You must collect sales tax if you have a physical presence in a state or if you meet that state's sales threshold

Whether you collect sales tax depends on two things: where you are located and how much you sell into each state. The rule changed in 2018 when the Supreme Court ruled that states can require sales tax collection from remote sellers — people who have no office, warehouse, or employees in that state. Before that, only sellers with a physical location had to collect.

Today, most states require you to collect sales tax if you meet their sales threshold, which is usually between $100,000 and $500,000 in annual sales into that state. A few states have no threshold at all — they require collection from any remote seller. Some states have no sales tax and never require collection. The threshold that matters is the one in the state where your customer lives, not where you are.

If you have a physical location — a warehouse, office, or even a home-based business — in a state, you must collect sales tax on all sales into that state, regardless of the dollar amount. This is called nexus, and it is the oldest rule. Physical presence creates it automatically.

Key Takeaways

  • You must collect sales tax in any state where you have a physical location, no matter how small your sales are.
  • You must also collect in states where your annual sales into that state exceed that state's threshold, which ranges from $100,000 to $500,000 or higher depending on the state.
  • The threshold that counts is sales into each individual state, not your total sales across all states.
  • Some states have no sales tax and never require collection; others require collection from any remote seller with no threshold.
  • You report and send the tax you collect to the state where the customer is located, not to your home state.

How to know which states require you to collect

Start by identifying which states you have physical presence in. This includes your home if you run a business from it, any office or warehouse you own or lease, any employees or contractors working in that state, or inventory stored there. If you have nexus in a state, you collect on all sales into that state.

Next, track your sales into each state separately. Most online platforms — Shopify, WooCommerce, Amazon, eBay — can show you sales by customer location. At the end of each quarter or year (depending on the state), add up your sales into each state. Compare that total to that state's threshold. If you exceed it, you must begin collecting in that state.

The thresholds vary widely and change. As of 2024, most states use $100,000 to $500,000, but some use $150,000 or $250,000. A few states like New York and Illinois have lower thresholds. Some states like South Dakota have no threshold at all. You can find your state's current threshold through the state's Department of Revenue website or through a sales tax service like TaxJar or Avalara, which track all state rules and update them as they change.

What happens when you cross the threshold

Once you cross a state's threshold, you usually have a grace period before you must start collecting. Most states give you until the next calendar quarter or the next calendar year. For example, if you cross New York's threshold in June, you might not have to start collecting until July 1 or January 1 of the next year. Some states require you to register immediately; others give you 30 days. Check the specific state's rule.

When you must start collecting, you first register for a sales tax permit in that state. This is usually free and takes 10 to 30 minutes online through the state's Department of Revenue website. You will need your business name, address, federal tax ID (EIN), and the date you plan to start collecting. Some states ask what you sell or how you sell it.

After you register, you collect the tax at the rate that applies in the customer's location. Sales tax rates vary by state and sometimes by county or city. You charge the customer the tax, hold it, and send it to the state on a schedule — usually monthly, quarterly, or annually depending on how much you collect. You file a return showing what you collected and send the money.

Collecting tax on marketplace platforms

If you sell through Amazon, eBay, Etsy, or Shopify, the rules are different. Many of these platforms now collect and remit sales tax on your behalf in states where they have nexus. Amazon, for example, collects sales tax on most items sold through its platform in most states. When Amazon collects, you do not have to — the tax is handled.

However, you are still responsible for knowing whether the platform is collecting in each state. Some platforms collect in some states but not others. Some collect only on certain product categories. If a platform is not collecting in a state where you have crossed the threshold, you must collect yourself. This creates a risk of double taxation if you are not careful.

Before you assume the platform is handling it, log into your seller account and look for sales tax settings or reports. Most platforms have a section that shows which states they are collecting in on your behalf. If you are unsure, contact the platform's seller support. If they are not collecting in a state where you owe tax, you must register and collect yourself.

States with no sales tax

Five states have no sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. If a customer is in one of these states, you do not collect sales tax, even if you have physical presence there. However, some of these states have other taxes — Alaska has no state sales tax but some cities impose local sales tax, and New Hampshire has no sales tax but does tax prepared food and lodging.

If you have a physical location in one of these states, check whether your city or county imposes a local sales tax. Even though the state does not, your local jurisdiction might. The state Department of Revenue website will tell you.

Tracking sales by state and filing returns

Once you are collecting in multiple states, you need a system to track sales by state and calculate the tax owed in each. Your online platform should break down sales by customer location. Export this data monthly or quarterly so you can see exactly how much you sold into each state.

Calculate the tax owed by multiplying the taxable sales in each state by that state's rate. Rates vary — some states are 4%, others 7% or higher. Some states exempt certain products (like food or clothing) from tax. You need to know which products are taxable in each state where you collect.

File a return in each state where you collect, on the schedule that state requires. Most states want returns monthly, quarterly, or annually. You report the total sales, the tax you collected, and send the money. Many states let you file and pay online. Some offer discounts if you pay on time or file electronically.

If this becomes complex, consider using a sales tax service like TaxJar, Avalara, or Taxify. These services connect to your platform, track sales by state automatically, calculate tax by location, and file returns for you. They cost $15 to $50 per month depending on how many states you collect in and how much you sell.

What you need to know about nexus beyond physical location

Physical presence is the clearest form of nexus, but states have expanded the definition. Some states now consider you to have nexus if you have an affiliate in that state who refers customers to you, even if you pay them commission. Some states look at whether you attend trade shows or conventions in that state. A few states consider you to have nexus if you have a customer who is a large retailer and you are supplying them.

These expanded nexus rules are less common and vary by state. The safest approach is to assume that if you have any business activity in a state beyond just shipping to customers there, you might have nexus. Check the state's Department of Revenue website or ask a sales tax professional if you are unsure.

Frequently Asked Questions

What if I sell in multiple states but my sales in each state are below the threshold?

You do not have to collect sales tax in those states. However, you must track your sales by state so you know when you cross the threshold. Once you do, you have a grace period before you must start collecting — usually until the next quarter or year.

Do I have to collect sales tax if I sell internationally?

No. Sales tax is a U.S. state tax. If you ship to a customer outside the United States, you do not collect U.S. sales tax. Some countries have their own value-added tax (VAT) or goods and services tax (GST), but those are separate from U.S. sales tax and have different rules.

What happens if I do not collect sales tax when I am supposed to?

States can assess back taxes, penalties, and interest. The amount depends on how long you did not collect and how much tax you owed. Some states offer amnesty programs if you voluntarily register and file back returns. If you realize you should have been collecting, register immediately and contact the state to ask about options.

Can I charge the customer the sales tax separately, or do I have to include it in the price?

You can do either. Most online sellers show the tax as a separate line item at checkout so the customer sees it. Some include it in the displayed price. The state does not care which method you use — you must collect and remit the correct amount either way.

Do I need to collect sales tax on shipping?

It depends on the state. Some states tax shipping; others do not. Some tax shipping only if the item itself is taxable. You need to know the rule in each state where you collect. Your sales tax service or the state's Department of Revenue website will tell you.