Sales Tax Basics for Online Sellers
Sales tax is a consumption tax imposed by state and local governments on the sale of goods and some services. As an online seller, you may be required to collect sales tax from buyers in states where you have "nexus" — a legal connection that triggers tax obligations.
What Is Nexus?
Nexus comes in two forms:
- Physical nexus: You have an office, warehouse, employees, or inventory stored in a state (e.g., an Amazon FBA warehouse storing your products in Texas gives you Texas nexus).
- Economic nexus: After the 2018 South Dakota v. Wayfair Supreme Court ruling, nearly every state can require online sellers to collect sales tax once they exceed a sales threshold — typically $100,000 in annual sales or 200 transactions in that state.
Economic Nexus Thresholds by State
| Threshold | States |
|---|---|
| $100,000 or 200 transactions | Most states (Alabama, Arizona, California, Colorado, Florida, Georgia, Illinois, Michigan, New York, Ohio, Pennsylvania, Texas, Virginia, Washington, and more) |
| $100,000 only | Massachusetts, North Carolina, Wisconsin, and others (dropped the 200-transaction threshold) |
| No sales tax | Alaska, Delaware, Montana, New Hampshire, Oregon |
Marketplace Facilitator Laws
If you sell on Etsy, Amazon, eBay, Walmart Marketplace, or Shopify Payments, you likely don't have to worry about collecting sales tax for marketplace sales — the platform does it for you.
Under marketplace facilitator laws (now in effect in every US state with sales tax), the marketplace is responsible for collecting and remitting sales tax on your behalf. This means:
- Etsy collects sales tax on all Etsy orders in every US state
- Amazon collects on FBA and Amazon-fulfilled orders
- eBay collects in all applicable states
Important: If you also sell through your own website or Shopify store (not Shopify Payments), you are responsible for collecting tax on those direct sales once you hit nexus thresholds.
How to Calculate Sales Tax on an Order
Sales tax is typically destination-based — you charge the rate for the buyer's ship-to address. Use the Sales Tax Calculator to look up the rate for any US state and calculate the tax on any sale amount.
Example: A buyer in California (7.25% state rate, plus local district taxes averaging ~2%) buys a $50 item.
- State sales tax: $50 × 7.25% = $3.63
- Local district taxes vary — most of California is 8.25%–10.25%
- At 9.5% total: $50 × 9.5% = $4.75 tax
Steps to Get Sales Tax Compliant
- Determine your nexus states. Start with your home state (always nexus) and any state where you store inventory or have employees.
- Check economic nexus thresholds. Review your sales data to see if you've crossed $100K or 200 transactions in any state.
- Register for a sales tax permit in each nexus state before you start collecting. Collecting without a permit is illegal in most states.
- Set up tax collection in your shopping cart/store platform.
- File and remit. File sales tax returns on the schedule each state requires (monthly, quarterly, or annually depending on your sales volume).
Free Sales Tax Tools
- Sales Tax Calculator — calculate tax for any US state
- Etsy Profit Calculator — model fees and taxes on Etsy sales
- Shopify Profit Calculator — account for all costs on Shopify sales