Sales Tax Basics for Online Sellers in the US
If you sell online to customers in the US, sales tax can feel like a maze of states, rates and rules. The good news is that the core ideas are simple once you see how they fit together. This explainer walks you through nexus, the 2018 Wayfair decision, marketplace collection, registration and filing, so you know which questions to ask and when to bring in a professional.
Key takeaways
- US sales tax is set by states and often local governments, not by the federal government, so rules differ from state to state.
- You generally have to collect a state's sales tax only if you have nexus there, a meaningful connection such as a physical presence or enough sales.
- Since the 2018 Wayfair decision, states can require remote sellers to collect once they pass economic nexus thresholds, which vary by state.
- Many marketplaces collect and pay sales tax on sellers' behalf, but you may still have duties for sales on your own website.
- Register before you collect, keep clean records and file on the schedule each state gives you.
Picture a small online shop. A customer in one state buys a mug, another in a different state buys a print, and a third buys a digital download. Each sale might be treated differently for sales tax, depending on where the buyer is, what the product is and whether the shop has a connection to that state.
It sounds like a lot, but most small sellers only need to understand a handful of ideas and then apply them consistently. Late March is a good moment to tidy this up: tax season is in full swing, and you will already be pulling sales reports for your income tax return, which for many US businesses is due by 15 April 2027.
A quick note: this article is general information about US sales tax, not tax or legal advice. Sales tax rules, rates and thresholds change and vary by state, so check each state's tax department website and talk to a tax professional about your own situation.
What sales tax is and who pays it
Sales tax is a tax on the sale of goods and some services to the final customer. The customer pays it, but the seller usually collects it at checkout and sends it to the state. That makes you, the seller, the tax collector. If you should have collected and did not, the state may come to you for the money, even though you never kept it.
There is no national sales tax in the US. Instead, most states have a statewide sales tax, and many cities, counties and special districts add their own local rates on top. A handful of states have no statewide sales tax, though local taxes can still apply in some of them.
Sales tax vs VAT
If you are used to VAT in the UK or Europe, note the difference. VAT is charged at each stage of the supply chain, with businesses reclaiming the VAT they pay. US sales tax is generally charged only on the final retail sale. A UK or EU seller selling to US customers may still need to think about US sales tax, because nexus rules can apply to sellers based outside the US too.
Nexus: when you have to collect
Nexus is the connection between your business and a state that gives the state the right to make you collect its sales tax. There are two main types.
Physical nexus
You usually have physical nexus in a state where you have an office, a warehouse, inventory, employees or sometimes even contractors or trade show sales. If you store stock in a third-party fulfillment warehouse, that inventory may create nexus in the state where it sits.
Economic nexus
Economic nexus is based on how much you sell into a state, even if you have no physical presence there. This is where the Wayfair decision comes in.
Each state sets its own threshold, typically based on sales revenue into the state, and some also used a count of transactions. Some states measure the current year, others the previous year, and some count marketplace sales toward the threshold while others do not. Because these details differ and change, check each state's official guidance rather than relying on a list you found online.
Common mistake
Assuming you only owe sales tax in your home state. Once your sales into another state pass its economic nexus threshold, you may need to register and collect there too. Track sales by state from day one so you can see thresholds coming.
Marketplaces vs your own website
Where you sell changes who collects the tax.
Marketplace sales
Many states have marketplace facilitator rules, which make large online marketplaces collect and pay sales tax on behalf of the sellers who use them. If you sell through such a marketplace, it may handle sales tax on those orders for you. Check your seller dashboard or the marketplace's help pages to confirm which states it covers.
Your own website and other channels
Sales through your own online store, social media checkouts, invoices or in-person events are usually your responsibility. Your e-commerce platform may calculate tax at checkout, but you typically still need to register, configure the correct states and file the returns yourself.
Example
Imagine Jenna, who sells handmade soap from her home state. Most of her orders come through a marketplace that collects sales tax for her in many states. She also runs her own website, and sales there to one neighboring state have grown steadily. When she checks that state's rules, she finds her direct and marketplace sales together are approaching its threshold. She plans to register there before she crosses it, then turns on tax collection for that state in her website settings. (This is a made-up scenario for illustration. Each state's counting rules differ.)
What is taxable, and at what rate?
Once you know where you must collect, you need to know what to charge. Two questions matter: is the product taxable in that state, and what rate applies to that customer?
Taxability varies by product
Most physical goods are taxable in most states that have a sales tax, but there are many exceptions. Groceries, clothing, medicine, digital products, software subscriptions and services are treated differently from state to state. Shipping charges can be taxable in some states and not others. Look up how each of your product types is treated in every state where you collect.
Rates depend on location
Many states use destination-based sourcing for remote sales, meaning you charge the rate where the customer receives the item, including local rates. Some states use origin-based rules for sellers located within them. Because local rates can differ even between neighboring towns, most online sellers rely on checkout software that calculates rates by address rather than a manual table.
Exempt sales
Some buyers do not pay sales tax, such as resellers who will sell your product on, or certain nonprofits. They usually give you an exemption or resale certificate. Keep a copy on file for every exempt sale, because if you are audited and cannot produce it, you may owe the tax.
Pro tip
Assign every product in your store a tax category, such as "general goods," "clothing" or "digital download." Most e-commerce platforms let you do this, and it helps the checkout apply the right treatment in each state.
Registering, collecting and filing
Here is the basic routine for each state where you have nexus.
- Register for a sales tax permit. Apply through the state's tax department before you start collecting. Collecting tax without a permit can cause problems in some states.
- Turn on collection in your checkout. Add the state in your e-commerce settings and test a few addresses to confirm rates look right.
- Keep the tax separate. Sales tax you collect is not your income. Many sellers move it to a separate bank account so it is ready when returns are due.
- File on the assigned schedule. States usually assign a filing frequency, such as monthly, quarterly or annually, based on your sales volume. Some require a return even if you had no sales.
- Pay on time. Late filing and late payment can lead to penalties and interest.
- Review nexus regularly. Check your sales by state every quarter to spot new thresholds approaching.
A sales tax tracker template
Copy this table into a spreadsheet and keep one row per state. The figures below are made-up examples, not real thresholds or rates.
| State | Nexus type | Direct sales this year (example) | Threshold to check | Registered? | Filing frequency | Next due date |
|---|---|---|---|---|---|---|
| Home state | Physical | $48,000 | Not needed (physical presence) | Yes | Quarterly | Set from state notice |
| Neighboring state A | Economic (approaching) | $31,000 | Check state website | In progress | To be assigned | Not yet |
| State B | None yet | $4,500 | Check state website | No | N/A | N/A |
Common mistake
Spending the sales tax you collected. It lands in your account with everything else, so it can feel like revenue. When the return is due, the money is gone. Sweep collected tax into a separate account weekly or monthly.
What to do if you are behind
Many small sellers discover they should have been collecting in a state for a while. Do not panic, and do not ignore it.
- Work out roughly when you crossed the threshold and how much you sold there since.
- Register now so you collect correctly from here on.
- Ask a tax professional about voluntary disclosure programs, which many states offer to sellers who come forward before being contacted. These can reduce penalties.
- Keep good records of everything you find and every step you take.
Your sales tax action checklist
- List every state where you have physical presence, staff or stored inventory
- Run a report of sales by state for this year and last year
- Check each relevant state's economic nexus threshold on its official site
- Confirm which states your marketplaces collect in for you
- Register for a permit before collecting in any new state
- Assign tax categories to every product in your store
- Collect exemption or resale certificates for exempt buyers
- Move collected sales tax into a separate account
- Put every filing due date in your calendar
- Review nexus every quarter
Frequently asked questions
Do I need to collect sales tax if I only sell on marketplaces?
In many states, marketplace facilitator rules mean the marketplace collects and pays on your behalf for those sales. You may still need to register in some states or handle other channels yourself, so confirm each state's rules and your marketplace's coverage.
Do digital products and services need sales tax?
It depends on the state. Some tax digital downloads, software or certain services, while others do not. Check each state's guidance for your specific product type.
I am based in the UK or EU. Do US sales tax rules apply to me?
They can. Economic nexus is based on sales into a state, not where you are based. If your US sales are growing, review state thresholds and talk to a professional who understands US sales tax for foreign sellers.
What happens if I charge the wrong rate?
If you undercharge, you may owe the difference to the state. If you overcharge, you may have to refund customers or pay the extra to the state. Address-based calculation in your checkout reduces both risks.
Related reading
The bottom line
Sales tax for online sellers rests on a few ideas: you collect where you have nexus, Wayfair means sales alone can create nexus, marketplaces often collect for you, and everything else, from taxability to rates and filing schedules, is set state by state. Track sales by state, register before you collect, keep the tax separate and file on time.
Block out an hour this week to run a sales by state report and fill in the tracker. Once you can see where you stand, sales tax becomes a routine admin task instead of a worry in the back of your mind.
