How do I handle sales tax for online sales across multiple states?
Everything changed in 2018 when the Supreme Court ruled in South Dakota v. Wayfair that states can require out-of-state sellers to collect sales tax even without a physical presence. Before that, you only had to collect in states where you had a warehouse, office, or employees. Now, if you hit a state’s economic nexus threshold through online sales alone, you’re on the hook.
Each state sets its own threshold. Most use $100,000 in sales or 200 transactions within the state over a 12-month period, but the numbers vary. Some states have dropped the transaction count test entirely and only look at revenue. A few have no sales tax at all (Delaware, Montana, New Hampshire, Oregon, and Alaska with limited local exceptions). You need to track where your customers are and monitor whether you’re approaching those thresholds.
Once you’ve crossed the threshold in a state, you need to register for a sales tax permit in that state before you start collecting. Don’t collect sales tax in a state where you aren’t registered. That creates its own set of problems. Registration is usually done through each state’s department of revenue website, and some states participate in the Streamlined Sales Tax Registration System which lets you register in multiple states at once.
After registration, you collect the correct rate on every order shipped to that state. This sounds simple until you realize sales tax rates vary not just by state but by county, city, and special district. A customer in one Los Angeles zip code might pay a different rate than someone a few miles away. This is where automation becomes essential. Tools like TaxJar, Avalara, or the built-in tax features on platforms like Shopify and Amazon handle rate calculation in real time so you don’t have to look up every jurisdiction manually.
If you sell on Amazon through FBA, be aware that your inventory stored in Amazon warehouses across the country can create physical nexus in those states regardless of your sales volume there. Amazon collects and remits sales tax as a marketplace facilitator in all states that require it, but that only covers sales made through their platform. Sales through your own website are still your responsibility.
Filing frequency depends on the state and your sales volume. Some states want monthly returns, others quarterly, and low-volume states might only require annual filing. Miss a deadline and you’ll face penalties and interest that add up quickly. Automated sales tax software can handle filing too, which is worth the monthly cost once you’re collecting in more than a handful of states.
Keep clean records of every transaction including the customer’s shipping address, the tax rate applied, and the amount collected. If a state audits you, they’ll want to see that you collected and remitted the right amounts. Working with an e-commerce bookkeeper who understands multi-state sales tax keeps your books aligned with what you’re actually collecting and remitting. It also helps catch situations where you’ve crossed a new state’s threshold and need to register.
The biggest mistake online sellers make is ignoring nexus until a state sends a notice. By then you may owe back taxes plus penalties on sales where you should have been collecting but weren’t. A bookkeeper in Long Beach familiar with online businesses can help you stay ahead of these obligations and make sure your sales tax liabilities are properly tracked in your books throughout the year.
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