Share this!

online seller unaware of sales tax rules

Online Sales Tax: Is Your Business Compliant?

Written by Tax Defense Network June 5, 2026

read

Overview

For many years, online retailers enjoyed a major advantage when it came to sales taxes. If a business didn’t have a physical presence in a state, it generally wasn’t required to collect or remit sales tax on sales made to customers there. Unfortunately, that all changed in 2018 with the Supreme Court’s landmark South Dakota v. Wayfair, Inc. decision, commonly known as the “Wayfair Ruling.”

Today, many online sellers have sales tax obligations in states where they have never opened an office, warehouse, or storefront. Failing to collect sales tax, or collecting the wrong amount, can lead to audits, penalties, interest charges, and other enforcement actions by state tax agencies. That’s why online businesses must understand not only how much sales tax to charge customers, but also when tax collection is required and how those taxes must be reported and paid.

Key Takeaways

The Wayfair Ruling expanded sales tax obligations for online sellers by allowing states to impose sales tax collection requirements based on economic activity rather than physical presence.
Sales tax nexus can be triggered by sales volume or transaction counts in states where your customers are located.
Failure to properly collect and remit sales tax can result in penalties, interest, audits, and trigger collection actions.

What Is The Wayfair Ruling?

The Wayfair Ruling refers to the 2018 U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. Before this ruling, businesses generally only had to collect sales tax in states where they maintained a physical presence, such as an office, warehouse, retail location, or employees.

The Supreme Court determined that physical presence was no longer necessary for states to require businesses to collect sales tax. Instead, states could establish “economic nexus” thresholds based on a seller’s economic activity within the state.

Wayfair Aftermath

Following the decision, nearly every state with a sales tax implemented economic nexus laws. As a result, online retailers may now be required to collect and remit sales taxes in multiple states based solely on the volume of sales they generate there.

For many e-commerce businesses, this has dramatically increased sales tax compliance responsibilities.

When Am I Required to Charge Sales Tax (Nexus)?

Sales tax obligations generally begin when your business establishes nexus in a state.

Nexus is a sufficient connection between your business and a state that creates a legal requirement to collect and remit sales tax. There are several ways a business may establish nexus.

Physical Nexus

Physical nexus occurs when your business has a tangible presence in a state, such as:

An office or storefront
A warehouse or inventory storage facility
Employees working in the state
Independent contractors or sales representatives
Trade show participation in certain situations

Economic Nexus

Economic nexus is based on your sales activity within a state.

Many states require sales tax collection when a business exceeds a certain threshold, commonly:

$100,000 in annual sales in the state; or
200 separate transactions within the state

Thresholds, however, vary by state and are subject to change.

Marketplace Nexus

If you sell through platforms such as Amazon, Walmart Marketplace, Etsy, or eBay, the marketplace facilitator may be required to collect and remit sales tax on your behalf in many states.

Even when the marketplace handles tax collection, you may still have registration or reporting obligations depending on state law.

How Are Online Sales Tax Rates Calculated?

Determining the correct sales tax rate can be one of the most challenging aspects of compliance.

Many states use a combination of:

State sales tax rates
County sales tax rates
City sales tax rates
Special district taxes

As a result, two customers within the same state may owe different sales tax amounts based on their delivery addresses.

Origin-Based vs. Destination-Based Sales Tax

States generally use one of two methods:

Origin-Based Sales Tax

Tax is calculated based on the seller’s location.

Destination-Based Sales Tax

Tax is calculated based on the buyer’s delivery address.

Most states use destination-based sourcing for remote sellers.

Taxability Rules Matter

Not all products and services are taxed the same way.

Examples include:

Clothing exemptions in certain states
Reduced tax rates on groceries
Exemptions for prescription medications
Different treatment of digital products and software

Because taxability rules vary significantly, businesses should regularly review state requirements or use automated sales tax software to help maintain compliance.

When & Where Do I Submit Sales Taxes?

Once you’ve established nexus and begun collecting sales tax, you must remit those taxes to the appropriate state tax authority.

Register First

Before collecting sales tax, most states require businesses to register for a sales tax permit or seller’s permit.

Filing Frequency

States assign filing frequencies based on sales volume. Common schedules include:

Monthly
Quarterly
Annually

Some states may require more frequent filings for larger businesses.

Filing Returns

Most states now allow businesses to:

File sales tax returns online
Make electronic payments
Review account balances and notices

Even if you had no taxable sales during a reporting period, many states still require a “zero return” filing.

Keep Good Records

Businesses should maintain records of:

Sales transactions
Exemption certificates
Tax collected
Tax remitted
Marketplace facilitator reports

Strong recordkeeping can help support your position during an audit and reduce compliance issues.

Sales Tax Cheat Sheet

Need Help With…	Where to Go
Registering for a sales tax permit	Your state’s Department of Revenue website
Filing sales tax returns	State online taxpayer portal
Submitting sales tax payments	State Department of Revenue payment portal
Sales tax rate information	State tax agency website
Nexus and compliance guidance	State Department of Revenue or a business tax professional

For a directory of state tax agencies, check out the one provided on the Federation of Tax Administrators (FTA) website.

Frequently Asked Questions

Do I have to collect sales tax in every state where I have customers?

No. Generally, you are only required to collect sales tax in states where your business has established nexus. Nexus can be created through a physical presence, such as an office or warehouse, or through economic activity that exceeds a state’s sales threshold.

What happens if I don’t collect sales tax when I should?

If your business should have been collecting sales tax but failed to do so, you may be held responsible for the unpaid tax, plus penalties and interest. In some cases, state tax agencies may conduct an audit to determine the amount owed.

How do I know if I have an economic nexus in a state?

Each state sets its own economic nexus thresholds. Many states require businesses to collect sales tax once they exceed $100,000 in annual sales or a certain number of transactions within the state. Because requirements vary, it’s important to regularly monitor your sales activity in each state.

If I sell through Amazon or Etsy, do I still need to worry about sales tax?

Many online marketplaces are required to collect and remit sales tax on behalf of sellers under marketplace facilitator laws. However, you may still need to register with certain states, file returns, or report marketplace sales, depending on state requirements.

How often do I need to file sales tax returns?

Filing frequencies vary by state and are often based on the amount of tax your business collects. Businesses may be required to file monthly, quarterly, or annually. Even if you had no taxable sales during the filing period, some states still require a return to be filed.

Which states don’t have a statewide sales tax?

Alaska, Delaware, Montana, New Hampshire, and Oregon do not impose a statewide sales tax. However, businesses should still review local tax requirements and other state tax obligations that may apply.

Can sales tax rates change?

Yes. State, county, city, and special district tax rates can change periodically. Businesses should verify rates periodically to ensure customers are charged the correct amount and to avoid potential compliance issues.

Need Help With Unpaid Sales Taxes?

If your business has fallen behind on paying sales taxes, you’re not alone. Many business owners discover they have sales tax liabilities after an audit, rapid business growth, nexus changes, or simply misunderstanding their filing obligations.

The good news is that options may be available to help resolve your sales tax debt. Depending on your situation, you may qualify for payment arrangements, penalty relief, or other resolution strategies offered by state tax agencies.

At Tax Defense Network, our experienced tax professionals help businesses address outstanding state tax liabilities and work toward lasting compliance. Contact us today for a free consultation to discuss your situation and learn about potential options for resolving unpaid sales taxes.