How do I handle sales tax for online sales across multiple states?
The 2018 Supreme Court ruling in South Dakota v. Wayfair changed everything for online sellers. Before that case, you only had to collect sales tax in states where you had a physical presence. Now, states can require you to collect and remit sales tax based on economic activity alone. This is called economic nexus, and it means that selling enough into a state triggers a sales tax obligation even if you never set foot there.
Most states set their economic nexus threshold at $100,000 in sales or 200 transactions within the state during a calendar year. Some states have dropped the transaction count and only use the dollar threshold. Arizona, for example, currently uses a $100,000 threshold. The tricky part is that every state sets its own rules, rates, filing frequencies, and product taxability categories. What’s taxable in one state might be exempt in another.
The practical steps look like this. First, figure out where you’re making sales and which states you’ve crossed the threshold in. Your e-commerce platform should have reporting that breaks down sales by state. Once you know where you have nexus, register for a sales tax permit in each of those states. Do not collect sales tax in a state where you’re not registered because that creates its own problems.
After registration, configure your checkout system to collect the right rate. Most states use destination-based sourcing, meaning the tax rate is based on where the buyer is located. Sales tax automation tools like TaxJar or Avalara integrate with platforms like Shopify and WooCommerce to handle rate calculation automatically. Trying to manage rates manually across dozens of states is not realistic.
If you sell through marketplaces like Amazon or Etsy, those platforms act as marketplace facilitators and collect sales tax on your behalf in most states. You still need to understand where you have nexus for sales made through your own website, and you may still need to file returns in states where the marketplace collected on your behalf depending on that state’s rules.
Filing is where things get tedious. Each state has its own return, its own due dates, and its own portal. Some states want monthly filings, others quarterly or annually, usually based on your sales volume in that state. Missing a filing deadline means penalties and interest even if the amount owed is small.
The bookkeeping side matters just as much as the compliance side. Sales tax collected is not revenue. It’s a liability you’re holding until you remit it to the state. Your books need to track what’s been collected and what’s been paid so the numbers stay accurate. Working with a small business accounting firm that understands multi-state sales tax keeps your records clean and helps you avoid surprises when it’s time to file.
Start by identifying your nexus states today. The longer you wait after crossing a threshold, the more back liability you accumulate and the harder cleanup becomes.
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