eCommerce Sales Taxes: Everything You Need to Know

Running an ecommerce business enables you to reach customers across the country and around the world. It also introduces a layer of tax complexity that many online sellers do not expect at the start. Ecommerce sales tax rules differ from traditional retail, and they continue to evolve as states adapt their laws to online commerce.

For small business owners selling through platforms like Shopify, Amazon, Etsy, or their own websites, understanding online sales tax compliance is essential. Sales tax mistakes can lead to penalties, interest, and costly, disruptive audits. With the right knowledge and support, however, ecommerce sales tax can be managed to protect cash flow and support long-term growth.

Whether you operate an ecommerce business or are about to launch, use this guide to learn everything you need to know about ecommerce sales tax. 

Key Highlights

• Ecommerce sales tax is generally based on your customer's location, not where your business operates.

• Sales tax nexus determines whether you are required to register, collect, and remit tax in a state.

• Economic nexus laws now apply in nearly every state with a sales tax.

• Marketplace facilitators like Amazon may collect tax on your behalf, but sellers still have compliance responsibilities.

• State rules vary widely, making multistate sales tax compliance a growing challenge for online sellers.

• Professional guidance can simplify registration, filing, and ongoing compliance as your ecommerce business scales.

What Is Ecommerce Sales Tax?

Ecommerce sales tax refers to the tax that online sellers are required to collect and remit on taxable transactions. While the concept sounds simple, the application can be complex because ecommerce sales tax depends on state and local laws.

Unlike traditional brick-and-mortar retail sales tax, the ecommerce sales tax is usually determined by the buyer’s location. If a seller has a sufficient connection with a state, known as nexus, they may be required to collect sales tax on orders shipped to customers in that state.

You may hear ecommerce sales tax referred to as online sales tax or internet sales tax. These terms are often used interchangeably and indicate the same thing. Use tax is another related concept. Use tax applies when a buyer owes tax on a purchase where sales tax was not collected at checkout. States often enforce use tax rules, but sellers are typically focused on sales tax collection obligations.

Why Sales Tax Matters for Online Sellers

Sales tax compliance is not optional. States rely on sales tax revenue, and they actively pursue businesses that fail to collect or remit tax when required.

For ecommerce sellers, proper sales tax handling matters for several reasons:

• Avoiding penalties and interest: States can assess fines, back taxes, and interest for missed filings or uncollected taxes.

• Reducing audit risk: Sales tax audits are common, especially for growing ecommerce businesses with multistate activity.

• Protecting cash flow: Unexpected tax bills can strain finances if taxes are not collected from customers.

• Maintaining platform compliance: Marketplaces and payment processors may require proof of tax compliance.

Platforms like Shopify and Amazon offer tools that help with tax calculation and collection, but you still have obligations. Sellers are accountable for determining nexus, registering with states, filing sales tax returns, and maintaining records.

Understanding Nexus in Ecommerce

What Is Sales Tax Nexus?

Sales tax nexus ecommerce is the connection between a business and a state that creates a sales tax obligation. Historically, nexus was based on physical presence, such as having a store, office, or employees in a state.

That changed significantly after the Supreme Court’s Wayfair decision, which allowed states to enforce economic nexus laws. Economic nexus means a business can have sales tax obligations in a state even without a physical presence.

Economic Nexus Thresholds

Economic nexus thresholds are typically based on revenue, transaction volume, or both. Common thresholds include:

• $100,000 in sales in a state

• 200 transactions shipped to customers in a state

Sales tax thresholds by state have been adjusted over time in several instances. Some have eliminated transaction counts and rely solely on revenue. Because rules vary by state, ecommerce sellers must carefully track sales activity.

Physical Nexus Triggers

While economic nexus has received outsized attention, physical nexus still matters. Common physical nexus triggers include:

• Storing inventory in a fulfillment center or warehouse

• Having employees, contractors, or sales representatives in a state

• Attending trade shows or events where sales activity occurs

• Operating an office or storefront

Even a single factor can create a sales tax obligation in a state.

Sales Tax Rules by Channel

Direct Online Store (Shopify, WooCommerce, and Similar Platforms)

When you sell through your own ecommerce site, you are responsible for determining where you have nexus. Once nexus is established, you must register for a sales tax permit in that state and configure your platform to collect the correct sales tax rate.

While ecommerce platforms can calculate rates, they do not monitor nexus thresholds or file returns on your behalf.

Marketplace Facilitator Rules

Marketplace facilitator sales tax laws require large platforms like Amazon, Etsy, and eBay to collect and remit sales tax on behalf of third-party sellers in many states.

This simplifies tax collection, but it does not remove all responsibilities from sellers. You may still need to:

• Register in certain states

• File informational or zero-dollar returns

• Maintain documentation from the marketplace

• Handle tax on non-marketplace sales

Some states, like Texas, require sellers to obtain certification from the marketplace confirming that tax is being collected on their behalf.

State-by-State Differences

Sales tax rules are not uniform across the United States. Each state sets its own thresholds, rates, and definitions of taxable products.

For example:

• California: Uses a destination-based system and has complex district tax rates.

• Texas: Applies economic nexus thresholds and requires marketplace facilitators to collect tax, but sellers may still have reporting obligations.

• Florida: Enforces economic nexus and has specific rules for remote sellers and marketplace providers.

Local sales taxes add another layer of complexity. Cities and counties may impose additional rates, and not all products are taxed the same way in every state. Clothing, food, and digital products are common areas where taxability varies significantly.

How to Register and Collect Sales Tax

Sales Tax Registration Process

Once you determine that you have nexus in a state, the next step is registration. This is done through the state’s Department of Revenue or tax authority website. Registration is required before you begin collecting tax.

Registration typically involves:

• Providing business and ownership information

• Listing sales channels and products

• Selecting filing frequency

Registering late can invite penalties, so timing matters.

Collecting, Filing, and Remitting

After registration, sellers must collect sales tax at checkout, file periodic returns, and remit tax payments to the state. Filing frequency may be monthly, quarterly, or annually, depending on sales volume.

Best practices include:

• Using automated sales tax software for rate accuracy

• Reconciling collected tax with sales reports

• Filing on time to avoid penalties

• Keeping detailed records for audits

Product Taxability Rules

Not all products are taxed the same way. States define sales tax exemptions and items that are taxable differently.

Common examples include:

• Taxable in most states: Physical goods, prepared food

• Sometimes exempt from sales tax: Groceries, clothing, prescription items

• Varies widely: Digital products, software, subscriptions

Correct product classification is critical. Misclassification can lead to under- or over-collection of tax, which can create issues with customers and tax authorities.

Practical Compliance Tips

Ecommerce sales tax compliance is an ongoing responsibility, not a one-time task. Consider these tips as you manage your operations:

• Monitor sales thresholds throughout the year

• Track inventory locations and fulfillment changes

• Keep registration and filing calendars up to date

• Save exemption certificates and marketplace documentation

• Review state rule changes regularly

As your business grows, support from tax professionals can make a significant difference. Working with a firm that understands ecommerce accounting can help you manage multistate sales tax requirements while staying focused on what you do best: growing your business.

Common FAQs About Ecommerce Sales Tax

Do I need to collect sales tax nationwide?

No, you do not need to collect sales tax nationwide. You only need to collect sales tax in states where you have nexus.

What happens if I sell internationally?

Managing international sales requires focus and dedication. While international sales typically do not involve U.S. sales tax, they may trigger customs duties, VAT, or GST in other countries.

How do tax holidays affect sales tax collection?

Sales tax holidays vary by state and product type. Sellers must follow state rules during these periods, which can change annually. 

Next Steps for Your Ecommerce Store

Ecommerce sales tax is one of the most challenging aspects of running an online business. With varying state rules, evolving nexus laws, and multiple sales channels, compliance can quickly become overwhelming.

Staying informed and proactive are among the best ways to reduce risk. As your ecommerce business grows, working with experienced tax professionals can help ensure that registrations, collections, and filings are handled correctly.

For sellers seeking confidence and clarity in ecommerce sales tax compliance, 1-800Accountant, America's leading virtual accounting firm, offers sales tax planning, registration assistance, and ongoing support tailored to online businesses.

Schedule a free 30-minute consultation to learn more and get started.