Sales tax applies to anyone selling taxable goods, and in some cases services, in the 45 states and the District of Columbia that impose one. Sellers collect it, buyers actually pay it, and a narrow set of purchasers, including government agencies, qualifying nonprofits, and businesses buying inventory for resale, are excused. Whether you personally have a collection duty depends on where you sell, how much you sell there, and whether a platform is already handling it for you.1Forty-five states and the District of Columbia impose a sales tax; five states charge none.
The Five States That Don’t Charge Sales Tax
Alaska, Delaware, Montana, New Hampshire, and Oregon impose no statewide sales tax. A business operating entirely within one of those states and shipping nothing out of state generally has no state-level collection duty. Alaska is a partial exception: the state itself charges nothing, but some local governments there levy their own sales taxes. Everywhere else, the rules below apply.
Sellers with a Physical Presence
The oldest trigger for a collection obligation is physical nexus, meaning a tangible footprint inside a taxing state. A retail store, leased office space, a warehouse, or even a single employee working remotely in a state can create that connection. Companies that store inventory in third-party fulfillment centers establish physical nexus in those locations too, sometimes without realizing it. Amazon’s FBA program and similar fulfillment networks routinely move inventory across warehouses in multiple states, and each storage location can independently trigger a collection duty.
Temporary activity counts. Selling merchandise at a trade show can create nexus, and the specific rules vary widely by jurisdiction. Some states require a permit for a single day of activity; others allow up to 15 days within a 12-month window before registration is required. Sellers that should have registered but didn’t can face audits reaching back several years, plus interest and penalties.
Remote Sellers and Economic Nexus
Until 2018, a state generally couldn’t require a business to collect sales tax unless it had a physical presence there. The Supreme Court’s decision in South Dakota v. Wayfair overruled that precedent, and every state with a sales tax has since adopted an economic nexus standard that turns on how much business a remote seller does within the state.
The most common threshold is $100,000 in annual sales into the state, matching the benchmark from the original South Dakota law. A few larger-economy states set it at $250,000 or $500,000. Many states originally added a second trigger of 200 or more transactions per year, but more than a dozen have dropped that transaction count since 2019, focusing solely on dollar volume. As a result, a business making many low-dollar sales may no longer trigger nexus in those states, while a business making a few high-value sales still can.
The obligation to register and collect starts the moment you cross a threshold. Tax authorities use shipping data and payment processor records to identify sellers who didn’t, and assessments can reach back years.
Sellers on Marketplace Platforms
If you sell through a major e-commerce platform, the platform is almost certainly handling sales tax for you. Every state with a sales tax now has a marketplace facilitator law requiring platforms that host third-party sellers to calculate, collect, and remit sales tax on transactions processed through their sites. The platform is the legally responsible party, and the platform faces the audit if the tax is wrong.
For a small vendor listing products on one of these platforms, that often eliminates the need to register in every state where a customer happens to live. Sellers who also run their own standalone website or sell in person still carry their own duties for those channels.
Buyers Pay, and Use Tax Fills the Gap
The person who actually pays sales tax is the buyer. Sellers collect it, but the cost lands on the consumer at checkout, whether in a store or online. Retailers must show the tax as a separate line on the receipt.
When a seller doesn’t collect the tax, the buyer’s obligation doesn’t disappear. Nearly every state with a sales tax also imposes a companion levy called use tax, which covers purchases where sales tax wasn’t charged at the point of sale. The classic example is an online purchase from a vendor with no nexus in your state, though marketplace facilitator laws have made that situation less common. Use tax also applies when you buy something out of state and bring it home, or when you buy an item tax-free for resale and then use it yourself. Many states include a use tax line on their income tax return, though individual consumer compliance has historically been low.
Who Is Exempt
Certain buyers are excused from paying sales tax, but the exemptions are less automatic than many people assume.
Government Agencies
Federal, state, and local government entities generally don’t pay sales tax on purchases made for public use. The seller needs proper documentation, usually a government purchase card or exemption certificate, before leaving the tax off the invoice.
Nonprofits and Religious Organizations
A widespread misconception is that federal 501(c)(3) status automatically exempts an organization from sales tax. It does not. Section 501(c)(3) grants exemption from federal income tax; sales tax is a state-level obligation, and each state sets its own rules for which organizations qualify. Some states grant broad exemptions to charities and religious institutions. Others offer no sales tax break to nonprofits at all, treating them the same as any other buyer. Organizations that do qualify usually have to apply separately with their state revenue department and present a valid exemption certificate at the time of purchase. Assuming you’re exempt without checking your state’s rules is one of the most common nonprofit compliance mistakes.
Businesses Buying for Resale
Businesses buying inventory they intend to resell don’t pay sales tax on those purchases. The tax is meant to be collected once, at the final retail sale to the end consumer. To claim the exemption, the buyer gives the supplier a resale certificate stating that the goods are for resale rather than personal use. If the business later diverts that inventory to its own use, it owes the tax itself.
Occasional and Casual Sellers
Selling a used couch online or running a garage sale usually doesn’t put you on the hook for collecting sales tax. Most states have some version of an occasional or casual sale exemption, which excuses individuals who aren’t in the regular business of selling taxable goods. Thresholds and definitions vary, but the core idea is consistent: a person making isolated, sporadic sales of personal property isn’t treated as a retailer. Once the activity starts looking like a business, by frequency, volume, or the nature of the goods, the exemption falls away and you register like any other seller.
What Gets Taxed Beyond Physical Goods
Sales tax historically targeted tangible personal property, and physical goods remain the core of most states’ tax bases. Two other categories catch sellers and buyers off guard.
Services
Most states don’t tax services by default. Only four states take the opposite approach, taxing services unless specifically exempted. The rest tax only the services they’ve individually listed in their tax code, which means the same service can be taxable in one state and exempt in the next. Repair and maintenance work, landscaping, janitorial services, and data processing are common targets. Professional services like legal advice, accounting, and medical care are exempt in the vast majority of states. If you sell services, check whether your specific service is enumerated in each state where you have nexus.
Digital Products and Software
Digital products sit in an awkward middle ground. Downloaded music, e-books, streaming subscriptions, and software don’t fit neatly into a tax code written for physical merchandise. Roughly half of U.S. jurisdictions now tax some form of digital goods, and about 25 tax software-as-a-service specifically. Treatment often depends on whether the product ships on physical media, downloads to the buyer’s device, or lives in the cloud, and the same state can reach different results for each delivery method. The number of taxing states is likely to keep growing.
Filing, Remittance, and Personal Liability
Collecting the right amount is only half the job. Sellers also file returns and remit the collected funds on schedule, with filing frequency ranging from monthly to annually depending on sales volume in each state. Late filings carry penalties, and interest accrues on top of that. Because sales tax is considered money held in trust for the government rather than the business’s own revenue, failing to remit collected tax is treated more seriously than most other tax delinquencies. In many states, responsible officers and owners can be held personally liable for unremitted sales tax even when the business is a corporation or LLC.