Selling online comes with lots of checklists. One that often catches new sellers off guard? Sales tax. Unlike income tax, sales tax is a bit more public facing. You collect it from buyers, and you’re expected to get it right.
What Actually Is Sales Tax?
Sales tax is a small percentage fee states tack onto the sale of goods. It’s paid by the buyer, but you, as the seller, are responsible for collecting and passing it along to the tax department. It feels simple—take a couple extra dollars, send them in—but the rules get messy fast.
If you sell online, even part-time, you can’t ignore it. Not handling sales tax properly is one of those boring mistakes that can suddenly cause big headaches, especially if your shop gets any attention.
How Does Sales Tax Nexus Work?
So, where do you even need to collect sales tax? That’s where “sales tax nexus” comes in. Nexus means the connection you have to a state—enough for that state to require you to collect tax for them.
There’s “physical” nexus and “economic” nexus. Physical means you have a clear, concrete link in that state—like a warehouse or even running craft fairs there. Economic nexus is newer and comes from how much you sell to customers in that state. If you cross certain sales thresholds, you could owe tax even without stepping foot in the state.
Figuring Out Where You Owe Sales Tax
Every state has its own rules. Most states say you have a sales tax obligation if you have any sort of physical location, employees, or inventory in their borders. Then there’s the economic side—many states with sales tax now have rules saying if you hit a certain number of sales or revenue there each year (often $100,000 in sales or 200 separate transactions), you’re responsible for collecting tax from buyers in that state.
The rules really aren’t one-size-fits-all. West Virginia and New York, for example, have different thresholds and requirements. Check official state tax sites for the fine print if you’re not sure.
Getting Your Sales Tax Permits
Collecting sales tax without a permit is a no-go. Before you start tacking on tax to sales in a new state, you’ll need to register for a sales tax permit with that state’s tax authority. They’ll give you an ID number and outline your filing schedule.
These permits are usually free or cheap, but don’t skip this step. States want a record that you’re collecting tax for them. Gathering this paperwork is annoying, but it’s better than the alternative—collecting tax without permission can get you fined or worse.
Figuring Out How Much Sales Tax to Charge
If only every state had a flat rate. Most states set a base rate, but cities and counties often stack their own sales tax on top. For example, the base rate in California is 7.25%, but if you sell to someone in Los Angeles, the rate jumps with local add-ons.
Most e-commerce platforms let you set up automated tax collection, but you’ll still want to double-check the math. Online sales platforms are getting better, but errors aren’t unheard of, and you’re the one responsible in the end.
How to Actually Collect Sales Tax Online
These days, platforms like Shopify, Etsy, Amazon, and WooCommerce all have ways to set up sales tax collection. Usually you can enter the states you’re registered in, and the platform will collect the correct sales tax for each order.
It helps to make this obvious to customers—show the tax as a separate line at checkout. This prevents confusion and helps build trust. If you round up at the end, keep an eye on how much you’re collecting versus what you need to send in.
Filing Your Sales Tax: Don’t Miss the Deadlines
Once you have the tax money in hand, don’t treat it like extra income. You’ll need to file a sales tax return with each state—and maybe local governments too. Each one will give you a schedule: some want reports monthly, others quarterly, and a few just once a year.
Missed deadlines can lead to penalty fees or, worse, audits. It’s smart to put these on your calendar and maybe set a couple digital reminders. Many states don’t remind you.
Exempt Sales and Resale Certificates
Some sales aren’t taxable, and you’ll want to know about exemptions. This covers situations where you sell to non-profits, government agencies, or, most commonly, other businesses who plan to resell the products.
If a buyer gives you a valid resale certificate, you don’t need to collect sales tax. Hold onto those documents and keep them organized—they’re your proof if the state ever asks questions. Not all items or all customers are exempt, so make sure to check your state’s list.
Keeping Up With Changing Sales Tax Laws
Tax laws change often, especially since more states want a piece of online sales. States redo their thresholds, change rates, or update what’s taxable every few years. Set aside some time each quarter to check the states where you do business.
There are plenty of software solutions and service providers that help online shops stay compliant. Look for platforms that integrate with your online store and update tax rates as the rules shift.
Avoiding Classic Sales Tax Mistakes
Getting sales tax wrong isn’t rare. Common mistakes include forgetting to collect tax in states where you qualify, charging the wrong rate, or missing filing deadlines. Sometimes sellers collect tax before registering, or forget to drop states where they’ve fallen beneath the nexus threshold.
These errors can add up to fines and unhappy customers. Automate as much as you can, and do a quick review each season. If you’re using platforms that don’t handle tax for you, consider an upgrade or manual audit once in a while.
Final Thoughts: Sales Tax Is Annoying, But Important
If you sell online—lamps, t-shirts, digital extras—you probably can’t escape sales tax. Take a store like Lasota Designer Lamps: if their online customers live in different states, they’ll face all the usual questions about nexus, permits, and rates. It comes with running a national business, and doing it right keeps things smooth.
When in doubt, get expert help. Many accountants know e-commerce tax rules and can help clean up any confusion before it becomes a big expense. Getting the basics right, automating what you can, and staying organized will save headaches.
Business rules never stop changing, and sales tax is just one piece of the puzzle for online shops. Treat it like regular maintenance. It’ll keep the IRS and state agencies off your back—so you can focus on what you actually enjoy about selling online.