Whether you collect sales tax depends on where your customers are and where you do business
You must collect sales tax on online sales if you have nexus in the state where the customer lives. Nexus means you have a significant connection to that state — usually a physical location, employees, inventory, or in most states now, enough sales revenue. The rule changed in 2018 when the U.S. Supreme Court ruled in South Dakota v. Wayfair that states can require online sellers to collect tax even without a physical presence.
If you have no nexus in a state, you do not collect tax on sales to customers there. The customer is technically responsible for paying use tax themselves, but most do not. Your responsibility ends at the state line.
The practical effect: if you sell online from your home in Ohio to a customer in Ohio, you collect Ohio tax. If that same customer lives in California, whether you collect depends on whether you meet California's nexus rules.
Key Takeaways
- Physical presence — a warehouse, office, or employee in a state — creates nexus and requires you to collect tax there.
- Most states now have a sales revenue threshold (often $100,000 to $500,000 per year) that creates nexus even without physical presence.
- The threshold amount and the exact revenue test vary by state, so you may owe tax in some states but not others at the same sales level.
- You collect tax at the rate where the customer receives the product, not where you are located or where the order is placed.
- Marketplace platforms like Amazon and eBay collect tax on your behalf in most states, but you remain responsible if you sell through your own website.
Physical presence creates automatic nexus
If you have a warehouse, office, retail store, or any other real property in a state, you have nexus there and must collect sales tax on all sales to customers in that state. You also have nexus if you have employees working in that state, even part-time or remote workers who happen to live there.
Inventory stored in a fulfillment center or third-party warehouse creates nexus in that state. If you use Amazon FBA (Fulfillment by Amazon) and Amazon stores your products in a warehouse in Texas, you have nexus in Texas and must collect tax on all Texas sales.
Some states treat independent contractors or sales representatives as creating nexus. If you pay someone in a state to solicit orders or make sales on your behalf, check that state's rules — some will hold you responsible for tax collection.
Sales revenue thresholds vary by state
After the Wayfair decision, states began setting revenue thresholds that trigger tax collection duties for remote sellers with no physical presence. If your total sales into a state exceed that threshold in a calendar year, you must collect tax there starting the next year — or sometimes when ready, depending on the state.
Common thresholds are $100,000, $150,000, $250,000, or $500,000 in annual sales. Some states use a transaction count instead: for example, 200 transactions in a year. A few states have no threshold at all and require collection from the first sale.
The threshold applies to your total sales into that state, not your profit. If you sell $120,000 worth of products to California customers in 2024, you cross California's threshold (if it is $100,000) and must collect tax on California sales starting in 2025. The exact date varies — some states require collection to begin January 1, others give you until April or later.
Check your state's Department of Revenue website for the current threshold, because states change these rules. What triggers nexus in 2024 may not be the same in 2025.
Marketplace platforms handle collection differently
If you sell through Amazon, eBay, Shopify, Etsy, or another marketplace platform, the platform usually collects and remits sales tax on your behalf in most states. You do not collect it yourself. However, you remain responsible if the platform fails to collect or if you sell in a state where the platform does not handle collection.
Amazon and eBay collect tax in all states that have sales tax. Shopify, Etsy, and smaller platforms may not collect in every state. Check your platform's tax policy to see which states it covers. If it does not cover a state where you have nexus, you must collect and remit tax yourself.
Even when a platform collects tax, you should track your sales by state to know whether you have crossed a threshold. Some states require you to file a return showing zero tax collected (because the platform collected it), and you need your sales data to do that.
Tax rate depends on where the customer receives the product
You collect tax at the rate in the state where the customer receives the product, not where you ship from or where the order is placed. If you are in New York and ship to a customer in Texas, you collect Texas tax, not New York tax.
Within a state, tax rates vary by city and county. A sale to a customer in Denver, Colorado is taxed at Denver's rate, not the state rate. You need the customer's delivery address to determine the correct rate. Most e-commerce platforms and tax software calculate this automatically if you enter the address.
Some products are taxed differently in different states. Clothing is tax-exempt in some states but taxed in others. Food is often exempt but prepared food is taxed. Digital products (software, e-books, streaming services) have different rules in each state. If you sell multiple product types, you may need to explore different rates to different items in the same order.
You must register, collect, and remit tax in each state where you have nexus
Once you have nexus in a state, you must register for a sales tax permit with that state's Department of Revenue. Registration is usually free and can be done online. Some states require registration before you make your first sale; others allow you to register after you cross the threshold.
After registration, you collect tax on each sale and hold it in a separate account. You then file a sales tax return with the state, usually monthly or quarterly, reporting total sales and total tax collected. You remit the tax you collected to the state by the return important date.
If you use a tax software service or e-commerce platform that handles collection, you still file the return yourself — the platform does not file it for you. The return shows the tax the platform collected on your behalf.
Failing to register or remit tax can result in penalties, interest, and back taxes. Some states pursue online sellers aggressively. If you are unsure whether you have nexus, contact the state's Department of Revenue or consult a tax professional.
Frequently Asked Questions
Do I have to collect sales tax if I sell on my own website but use a third-party warehouse?
Yes, if the warehouse is in a state, you have nexus there. You must collect tax on all sales to customers in that state. The warehouse location creates nexus regardless of where you live or where your business is registered.
What if I sell to customers in 10 different states but only have $80,000 in sales total?
It depends on each state's threshold. If all 10 states have a $100,000 threshold, you do not have nexus in any of them and do not collect tax. If one state has a $50,000 threshold and you sold $60,000 there, you have nexus in that state only. Check each state individually.
Does my marketplace platform's tax collection mean I don't have to worry about sales tax?
The platform collects and remits tax, but you still need to track your sales by state and file returns showing what was collected. You are also responsible if the platform makes a mistake or does not collect in a state where you have nexus. Review your platform's tax policy and keep records of your sales.
Can I charge sales tax to customers in states where I don't have nexus?
You can, but you are not required to. Some sellers choose to collect tax in all states to simplify operations, then remit only to states where they have nexus. Customers in no-nexus states would see tax on their receipt but you would not send it to those states. This approach can confuse customers, so most sellers only collect where required.
What happens if I don't collect sales tax when I should?
States can assess back taxes, penalties, and interest. The amount depends on how long you failed to collect and how much tax was owed. Some states offer voluntary disclosure programs that reduce penalties if you come forward before an audit. If you realize you should have been collecting, contact the state's Department of Revenue about your options.