Sales Tax Obligations for Online Businesses

Online sellers used to be able to avoid collecting sales tax in states where they had no physical presence — a landmark Supreme Court decision changed that, and the resulting rules can be genuinely complex for growing businesses.

The Shift to Economic Nexus

Following the Supreme Court's 2018 decision in South Dakota v. Wayfair, states can now require out-of-state sellers to collect sales tax based on "economic nexus" — reaching a certain volume of sales or transactions in that state — even without any physical presence there.

Every state that imposes sales tax has set its own specific thresholds, meaning a growing online business can trigger collection obligations in multiple states as sales increase, often without a single clear moment when that obligation begins.

Determining Where You Need to Collect

Businesses generally need to track sales by state and compare them against each state's specific economic nexus thresholds, which commonly involve a dollar amount, a transaction count, or both.

Marketplace facilitator laws in many states now shift the collection responsibility to platforms like major online marketplaces for sales made through those platforms, though sellers using their own website generally remain directly responsible.

Registration and Ongoing Compliance

Once nexus is triggered in a state, a business generally must register for a sales tax permit there, begin collecting the correct rate (which can vary by product category and even by locality within a state), and file returns on that state's schedule.

Sales tax automation software has become common for growing online businesses specifically because manually tracking rates and obligations across many states is impractical without it.

Frequently Asked Questions

Do I owe sales tax in every state I ship to?

Only in states where you've met that state's specific economic nexus threshold, or where you have a physical presence — not automatically in every state.

Does selling through a marketplace like an online platform change my obligations?

Often yes — many marketplace facilitator laws shift collection responsibility to the platform for sales made through it, though your own website sales are typically still your responsibility.

Multi-state sales tax compliance has become a genuine burden for growing online businesses. An accountant or tax attorney can help you determine where you owe and set up a system to stay compliant.