US Sales Tax for Online Stores: A Simple Guide

US sales tax for online stores works state by state: there is no federal sales tax, and you must collect a state's tax only when you have "nexus" there, either a physical presence or enough sales into that state. Once you have nexus, you register with that state, charge the right rate at checkout, and file returns on time. This guide explains each step simply.

Key takeaways

• No federal sales tax; most states, and many cities and counties, set their own.
• Since the 2018 Supreme Court case South Dakota v. Wayfair, states can require tax from remote sellers who pass an economic threshold.
• Thresholds differ by state; many use a yearly sales amount, and some also count transactions.
• Marketplaces such as Amazon and Etsy usually collect tax on your marketplace sales, but not on your own website.
• Tax rules change. Confirm your situation with a US accountant; this is general information, not tax advice.

What is nexus?

Nexus is the connection that gives a state the right to require you to collect its sales tax. There are two main types:

• Physical nexus: an office, warehouse, employees or stored inventory in the state. Inventory in a fulfilment warehouse can count.
• Economic nexus: your sales into the state pass its threshold within a year, even with no physical presence.

A handful of states have no statewide sales tax, and some of those still allow local taxes. Always check the current list on each state's revenue department website.

The steps once you have nexus

1. Register for a sales tax permit with the state before you start collecting. Collecting tax without a permit is not allowed in most states.
2. Configure your checkout to charge the correct rate. Rates can depend on the exact delivery address, not just the state.
3. Know what is taxable. Some states treat clothing, food or digital products differently.
4. File and pay on the schedule the state gives you: monthly, quarterly or yearly. Many states expect a return even when you collected nothing.
5. Keep records of every order, address, rate and exemption certificate.

Marketplace sales vs your own website

Most states have "marketplace facilitator" laws: the marketplace collects and pays the tax on sales made through it. Sales on your own website are your responsibility. Many states still count marketplace sales toward your economic threshold, so track both.

Tools that make it easier

You do not need to calculate rates by hand. Shopify Tax, Stripe Tax, TaxJar and Avalara can calculate the rate at checkout, show where you are close to a threshold and help with filing. On a custom store, we connect one of these services through its API so every order gets the right rate automatically.

Common mistakes

• Assuming that a company in a no-sales-tax state never needs to collect anywhere.
• Forgetting that warehouse inventory can create physical nexus.
• Charging tax before registering, or registering and then not filing.
• Using one flat rate for a whole state when local rates apply.

Frequently asked questions

I sell from outside the US. Does this apply to me?

It can. Economic nexus is about sales into a state, not where the seller lives. Ask a US tax professional to review your sales by state.

Does Canada work the same way?

No. Canada uses GST/HST and provincial taxes, and the rate usually depends on the province of delivery. See our e-commerce service in Canada for what a Canadian store needs.

Next step

For the full picture of launching in the US, read how to open an online store in the USA as an Arab entrepreneur. If you want a store with tax-ready checkout, see our e-commerce service in the USA or contact us.