Here is how it works in the US. You must collect sales tax in any state where you have “nexus”, a connection strong enough for that state to require you to collect. You always have nexus in your home state if it has a sales tax. Since the Supreme Court’s 2018 Wayfair decision, you can also have economic nexus in other states once your sales there pass a threshold, most often $100,000 a year. Below are the rules, the thresholds, how marketplaces like Etsy and Amazon change things, and what applies to handmade items, services and local taxes.
Quick answer: Yes, if you have nexus in a state that charges sales tax. You need to collect sales tax in your home state and in any other state where your sales pass its economic nexus threshold, which is $100,000 in annual sales in most states. Marketplaces like Etsy and Amazon collect and pay the tax for sales made on their platforms.
Table of Contents
Do I Need to Collect Sales Tax for Selling Online?
You need to collect sales tax for selling online in every state where you have sales tax nexus and your products are taxable. Nexus comes from a physical presence, such as an office, warehouse, employees or stored inventory, or from economic activity above a state’s threshold. Five states have no statewide sales tax at all.
Two Types of Nexus
| Type | What creates it | Example |
|---|---|---|
| Physical nexus | Office, home business, warehouse, employees, inventory stored in the state | You run your store from your home in Ohio |
| Economic nexus | Sales into the state above its threshold | Your sales to Texas customers pass $500,000 in a year |
States With No Statewide Sales Tax
Alaska, Delaware, Montana, New Hampshire and Oregon have no statewide sales tax. Alaska does allow local sales taxes, and many Alaska towns collect them from remote sellers through a shared commission.
Do I Need to Collect Sales Tax for Out-of-State Sales?
You need to collect sales tax for out-of-state sales only in states where you have nexus. For most small sellers, that means watching each state’s economic nexus threshold. Until you cross a state’s threshold, you usually don’t collect tax for buyers there, unless you have a physical presence such as inventory in that state.
The Wayfair Decision
In South Dakota v. Wayfair (2018), the US Supreme Court ruled that states can require out-of-state sellers to collect sales tax even without a physical presence. Every state with a sales tax now has an economic nexus law.
Inventory in Other States
If you use Amazon FBA or a third-party warehouse, your inventory may create physical nexus in the states where it’s stored, even if your sales there are small.
Online Sales Tax Thresholds by State
Most states set their online sales tax threshold at $100,000 in annual sales into the state. A few, including California and Texas, use $500,000, and New York uses $500,000 together with more than 100 transactions. Many states have dropped their old 200-transaction test, so sales dollars matter most now.
Common Thresholds
| Threshold | Example states | What counts |
|---|---|---|
| $100,000 in sales | Most states with a sales tax | Sales into the state in the current or prior year |
| $500,000 in sales | California, Texas | Sales into the state |
| $500,000 and more than 100 transactions | New York | Both tests must be met |
| No statewide sales tax | Alaska, Delaware, Montana, New Hampshire, Oregon | Local rules may apply in Alaska |
Transaction Thresholds Are Disappearing
Many states have removed the “200 transactions” test, including California, Illinois (from January 1, 2026), Indiana, Utah and Washington, according to Avalara’s tracker. Always check the state revenue department’s current rules before you rely on a threshold.
Marketplaces and Who Must Collect Sales Tax for Selling Online
Marketplace facilitator laws require platforms like Etsy, Amazon, eBay and Walmart Marketplace to collect and remit sales tax on sales made through them. If you sell only on those platforms, you usually don’t need to collect sales tax yourself for those orders, though some states still require you to register.
Marketplace vs Your Own Store
| Where you sell | Who collects sales tax |
|---|---|
| Etsy, Amazon, eBay, Walmart Marketplace | The marketplace collects and remits |
| Your own Shopify, WooCommerce or Wix store | You collect and remit |
| Social media checkouts | Depends on the platform’s checkout and state rules |
Do Marketplace Sales Count Toward Thresholds?
It depends on the state. Some states count marketplace sales toward your economic nexus threshold and others don’t. Sellers who use both Etsy and their own website should check each state’s rules. Our guides on Etsy payment methods and how to get paid on Etsy cover the Etsy side.
Do I Have to Charge Sales Tax on Handmade Items?
Yes, handmade items are generally taxable just like any other physical product. Candles, jewelry, clothing, art prints and home decor are taxable goods in most states. The fact that you made them yourself or sell them at small volumes doesn’t exempt them, although a few product types, like some groceries and clothing in certain states, have special rules.
Common Exceptions
- Some states exempt or reduce tax on clothing, groceries or prescription items.
- Items sold for resale to a buyer with a valid resale certificate are usually exempt.
- Occasional casual sales of personal items may be exempt in some states.
Craft Fairs and Markets
If you sell in person at fairs in another state, you may need a temporary permit and must collect that state’s sales tax at the event.
Do I Need to Charge Sales Tax for Services?
Whether you need to charge sales tax for services depends on the state and the type of service. Many states tax few or no services, while others tax a long list, such as repairs, installation or certain digital services. Software, digital downloads and SaaS subscriptions are taxable in some states and exempt in others.
Services and Digital Products
| Product type | Typical treatment |
|---|---|
| Physical goods | Taxable in most states |
| Professional services (consulting, design) | Exempt in most states |
| Repairs and installation | Taxable in many states |
| Digital downloads (ebooks, music) | Taxable in many states |
| SaaS subscriptions | Taxable in some states, exempt in others |
For SaaS and Digital Sellers
If you sell software or subscriptions, read our guide to SaaS startup taxes and compliance and how Stripe handles tax and VAT.
Do I Need to Collect Local Sales Tax for Selling Online?
Yes, in many states you need to collect local sales tax as well as state tax once you have nexus. Cities, counties and special districts add their own rates, so the total rate depends on where the buyer is. Most states use destination-based rules for remote sellers, meaning you charge the rate at the shipping address.
Origin vs Destination
- Destination-based: you charge the rate where the buyer receives the order. This applies in most states.
- Origin-based: for in-state sales in some states, you charge the rate at your business location.
- Home-rule states: a few states, such as Colorado and Louisiana, have local jurisdictions that manage their own sales taxes.
Use Software to Get Rates Right
Rates change often and can differ by street address. Most store platforms have built-in tax tools, and Shopify, WooCommerce extensions and services like Stripe Tax calculate rates automatically.
How Much Is Sales Tax for Online Purchases?
The sales tax on online purchases is the same as the rate the buyer would pay in a local store, based on their delivery address. Combined state and local rates in the US range from 0% in states without sales tax to roughly 10% in some cities. Use a sales tax calculator to estimate the total on a specific order.
Example Calculation
A $50 candle shipped to a buyer whose combined rate is 8% costs $54 at checkout: $50 plus $4 of sales tax. You collect the $4, then send it to that state in your next return.
Do Buyers Pay Sales Tax on Out-of-State Purchases?
Yes. If the seller doesn’t collect tax, most states expect the buyer to pay “use tax” on the purchase, usually through their state income tax return. In practice, more sellers now collect tax because of economic nexus laws.
Do I Pay Taxes When I Sell Online?
Yes, selling online can involve two different taxes. Sales tax is collected from customers and sent to the state, so it isn’t your money. Income tax applies to your profit and is paid by you. Both apply even if you run your store part-time from home.
Sales Tax vs Income Tax
| Tax | Who pays | When it applies |
|---|---|---|
| Sales tax | Customer pays, you collect and remit | On taxable sales in states with nexus |
| Income tax | You pay | On profit from your business |
| Self-employment tax | You pay | On self-employment earnings in the US |
Payment Platforms and 1099-K
Payment platforms like PayPal and Stripe may send you a Form 1099-K reporting your sales. Our guide on whether you need a business license for Stripe covers the basics of setting up properly.
When Are You Required to Collect Sales Tax for Selling Online?
You’re required to collect sales tax online once you have nexus in a state and are registered for a sales tax permit there. You must register before you start collecting. After crossing a state’s threshold, most states expect you to register and begin collecting within a set period, often by the start of the next month or quarter.
Steps to Get Compliant
- List the states where you have physical presence.
- Track sales by state against each economic nexus threshold.
- Register for a sales tax permit in each state where you have nexus.
- Turn on tax collection in your store for those states.
- File returns and remit tax on the schedule each state assigns.
- Keep records of sales, exemptions and resale certificates.
Simplified Registration
The Streamlined Sales Tax program lets sellers register in its member states through one application, which saves time for sellers expanding into many states.
Selling to the UK or Europe
Outside the US, sellers deal with VAT instead. The EU uses a €10,000 threshold for cross-border distance sales to consumers, and the UK VAT registration threshold is £90,000. Our guide to the cost to start an ecommerce business covers other setup costs.
FAQs
Here are quick answers to common questions about online sales tax.
Do I need to collect local sales tax for selling online?
In most states, yes. Once you have nexus in a state, you usually collect the combined state and local rate at the buyer’s delivery address. Local rates come from cities, counties and special districts, so they can change by street address. Store tax tools or services like Stripe Tax can calculate the exact rate for each order automatically, which saves hours of manual work.
Do I need to collect sales tax for out-of-state sales?
Only in states where you have nexus. That happens when you have a physical presence there, such as inventory in a warehouse, or when your sales into that state pass its economic nexus threshold. Most states set that threshold at $100,000 in annual sales, while California and Texas use $500,000. Track sales by state every month so you know when you are close to a threshold.
What is the online sales tax threshold?
The threshold is the amount of sales into a state that creates economic nexus. Most states use $100,000 in annual sales. California and Texas use $500,000, and New York uses $500,000 plus more than 100 transactions. Many states have dropped the older 200-transaction test, so check each state’s current rules on its revenue department website before deciding whether to register.
Do I have to charge sales tax on handmade items?
Yes, in most cases. Handmade products like candles, jewelry, soap and home decor are taxable goods in states that charge sales tax. Making them yourself doesn’t create an exemption. Some states have special rules for clothing or food items, and sales for resale to a buyer with a valid certificate are usually exempt from tax. Keep copies of those certificates.
Do I need to charge sales tax for services?
It depends on the state and the service. Most states don’t tax professional services like consulting or design, but many tax repairs, installation and certain digital services. Software and SaaS are taxable in some states and exempt in others. Check each state’s rules for your specific service before charging or skipping sales tax, and keep notes on what you decided.
Do you pay sales tax on online purchases from out of state?
Yes. If the seller collects tax at checkout, you pay it then. If the seller doesn’t collect it, most states expect buyers to report and pay use tax on their state return. Since the Wayfair decision, most large online sellers and marketplaces collect sales tax automatically, so buyers usually see it added at checkout along with shipping costs.
Does Etsy or Amazon collect sales tax for me?
Yes. Marketplace facilitator laws require Etsy, Amazon, eBay and similar platforms to collect and remit sales tax on orders placed through them in states with sales tax. You don’t collect tax yourself on those orders, but you may still need to register in some states and collect tax on sales from your own website. Keep reports from each platform for your records.
What happens if I don’t collect sales tax when I should?
The state can require you to pay the tax you should have collected, plus penalties and interest, even if you never charged customers. Many states offer voluntary disclosure programs that reduce penalties if you come forward first. Fixing it early is far cheaper than waiting for an audit or notice from the state, so speak with a tax professional if you think you missed a state.
Conclusion
Whether you need to collect sales tax for selling online comes down to nexus. You collect in your home state if it has sales tax, and in any other state where your sales pass its economic nexus threshold, usually $100,000 a year, or where you store inventory. Marketplaces like Etsy and Amazon collect for you on their platforms, but your own website is your responsibility.
Natalie started tracking her sales by state, registered in the two states where she crossed the threshold and switched on automatic tax in WooCommerce. Handmade products are taxable like any other goods, services vary by state, and local rates apply in most places. Check thresholds every quarter, register before you start collecting and keep clean records of every return you file. If your sales cross many states, a tax professional or automated tax service pays for itself quickly. Which states are your sales growing fastest in right now?
