Sales tax basics for small online sellers
Sales tax is a state and local obligation, not a federal one, and its rules vary considerably across jurisdictions. For small online sellers, the key questions are whether you have a collection obligation in a given state, whether a marketplace you sell through handles collection on your behalf, and when you may need to register with a state. This guide outlines the core concepts.
What is economic nexus and why does it apply to online sellers?
Before 2018, most states could only require sellers with a physical presence (such as an office, warehouse, or employees) in the state to collect and remit sales tax. A landmark U.S. Supreme Court decision -- South Dakota v. Wayfair, Inc. (2018) -- changed that. States may now impose sales tax collection obligations on sellers who exceed a specified volume of sales or number of transactions into the state, even without any physical presence there.
This threshold-based standard is called economic nexus. Most states have adopted economic nexus laws in response to Wayfair. The specific thresholds -- typically measured in annual gross sales dollars or number of transactions into a state -- differ by state and can change. The authoritative source for each state's current threshold is the state's Department of Revenue (also called the Department of Taxation in some states).
Physical nexus still exists and can be triggered by storing inventory in a fulfillment center, having an employee or contractor work in a state, or other factors depending on state law.
How marketplace-facilitator laws affect collection
Many small online sellers sell through third-party platforms such as Amazon, Etsy, eBay, or Shopify storefronts hosted through large marketplace providers. Most states now have marketplace-facilitator laws that require the marketplace itself to collect and remit sales tax on sales made through the platform on behalf of sellers.
This means that for transactions processed through a qualifying marketplace facilitator, the platform -- not the seller -- is generally responsible for collecting and remitting sales tax in states where the facilitator has a collection obligation. Sellers in this position typically do not owe additional state sales tax on those specific transactions.
However, sellers who also sell directly (through their own website, at craft fairs, through invoices, etc.) outside of a marketplace facilitator may still have their own collection and remittance obligations on those direct sales, depending on whether they have nexus in a given state.
The classification of a platform as a marketplace facilitator is a legal determination that depends on state law definitions. Some platforms provide documentation on how their collection obligations work by state -- this information is generally available in the platform's seller help or tax documentation.
When registration may be required
If you have economic nexus in a state (or physical nexus), and your sales are not fully covered by a marketplace facilitator's collection obligation, you may be required to register with that state's taxing authority, collect the applicable sales tax from customers, file periodic returns, and remit the collected tax.
Registration is generally done through the state's Department of Revenue portal. Many states participate in the Streamlined Sales Tax (SST) program, which provides a simplified registration process across participating states through a single application. The SST Governing Board publishes information about the program and participating states at streamlinedsalestax.org.
Thresholds and filing frequencies vary. Some states require monthly filing; others allow quarterly or annual filing depending on the volume of tax collected. A state's Department of Revenue is the definitive source for registration requirements, filing schedules, and current rates.
Key questions to investigate for each state where you may have nexus:
| Question | Where to look |
|---|---|
| Current economic nexus threshold | State Department of Revenue |
| Whether the platform you use is a registered marketplace facilitator in that state | Platform's tax documentation; state DOR |
| Registration process | State DOR portal or SST registration if the state participates |
| Filing frequency and deadlines | State DOR |
| Product taxability (some items are exempt) | State DOR taxability guidance |
What to do if you are unsure about your obligations
Sales tax compliance across multiple states is one of the more complex areas for online sellers. The rules change when states update nexus thresholds, when platforms change their facilitator status in certain states, and when product taxability rules are updated.
If you are unsure whether you have crossed a nexus threshold in a state, whether your marketplace covers your collection obligation, or whether you have any unaddressed back obligations, these are situations where a tax professional with experience in multistate sales tax can provide significant value. Sales tax non-compliance can result in back taxes, interest, and penalties from state authorities.
Where to get help
Sales tax across multiple states is a specialized area. Find a tax professional with experience in multistate compliance for small online sellers.
Sources
- U.S. Supreme Court: South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018) -- foundational ruling on economic nexus
- Streamlined Sales Tax Governing Board: streamlinedsalestax.org -- multistate registration, participating states, and threshold information
- State Departments of Revenue -- current economic nexus thresholds, marketplace-facilitator definitions, registration requirements, and filing instructions (search "[state name] Department of Revenue sales tax" for your state's official portal)
- IRS: State Government Websites -- directory of state tax agency links