A business that ships beyond its home state can owe sales tax obligations in places it has never visited. The rules changed substantially after the Supreme Court's 2018 Wayfair decision, and many small sellers still operate as if they had not.
Understand nexus
- Physical nexus: employees, inventory, offices, or property in a state.
- Economic nexus: sales into a state above its threshold, regardless of physical presence.
- Other triggers can include affiliates, events, and use of in-state contractors.
Economic nexus thresholds are set by each state. A common structure is a dollar amount of sales into the state, and some states also use a transaction count. Thresholds and measurement periods differ and change, so check each state's current rule instead of relying on a single national number.
Marketplace facilitator rules
Most states have marketplace facilitator laws under which the marketplace, such as Amazon or Etsy, collects and remits tax on sales it facilitates. This does not always remove your obligations: sales through your own website or other channels may still be yours to handle, and some states require registration or filings even when the marketplace collects.
Taxability and rates differ
- Whether a product or service is taxable varies by state.
- Rates can combine state, county, and city taxes.
- Some states tax based on the seller's location, others on the destination.
- Exemptions, such as for resale, require certificates on file.
A compliance process that works
- 1Export sales by state for the past few years, including channel.
- 2Compare each state's totals to its economic nexus rules.
- 3List states where you have physical presence.
- 4Register in states where you have nexus, before collecting.
- 5Configure your cart or software to collect correct rates, and verify the setup.
- 6File returns on each state's schedule and keep proof of filing.
- 7Collect and retain exemption certificates for wholesale customers.
- 8Review nexus every quarter as sales grow.
Past exposure
If you crossed a threshold earlier and did not register, you may owe tax for prior periods. Many states have voluntary disclosure programs that can limit lookback and penalties for businesses that come forward first. See sales tax filing services. For online sellers specifically, read ecommerce accounting services.
Keep it in the books
Track sales tax collected and payable by state in your accounting system and reconcile it to filings. Monthly reconciliation catches errors long before an audit.
Our sales tax compliance service reviews nexus, registers you, and files returns. To talk about your sales tax compliance, bring a sales-by-state report. This article is general information, and state rules change often.
