varies. Some states count the number of sales events per year, others look at total revenue, and a few consider whether you’re buying inventory for resale. If you’re selling on eBay or Etsy regularly, the marketplace facilitator charges sales tax on those transactions, but that doesn’t relieve you of income tax obligations. Payment platforms and marketplaces must send you and the IRS a Form 1099-K when your gross payments exceed $20,000 and you complete more than 200 transactions in a calendar year.4Internal Revenue Service. IRS Issues FAQs on Form 1099-K Threshold Under the One, Big, Beautiful Bill That threshold returned to its pre-2021 level after the One, Big, Beautiful Bill reversed the lower $600 reporting floor.
When the Buyer Owes the Tax Instead
When you buy something and no seller charges sales tax, whether you ordered from an out-of-state retailer that doesn’t have nexus in your state or bought goods while traveling, you usually owe use tax directly to your home state. Use tax exists to close this gap. The rate is identical to your local sales tax rate, and the obligation falls on the buyer, not the seller.
In practice, most individuals don’t pay use tax on small purchases, and enforcement against consumers is difficult. But the legal obligation exists, and some states have made compliance easier by adding a use tax line to the state income tax return. For businesses, use tax compliance is more actively enforced. A company that buys office equipment online without paying sales tax should self-assess and remit use tax to its home state. Auditors look for exactly this kind of gap.
Five states have no statewide sales tax at all: Alaska, Delaware, Montana, New Hampshire, and Oregon. “No statewide sales tax” doesn’t always mean no sales tax anywhere in the state. Alaska allows its cities and boroughs to levy their own local sales taxes, and many of them do. In the 38 states that permit local sales taxes on top of a state rate, counties, cities, and special taxing districts add their own rates, so the combined rate a seller charges depends on the exact location of the sale.1Tax Foundation. State and Local Sales Tax Rates, 2026
What a Seller Has to Do Once the Duty Kicks In
Before you charge your first customer sales tax, you need a sales tax permit from each state where you have nexus. Most states issue permits for free or charge a nominal fee, and registration is typically done online through the state’s department of revenue. States assign each seller a filing schedule based on sales volume or tax liability. High-volume sellers file monthly, lower-volume sellers file quarterly or annually, and the thresholds differ by state. The most common due date for returns and payments is the 20th of the month following the reporting period, though some states use different dates.
Penalties for failing to collect or remit sales tax are steep. Late filing penalties typically start at 5% to 10% of the unpaid tax and increase for each month the return remains unfiled, often capping somewhere between 25% and 30%. Interest accrues on top of that, generally at annual rates between 7% and 14% depending on the state. Deliberately failing to collect the tax, or pocketing it instead of remitting it, carries the harshest consequences, including penalties that can reach double the unpaid tax amount.
The most important thing to understand about sales tax liability is that it’s personal. Sales tax is considered a trust fund tax: money you collected from customers that belongs to the state, not to your business. If a business fails to remit those funds, states can and do pursue the individual owners, officers, or managers responsible for the company’s finances. Shutting down the business doesn’t erase the debt. This personal exposure is where most business owners underestimate their risk, and it’s the single best reason to take sales tax compliance seriously from the first sale.