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Ultimate Guide to Understanding Economic Nexus | TaxHero

Diving into the ecommerce world is exciting. However, the jargon can be a bit much. One term you’ll hear is “economic nexus.” In simple terms, think of it like a signpost in the world of sales taxes, guiding businesses where they stand.

Here at TaxHero, we want to make things simple. Therefore, we’ll break down this term, explain why it matters, and help you understand how it affects your ecommerce business. Ready to get started?

What is Economic Nexus?

Economic nexus is a set of criteria used to determine whether your ecommerce business has a significant presence in a particular state. This idea became well-known because of the 2018 South Dakota v. Wayfair case. If your ecommerce business meets these criteria, you must follow that state’s tax rules, which means collecting and remitting sales tax.

Simply put, if your ecommerce business has a notable footprint in a state – through sales, transactions, or physical presence – it triggers economic nexus in that jurisdiction.

Thus, the importance of understanding the economic nexus in ecommerce lies in avoiding legal issues and planning finances wisely. In addition, it helps you expand your business smoothly without unexpected tax problems. It serves as a guide for navigating potential tax obligations when entering new markets, ensuring compliance and supporting strategic growth.

Criteria for Establishing Economic Nexus

When establishing an economic nexus for your ecommerce business, states generally consider a few key factors. Here’s what you need to keep an eye on:

Sales Revenue: The total dollar amount of sales. However, states differ in whether they count Gross Sales (everything), while others consider only Taxable Sales (items not exempt).
Transaction Volume: Besides the amount you earn, the number of transactions you conduct in a state also counts. For example, if you have a high volume of sales transactions in a state, it establishes an economic nexus.
Marketplace Sales: In most states, sales made through platforms like Amazon or Walmart do count toward your threshold, even if the marketplace collects the tax for you.
Keeping Up with Changes: State laws regarding economic nexus can change. Make it a practice to regularly check for updates to avoid surprises and ensure you’re meeting all necessary criteria.

State-by-State Variations in Economic Nexus Laws

When managing an ecommerce business that spans different states, it’s vital to be aware of the variations in economic nexus laws across states. Here’s why it matters:

Different Thresholds

First, each state sets its thresholds for establishing economic nexus based on sales revenue or transaction volume. Therefore, it’s essential to be aware of these individual thresholds to remain compliant and avoid unnecessary complications.

As of 2026, here are the updated economic nexus thresholds in each state:

TaxHero Infographic: Economic Sales Tax Nexus Thresholds by State

STATE	EFFECTIVE DATE	SALES THRESHOLD
Alabama	October 1, 2018	$250,000 in sales during the previous calendar year
Alaska	varies per city	$100,000 in sales during the previous or current calendar year
Arizona	October 1, 2019	$100,000 in sales during the previous or current calendar year
Arkansas	July 1, 2019	$100,000 in sales OR 200 transactions during the previous or current calendar year
California	April 1, 2019	$500,000 in sales during the previous or current calendar year
Colorado	December 1, 2018	$100,000 in sales during the previous or current calendar year
Connecticut	July 1, 2019	$100,000 in sales AND 200 transactions during the 12-month period ending on September 30
Delaware	not applicable
District of Columbia	January 1, 2019	$100,000 in sales OR 200 transactions during the previous calendar year
Florida	July 1, 2021	$100,000 in sales during the previous calendar year
Georgia	January 1, 2019	$100,000 in sales OR 200 transactions during the previous or current calendar year
Hawaii	July 1, 2018	$100,000 in sales OR 200 transactions during the current or immediately preceding calendar year
Idaho	June 1, 2019	$100,000 in sales during the previous or current calendar year
Illinois	January 1, 2026	$100,000 in sales during the previous 12-month period
Indiana	January 1, 2024	$100,000 in sales in the calendar year in which the retail transaction is made or for the calendar year preceding the calendar year in which the retail transaction is made.
Iowa	July 1, 2019	$100,000 in sales during the current or immediately preceding calendar year
Kansas	July 1, 2021	$100,000 in sales during the current year or the year immediately prior
Kentucky	July 1, 2018	$100,000 in sales OR 200 transactions during the previous or current calendar year
Louisiana	August 1, 2023	$100,000 in sales during the previous or current calendar year
Maine	January 1, 2022	$100,000 in sales during the previous or current calendar year
Maryland	October 1, 2018	$100,000 in sales OR 200 transactions during the previous or current calendar year
Massachusetts	October 1, 2019	$100,000 in sales during the previous or current calendar year
Michigan	October 1, 2018	$100,000 in sales OR 200 transactions during the previous calendar year
Minnesota	October 1, 2019	$100,000 in sales OR 200 transactions during the twelve-month period ending on the last day of the most recently completed calendar quarter
Mississippi	September 1, 2018	$250,000 in sales prior to the twelve-month period
Missouri	January 1, 2023	$100,000 in sales during the previous twelve-month period reviewed quarterly
Montana	not applicable
Nebraska	April 1, 2019	$100,000 in sales OR 200 transactions during the previous or current calendar year
Nevada	October 1, 2018	$100,000 in sales OR 200 transactions during the previous or current calendar year
New Hampshire	not applicable
New Jersey	November 1, 2018	$100,000 in sales OR 200 transactions during the previous or current calendar year
New Mexico	July 1, 2019	$100,000 in sales during the previous calendar year
New York	June 21, 2018	$500,000 in sales AND 100 transactions during the preceding four sales tax quarters.
North Carolina	July 1, 2024	$100,000 in sales during the previous or current calendar year
North Dakota	December 31, 2018	$100,000 in sales during the previous or current calendar year
Ohio	August 1, 2019	$100,000 in sales OR 200 transactions during the previous or current calendar year
Oklahoma	November 1, 2019	$100,000 in sales during the preceding or current calendar year
Oregon	not applicable
Pennsylvania	July 1, 2019	$100,000 in sales during the previous 12-month period.
Rhode Island	July 1, 2019	$100,000 in sales OR 200 transactions during the previous calendar year
South Carolina	November 1, 2018	$100,000 in sales during the previous or current calendar year
South Dakota	July 1, 2023	$100,000 in sales during the previous or current calendar year
Tennessee	October 1, 2020	$100,000 in sales during the previous 12-month
Texas	October 1, 2019	$500,000 in sales on the preceding twelve calendar months
Utah	July 1, 2025	$100,000 in sales during the previous or current calendar year
Vermont	July 1, 2018	$100,000 in sales OR 200 transactions in the previous four calendar quarters
Virginia	July 1, 2019	$100,000 in sales OR 200 transactions during the previous or current calendar year
Washington	March 14, 2019	$100,000 in sales during the current or preceding calendar year
West Virginia	January 1, 2019	$100,000 in sales OR 200 transactions during the preceding or current calendar year
Wisconsin	February 20, 2021	$100,000 in sales during the previous or current calendar year
Wyoming	July 1, 2024	$100,000 in sales during the previous or current calendar year

Varied Definitions

Not all states define economic nexus in the same way. Some focus more on sales revenue, while others prioritize transaction volumes or physical presence. Keeping tabs on these variations helps in strategizing your ecommerce business operations effectively.

Seeking Expert Advice

Given the complexities, seeking advice from ecommerce sales tax professionals like TaxHero can be the best action. We can also help you navigate the maze of state laws, ensuring your ecommerce business remains compliant and thrives.

Economic Nexus for Different Business Models

Although economic nexus laws apply broadly, their impact can vary by business model. Therefore, to ensure your business remains compliant, you must understand how your specific industry interacts with nexus laws.

Economic Nexus for SaaS and Software

Software-as-a-Service (SaaS) is taxable in some states (such as New York and Texas) but not in others (such as California).

Nevertheless, even if your service isn’t taxable in a specific state, your gross revenue may still trigger a “non-collecting seller” reporting requirement.

If you are a SaaS provider, your nexus is often triggered purely by your digital footprint.

Economic Nexus for Wholesalers and B2B

In states that use “Gross Sales” as the threshold (like Illinois), your tax-exempt wholesale sales count toward the $100,000 limit. Also, once you hit the limit, you must register and collect valid Exemption Certificates from your customers to avoid being liable for the tax yourself.

The Role of Marketplace Facilitators

If you sell exclusively on Amazon, you may still have economic nexus. While Amazon collects and remits the tax in most states, your sales volume on their platform counts toward your state thresholds.

If you later launch your own direct-to-consumer website, you may already have an immediate obligation to collect tax because of your previous Amazon history.

What to Do if You Fall Below the Threshold?

Recently, several states have updated their laws to remove the “200 transaction” count. As a result, some businesses that previously registered solely on the basis of transaction volume may no longer meet the nexus requirements.

For example, if your business was previously registered in a state like Indiana or Utah solely because of transaction volume (and you don’t hit the $100,000 revenue mark), you may be eligible to de-register.

However, do not simply stop filing. You must follow the state’s formal “account closure” process to avoid “failure to file” penalties.

Frequently Asked Questions

1. How do economic nexus laws apply to me if I run a seasonal business?+

Seasonal businesses are not exempt from these laws. It’s crucial to calculate your sales and transactions during your operational months accurately to comply with the respective state’s thresholds and criteria.

2. How does economic nexus relate to other forms, like click-through or affiliate nexus?+

Economic nexus focuses on sales and transaction thresholds, whereas click-through and affiliate nexus revolve around relationships with affiliates in a state. Depending on your business model, you might need to comply with one or more nexus regulations.

3. What actions should I take if I realize my business has unknowingly established an economic nexus in a state?+

Suppose you find out that you’ve established an economic nexus unknowingly. In that case, it’s recommended to consult with a tax expert promptly to understand the necessary steps for compliance and rectify any past discrepancies.

Navigate Your State’s Economic Nexus With TaxHero

With all these regulations and variations, you’ll need a sales expert to determine which states your business has established economic nexus in. You can schedule a call with our CEO, who will personally onboard and explain how TaxHero conducts nexus checks.

Furthermore, we’ve got you covered with our comprehensive services, ensuring you understand the basics and adapt to state-specific laws. Let’s embark on this journey together for a successful and compliant ecommerce business adventure.

Download Economic Nexus Chart

TaxHero’s Sales Tax Economic Nexus Chart includes essential information, including each state’s thresholds, effective dates, sales inclusion criteria, tax rates, and filing deadlines.

With direct contact information for state revenue offices, you’ll have everything you need in one convenient resource. Don’t miss out on this invaluable tool for staying compliant and informed!

Sales Tax on Drop Shipping: All You Need to Know | TaxHero

Drop shipping has become a hot trend in ecommerce, allowing sellers to run their businesses without stocking inventory. While this model reduces upfront costs and lets you focus on sales and customer service, it also comes with its own challenges—especially around sales taxes.

Are you wondering how sales tax works in the world of drop shipping? This ultimate guide is here to help. We’ll break down the basics and give you the tools to handle your sales tax responsibilities like a pro.

What is Drop Shipping?

Drop shipping is an ecommerce model where an online store sells products to consumers without keeping them in stock. Instead, when a store sells a product, it purchases the item from a third-party vendor, who then ships it directly to the customer. In essence, the seller never sees or handles the product.

Imagine this: You’re the retailer, but instead of having a warehouse stacked with products, your role is more of an intermediary. When a customer orders on your website, you forward the details to a third-party supplier, who then handles packing and shipping the product directly to the customer’s doorstep. Pretty neat, huh?

This fantastic setup means you don’t have to deal with the nitty-gritty of inventory management or shipping logistics. It’s like being a curator for an art gallery; you select what goes on display and how to present it, while someone else handles the behind-the-scenes details.

The New Standard: Economic Nexus

While physical presence used to be the only way to trigger tax obligations, the 2018 Supreme Court changed everything. Today, most dropshippers trigger economic nexus once they cross a state’s financial threshold, most commonly:

$100,000 in gross sales, or
200 separate transactions in a calendar year

Note: Some states have gross sales thresholds greater than $100,000, such as Alabama ($250,000) and New York ($500,000).

In addition, as of Jan 1, 2026, many states (e.g., Illinois, Indiana, Iowa, and Maine) have removed the 200-transaction threshold.

Crossing these thresholds means you must register and collect sales tax in that state.

For more information about each state’s economic nexus, check out here: Economic Nexus: Everything You Need to Know.

The Three Points of View of Drop Shipping

The Customer

From the customer’s viewpoint, it’s business as usual—just like any other online shopping experience. They scroll through the online catalog, pick out what they like, and pay the retailer, including any relevant taxes. Then they simply wait for their package to arrive, hopefully within the estimated delivery window.

The Seller

When an order and payment come in from a customer, the seller springs into action. For any products not sitting in a warehouse—because we’re talking drop shipping here—the seller quickly places an order with their trusty supplier. Along with the payment, the seller shares the customer’s shipping details with the supplier to ensure the package reaches the correct destination.

The Supplier

Once the supplier receives the order and payment from the seller, it’s their turn to act. They locate the ordered items within their inventory, neatly package them, and then ship them to the customer’s doorstep. It’s a streamlined process that cuts out the middleman for shipping, making the whole transaction as efficient as possible.

Who Should Pay Sales Taxes in Drop Shipping?

Determining who is responsible for collecting and remitting sales tax in a drop-ship scenario can be complex. Sales tax is regulated at the state level, and each state has its own rules.

Generally, the seller (the retailer) should collect sales tax from the customer and then remit it to the appropriate tax jurisdiction.

However, in drop shipping, since the product goes directly from the supplier to the customer, three potential parties are involved: the customer, the seller, and the supplier.

If the seller (retailer) has a business presence (sales tax nexus) in the same state as the customer, then the seller is responsible for collecting and remitting sales tax.
If the seller (retailer) doesn’t have nexus in the customer’s state, but the supplier does, the supplier may be required to collect and remit sales tax in the customer’s state (this is particularly common in California; see the ‘10% Markup’ section below).
If neither the seller (retailer) nor the supplier has nexus in the customer’s state, generally, no sales tax needs to be collected and remitted.

Marketplace Facilitator Laws: Is the Tax Already Paid?

If you drop ship through platforms like Amazon, eBay, Etsy, or Walmart Marketplace, your tax burden is significantly lower. Under Marketplace Facilitator Laws active in 45+ states, the platform is responsible for calculating, collecting, and remitting sales tax on your behalf.

Note: You may still be required to register for a sales tax permit in states where you have nexus, even if the marketplace handles the money, to report your “exempt” marketplace sales.

Sales Tax Exemption Certificates in Drop Shipping

Sales tax exemption certificates can make the already complex world of drop shipping even trickier. Here’s the deal: when a retailer buys items for resale, they can often avoid paying sales tax by providing a resale certificate to their supplier.

It’s important for both parties, the retailer and the supplier, to be well-versed in the rules governing these certificates in the states where they operate.

Tennessee accepts out-of-state certificates for standard resale. However, they are notoriously strict about dropshipping. If a supplier ships to a TN customer on behalf of an unregistered retailer, the supplier often must charge tax.
Maryland has recently updated its guidance to allow more flexibility for registered out-of-state retailers, provided the goods are strictly for resale.
Some states, such as Hawaii, Illinois, and Massachusetts, do not accept out-of-state resale certificates for drop shipments. If your customer is in one of these states and you aren’t registered there, your supplier may be forced to charge you sales tax.

Mishandling the documentation of a tax-exempt sale may result in fines or other headaches. Therefore, it’s crucial to maintain accurate records to prevent potential issues down the road.

Dropshipping in California: The 10% Markup Rule

California is the most complex state for dropshippers. If your supplier is in California (or has a warehouse there) and ships to a CA customer on your behalf, and you are not registered for a CA permit, the supplier is liable for the tax.

To protect themselves, the California Department of Tax and Fee Administration (CDTFA) requires the supplier to tax the actual retail price if known. The 10% markup is a default safety net when the retailer refuses to share their margins.

Preparing for Sales Tax Compliance

Here are some steps to help you prepare for sales tax compliance:

Identify Nexus: First, determine where you must pay sales tax and which states your business has a presence in. This might include states where you have physical locations, employees, or even a high sales volume.
Register for Sales Tax Permits: Before collecting sales tax, you’ll need a permit from each state where you have nexus.
Calculate and Collect Sales Tax: Use automated tools or consult with tax professionals to ensure you charge the correct rate.
File and Remit Sales Tax: Depending on your sales volume, you’ll need to file and remit sales tax on a monthly, quarterly, semi-annually, or annual basis.
Document Exemption Certificates: If you’re using resale certificates, keep accurate records showing compliance with the law.

Frequently Asked Questions

1. What permits do you need for dropshipping?+

For dropshipping, you’ll generally need the same permits and registrations required for most businesses. This typically includes obtaining a business license or local permit, depending on your city or state requirements. You’ll also need to register your business with the appropriate state or local agencies.

In addition, most dropshippers must apply for a federal tax ID number (EIN), register with their state’s tax authority, secure a sales tax permit to collect and remit sales tax where required, and comply with state rules on unemployment insurance and workers’ compensation if they have employees.

2. Do I need to pay taxes if I sell on Spotify?+

Yes. If you sell on Shopify, you’re generally responsible for handling your own tax compliance. As the merchant of record, you must register for the required sales tax permits, file returns, and remit any sales tax you collect to the appropriate state authorities.

Shopify Tax now offers an automated filing feature in eligible U.S. states. However, you’re still responsible for ensuring your registrations and overall compliance are properly set up.

Learn more about Shopify Tax with our free guide: Does Shopify Collect Sales Tax? A Complete Guide To Compliance

3. What is the easiest item to dropship?+

There are 150 best dropshipping products to sell right now.

Here are some of the most searched product categories for dropshipping:

Apparel and footwear
Beauty and personal care
Kitchen and dining
Baby products
Pet supplies
Home décor
Phone accessories
Office products
Tools and home improvement
Car accessories

Let TaxHero Guide You!

Navigating sales tax when running a dropshipping business can be complex, but it doesn’t have to be a roadblock. With TaxHero by your side, you’ll have a clear roadmap and a hands-on guide to help you navigate your sales tax responsibilities. We handle everything for you, from figuring out which states to collect sales tax to filing your sales tax returns.

Still scratching your head about sales tax rules? Why not schedule a call with our CEO? We’re committed to simplifying the confusing parts and walking you through each process. Don’t let the complexities of sales tax hold you back from your e-commerce dreams.

Suppose you are a new ecommerce business hoping to become successful by selling products to your customers. One of your main concerns is how to save money when buying the products or raw materials you need. That’s where the multijurisdiction resale certificate comes in handy.

With this certificate, you can purchase products without the additional hassle of paying sales tax, especially if your vendors are located in different states.

To learn more about how this certificate can help your business, read this article.

Key Takeaways

Not all states accept multijurisdiction resale certificates.
The validity and usage of a multijurisdiction resale certificate depend on each state’s rules.
There are two kinds of multijurisdiction resale certificates. First is the Streamlined Sales Tax (SST) Exemption Certificate, and the second is the Uniform Sales and Use Tax Exemption Certificate. The SST is ideal for remote sellers, while the MTC form is most suitable for businesses already registered across multiple states.
Resale certificates cannot be used interchangeably with exemption certificates. These two documents generally have different purposes.
Improper use of resale certificates, whether intentional or not, may result in serious fines and additional penalties.

How is a Resale Certificate Utilized?

Resale certificates are typically used to exempt registered businesses from paying sales tax on items intended for resale. Essentially, it’s a way for businesses to avoid double taxation – paying sales tax when purchasing products and then charging sales tax when selling them to customers.

One of the primary ways businesses use resale certificates is when buying inventory or raw materials for their products. For instance, imagine you run an online store selling custom clothes. With a resale certificate, you can buy the clothes and materials needed to make them without getting hit with sales tax on those items, helping you save money and maintain competitive pricing.

When dealing with wholesale suppliers or distributors, providing a resale certificate is often a standard procedure. It simplifies transactions and ensures you’re not charged sales tax on items you intend to resell. This also helps establish a professional relationship with your suppliers.

A resale certificate is almost interchangeably called a reseller’s permit. It is also typically provided in a “blanket” form, which applies to all items purchased from the vendor.

A resale certificate is interchangeably called a reseller’s permit. It is also typically provided in a “blanket” form, which applies to all items purchased from the vendor.

Different states have different rules concerning resale certificates. While some states only take a state-issued certificate, others accept a multi-state certificate, also known as the multijurisdiction resale certificate.

What is a Multijurisdiction Resale Certificate?

A multijurisdiction resale certificate, also known as a uniform sales tax certificate, streamlines the process and allows businesses to obtain sales tax exemptions for multiple states simultaneously.

There are two options for this:

Streamlined Sales Tax (SST) Exemption Certificate
Multistate Tax Commission (MTC) Uniform Sales and Use Tax

If you have vendors and suppliers in multiple states, applying for the multijurisdiction resale certificate might be the way to go.

It’s essential to know that not all states accept the certificate. The Streamlined Sales Tax Exemption Certificate only works in the 24 states that are members of the Streamlined Sales Tax Governing Board.

The Uniform Sales & Use Tax Exemption Certificate is generally accepted in 36 states. However, the form itself lists at least 38 states. As stated on the MTC’s website, as long as a state is listed on the form, that state should typically be accepted by those states. For states that do not allow or obtain multijurisdiction resale certificates, you have to do the painstaking work of applying for a resale certificate for each state.

If you need help with your resale certificates or have any questions, book a call with our CEO at TaxHero.

Streamlined Sales Tax Exemption Certificate

Since there are different types of multijurisdiction resale certificates, here’s the difference between the two. First is the Streamlined Sales Tax Exemption Certificate. This certificate is issued by the Streamlined Sales Tax Governing Board (SSTGB).

The SSTGB was created to simplify the complex process of sales tax compliance. At the same time, the organization also helps reduce compliance costs.

Now, when is the best time to use the SST Exemption Certificate? What makes it different from the Uniform Sales and Use Tax Exemption Certificate? Using the SST Exemption Certificate is primarily beneficial when you are purchasing taxable goods for resale in one of the SSTGB’s member states.

As stated above, there are currently 24 member states in the SSTGB. Those states are:

Arkansas
Georgia
Indiana
Iowa
Kansas
Kentucky
Michigan
Minnesota
Nebraska
Nevada
New Jersey
North Carolina
North Dakota
Ohio
Oklahoma
Rhode Island
South Dakota
Utah
Vermont
Washington
West Virginia
Wisconsin
Wyoming
Tennessee

NOTE: Currently, Tennessee is only listed as an associate member.

Using the SST Exemption Certificate also offers additional perks for remote sellers, making it a more viable option for them.

Benefits of the SST Exemption Certificate

For example, if you don’t have a sales tax nexus in another member state, you can still use the SST Exemption Certificate and provide your home state’s sales tax ID to make a tax-free purchase for resale in another member state.

That’s because the SST Exemption Certificate allows you to use your existing IDs, so you won’t have to unnecessarily register in another state unless you have a nexus in that state.

Moreover, other member states, such as Wyoming, also accept the SST Exemption Certificate from unregistered businesses without a sales tax ID as long as:

The buyer has no nexus in any state and, therefore, is not required to register
The buyer can provide the following alternative documents for identification purposes:
- Business license or business ID number
- FEIN (Federal Employer Identification Number)
- Driver’s license number (if no FEIN or business ID)
- VAT ID number or any equivalent (for foreign purchasers)

Lastly, you can also use the SST Exemption Certificate to claim other exemptions, aside from resale exemptions.

Depending on the member state, you may use the SST Exemption Certificate to claim exemptions for:

Entity-based purchases for nonprofit organizations
Manufacturing exemptions for purchases of raw materials or components
Purchases meant for specific industrial use, such as agricultural supplies or equipment

Uniform Sales & Use Tax Exemption Certificate

The Uniform Sales & Use Tax Exemption Certificate is issued by the Multistate Tax Commission (MTC). Similar to the SSTGB, this organization’s goal is to simplify sales tax compliance.

While it primarily serves the same functionality as the SST Exemption Certificate, the difference is that the Uniform Sales & Use Tax Exemption Certificate is mainly designed for resale transactions only and is accepted by 36 states.

However, while it’s widely accepted in more states, this certificate generally requires you to provide a sales tax ID in the state where you have a nexus. Otherwise, vendors may not accept the certificate.

This makes the MTC exemption form less viable for remote sellers but beneficial for businesses already registered across multiple states.

Resale Certificate vs Exemption Certificate

Businesses must also know the distinction between resale certificates and exemption certificates.

Resale certificates are typically only used for resale transactions. This means you can only claim sales tax exemption through resale purchases.

Meanwhile, exemption certificates can be used for other tax exemptions, such as when claiming exemption as a non-profit organization. It’s important to know that some states strongly define these two documents differently, depending on their rules.

For example, Connecticut explicitly states that it can accept multijurisdictional resale certificates. However, the document is not valid or recognized as an exemption certificate in the state.

That’s because you can only use multijurisdictional resale certificates for resale purposes only. It cannot be used to claim exemptions for manufacturing or nonprofit organizations.

Therefore, as a general practice, businesses must know that these two documents cannot be used interchangeably.

Which States Do Not Accept a Multijurisdiction Resale Certificate?

Although many states allow the use of an out-of-state resale certificate for sales tax exemption documentation, the following 10 states generally require a valid state-specific sales tax permit registration before accepting multijurisdiction resale certificates from out-of-state businesses:

Alabama
California
Florida
Hawaii
Illinois
Louisiana
Maryland
Massachusetts
Washington
Washington D.C

NOTE: Despite being on this list, Washington state is a full member of the SST.

Therefore, while it typically does not accept out-of-state resale certificates without state-specific sales tax IDs, Washington will accept SST exemption certificates even from out-of-state vendors as long as you provide a valid sales tax ID from your home state and your form is properly completed.

Aside from these 10 states, businesses may also face challenges when using resale certificates in Virginia. That’s because Virginia’s Department of Taxation strictly allows out-of-state resale certificates only if they contain the exact information matching Virginia’s form ST-10.

What Should I Keep in Mind When I Use a Multi-state Resale Certificate?

Here are some of the tips you may want to remember when using the multijurisdiction resale certificate:

Use the document for its intended purposes only – Multijurisdiction resale certificates are to be used as a “blanket” resale certificate and for other similar purposes only, and not as a way to circumvent different exemption types on goods.
Recheck if the state accepts the form – As we’ve established above, some states don’t accept the multijurisdiction resale certificate, so make sure you only use it in states that accept it.
Read the document’s fine print diligently – Although some states accept the form, some have caveats or attached conditions. So make sure you are aware of all of this before using it.
Keep records – Always keep a copy of your resale certificate, both as a buyer and a seller. Your records can help prove the authenticity of your transactions in case of a sales tax audit. Generally, most states require you to keep records for at least 3 years. However, some states may recommend a longer timeframe.
Blanket Certificates vs Single-Purchase Certificates – Know the difference between blanket certificates and single-purchase certificates. The first one is used for consistent purchases. Thus, you only need to provide one resale certificate to your supplier.
A blanket certificate should cover all future transactions, provided that there won’t be any major changes in the transaction details. Meanwhile, single-purchase certificates should be used for individual transactions.
However, this means you have to provide another resale certificate in the future in case you purchase again from the same vendor. A single-purchase certificate cannot be converted into a blanket certificate. Therefore, you should carefully consider your business plans when transacting with vendors.

Common Mistakes When Using a Multi-state Resale Certificate

Being aware of the common mistakes when using a multi-state resale certificate is also another thing you must keep in mind. Here are the common issues you might encounter:

Missing Details in the Form – When your resale certificate is missing crucial information, it won’t be considered properly completed. At times, vague details about your business can also lead to invalidation of your resale certificate.
To prevent this, ensure your resale certificate contains the following information, especially when it is required in the form you are completing:
- Full legal name and address of the seller
- Complete details of your business, such as your legal name, address, and business type
- Valid state registration number, make sure the digits are correct
- The description of your business and the products you’re buying for resale
- A properly signed and dated authorized signature
Improper Use – Different states have different rules when it comes to the usage of resale certificates. Researching each state’s specific rules can help you avoid legal errors that may result in penalties.
As a general rule, using resale certificates means the items purchased must be guaranteed to be intended for resale and not for any other purposes.
Failing to Keep Records – Not having copies of your resale certificate can result in difficulties during audits. You may have a hard time proving your reason for claiming a sales tax exemption without proper records.
Skipping Verification – Some vendors trust their regular buyers. Therefore, they may choose to skip verifying resale certificates. However, single-purchase resale certificates should always be verified as proof that both sides did their part in abiding by the rules.

What Happens When A Multi-state Resale Certificate is Misused?

The improper use of any resale certificate can result in fines and other penalties. Depending on the severity of an offense, here are the penalties charged for misusing resale certificates:

STATE	PENALTIES
Alabama	Civil fine of at least $2,000 or double the tax due Loss of resale privileges for up to 2 years
Alaska	Civil penalty of $1,000 plus any owed taxes, interest, and fees Loss of resale privileges and even prosecution NOTE: Alaska has no statewide sales tax. The penalties on this list are typically imposed by Alaska’s taxing local jurisdictions
Arizona	Criminal penalties Felony charges
Arkansas	Liability for the unpaid sales tax with added interest Loss of resale privileges and even prosecution
California	Liability for the unpaid sales tax with added interest 10% penalty or $500 (whichever is greater) for each violation Potential misdemeanor charges under Revenue and Taxation Code §6094.5, punishable by a fine of $1,000 to $5,000 and/or up to one year in county jail
Colorado	$15 sales tax penalty or a percentage of the amount equal to 10% An additional ½ % for each month the due tax is unpaid. This penalty shall not exceed a total of 18%. False or fraudulent statements by any retailer can lead to a Class 5 Felony charge. Verifying false statements can also result in a Class 2 misdemeanor.
Connecticut	$5,000 fine or imprisonment of up to 5 years for false statements or both
Florida	3rd degree felony with a 200% penalty for resale fraud
Georgia	Liability for the unpaid sales tax with added interest Potential audits and/or loss of business license
Hawaii	Class C Felony for willful tax evasion, which may lead to a $100,000 fine Probation or imprisonment varying between 1 and 5 years, depending on the offense Misdemeanor charges for willfully failing to comply with certain tax duties or requirements
Idaho	5% penalty or $200, whichever is greater, for intentional or repeated misuse of a resale certificate, plus the sales tax owed Criminal misdemeanor charges for knowingly misusing a resale certificate, plus a fine not exceeding $1,000 and/or imprisonment of up to 1 year
Indiana	Class B Misdemeanor charges for committing tax evasion using an Indiana exemption certificate Imprisonment for a fixed period, not exceeding 180 days Additional fines with the total amount not exceeding $1,000
Illinois	Possible criminal prosecution Liability for the unpaid sales tax with added interest
Iowa	Liability for the unpaid sales tax with added interest Fraudulent intent includes sellers who fail to collect tax or encourage buyers to make unlawful exemption claims. The seller may be held responsible for any sales tax due from such transactions.
Kansas	Misdemeanor charges for misusing a resale certificate to avoid sales tax A penalty of $1,000 or imprisonment for up to one year, or both $250 civil penalty or ten times the tax due per transaction
Kentucky	Class B Misdemeanor charge according to the KRS 139.990
Louisiana	Liability for the unpaid sales tax with added interest
Maine	Misdemeanor charges Revocation of resale certificate Liability for the unpaid sales tax with added interest
Maryland	Misdemeanor charges Liability for the unpaid sales tax with added interest
Massachusetts	Liability for the unpaid sales tax with added interest Intentional misuse can lead to criminal tax evasion penalties of up to 1 year in prison and fines of up to $10,000 for individuals or $50,000 for corporations
Michigan	Liability for the unpaid sales tax with added interest
Minnesota	$100 fine per transaction for improperly using an exemption certificate to avoid paying sales tax Liability for the unpaid sales tax with added interest
Mississippi	Misdemeanor charges resulting in fines up to $500 and/or 6 months in jail. Civil penalties may also include full tax owed, up to 50% in damages, and interest
Missouri	A fine not exceeding $10,000 Imprisonment in the county jail for not more than one year, or both a fine and imprisonment Imprisonment in the state penitentiary for not more than five years, or both a fine and imprisonment
Nebraska	$100 fine or ten times the tax due, whichever is greater Fraudulently signing Form 13 may be considered a Class IV misdemeanor
Nevada	Misdemeanor charges and potential criminal charges Revocation of sellers permit and audit assessments
New Jersey	Liability for the unpaid sales tax with added interest
New Mexico	Potential legal assessments Liability for the unpaid sales tax with added interest
New York	A fine of 100% of the due tax $50 fine for each fraudulent resale certificate issued Revocation of Certificate of Authority (for vendors with nexus in New York) Criminal felony prosecution (which may lead to additional fines and possibly a jail sentence)
North Carolina	$250 penalty
North Dakota	Liability for the unpaid sales tax with added interest
Ohio	Liability for the unpaid sales tax with added interest
Oklahoma	An administrative penalty of up to $500 A fine equal to double the amount of sales tax due Possible misdemeanor charges, including up to 60 days in jail
Pennsylvania	Misdemeanor charges leading to a fine not exceeding $1,000 and/or 1 year imprisonment.
Rhode Island	Liability for the unpaid sales tax with added interest
South Carolina	Liability for the unpaid tax plus a penalty of 5% of the tax for each month the tax remains unpaid, up to a maximum of 50%
South Dakota	Liability for the unpaid sales tax plus 50% additional charge of the tax owed Class 1 Misdemeanor for intentionally filing an exemption certificate with the intent to evade payment of tax
Tennessee	Exemptions become invalid and are now taxable Possible revocation of Tennessee sales tax registration Class C Misdemeanor charges and liability for the unpaid sales tax with added interest
Texas	$20 to over $20,000 fine, depending on the severity of the offense
Utah	Liability for the unpaid sales tax with added interest
Vermont	Liability for the unpaid sales tax with added interest
Virginia	$1,000 penalty Temporary suspension of your resale certificate Using a suspended resale certificate leads to a Class 1 misdemeanor Misusing a Virginia resale certificate with fraudulent intentions may lead to imprisonment or a $2,500 fine
Washington	Possible reseller permit or other license revocation Liability for the unpaid sales tax with an additional 50% penalty
West Virginia	Misdemeanor charges Liability for the unpaid sales tax with added interest
Wisconsin	Misdemeanor charges 50% of the tax due may be added due to intentional tax evasion
Wyoming	Misdemeanor charges Liability for the unpaid sales tax with added interest

Let TaxHero Help With Your Resale Certificate Concerns

If you operate an ecommerce business and are looking to save money through sales tax exemption on products you plan to resell, TaxHero is here to assist you with your resale certificate. Schedule a time with our CEO, who will personally guide you through your questions or concerns.

You don’t have to handle everything all on your own. We’ve got your back.

Frequently Asked Questions

1. What should I do if my supplier won’t accept my multijurisdiction resale certificate?+

Unfortunately, accepting a resale certificate is at the discretion of suppliers, as they are the ones running the risk of doing so. One recourse you may take is to comply with their requirements, which might be time-consuming and complicated.

Alternatively, you can sign up for TaxHero, as this is part of our all-inclusive, full-stack services, and we will handle everything for you!

2. Who is responsible for covering the cost of a resale certificate?+

Sellers typically pay for the resale certificate at the time of the application. However, businesses can generally obtain resale certificates for free by downloading the forms from the respective state websites.

3. How to get a US sales tax exemption certificate?+

To get a US sales tax exemption certificate, you must first know which certificate you need. An exemption certificate is different from a resale certificate. If you’re a business making taxable purchases for resale purposes, you need a resale certificate to claim a resale exemption on sales tax.

To obtain a resale certificate, you have two options:

Get a resale certificate form from the appropriate department of any state.
Use the multijurisdictional resale certificates found on each organization’s website
- Streamlined Sales Tax Exemption Certificate or
- Uniform Sales and Use Tax Exemption Certificate

NOTE: If you are looking to claim an exemption on other taxes aside from the resale exemption, you may need to contact the state’s appropriate departments. Some states require a different form when it comes to exemption certificates, as resale certificates are only valid for resale purchases.

What is sales tax, and how does it work? | TaxHero

If you have ever wondered what is sales tax, you’re not alone. Understanding what sales tax is and how it works should be your utmost priority, especially if you’re a newly established ecommerce business owner.

You’re probably intimidated by the amount of information you have to learn at once. But once you get the hang of it, with the help of TaxHero, you have nothing to worry about.

To guide you through, we have broken down below what you need to know about the topic.

Key Takeaways

Sales tax varies across states, counties, and cities. The state sales tax is not the same as the combined rate. The combined rate should encompass the tax rates of the state, county, city, and any applicable district taxes.
You only need to collect sales tax when you meet two primary conditions: your business has a nexus in a state, and you’re selling a taxable product in the state where you have a nexus.
The application of sales tax on goods and services also varies depending on each state’s rules. In some states, there are goods or services that are exempt from sales tax at the state level. However, local taxation may still apply.
You are responsible for collecting and remitting sales tax once your business establishes a nexus and you have registered your business in the state where you have a nexus.
Online or remote sellers should still register and collect when they establish an economic nexus in any taxing state.

What is Sales Tax?

In a nutshell, it is a consumption tax collected whenever a purchase of products or goods and services is made. It is also generally added to the product price and remitted to the state government to be used to fund its programs and projects.

It is essential to understand that the Federal Government does not collect a federal or national sales tax. Instead, it is regulated at the state and local level, including cities, counties, and other special districts. That’s the reason why it varies from one state or territory to another.

State Sales Tax

As briefly mentioned above, sales tax is mandated at either the state or local level. The state sales tax is imposed by the state authorities. However, the state rate doesn’t represent the entire state’s tax rates.

For clarification, the state sales tax is separate from any local sales tax. That means a state’s total tax depends on the combined rates coming from both the state level and local tax rates, plus any additional special district taxes.

You must also know that some states have different kinds of taxes that function almost just the same as sales tax.

For example, Arizona has a Transaction Privilege Tax (TPT), and Hawaii has a General Excise Tax (GET). But despite the distinct tax names, people still generally recognize them as sales tax.

Local Sales Tax

Local sales tax typically refers to the state’s local jurisdictions, like the counties and cities. Sometimes, local tax includes special district taxes and other local option taxes. It’s important to know that state taxabilities are not always the same as local taxabilities. To ensure you stay compliant, checking local rules is also a critical step.

How Does U.S Sales Tax Work?

Sales tax is computed based on the percentage of the sales price, with the rate varying from one jurisdiction to another, and some local governments also collect their own.

To calculate your tax, you must list the price of your taxable product, including any taxable shipping charges. After that, take the state’s combined sales tax rate, depending on where you are selling. Then, convert the state’s combined sales tax rate into decimal format.

Once you convert the rate into decimal format, multiply your product’s price by the decimal format. The result is your estimated sales tax for that transaction.

Here’s the simplified formula breakdown:
Price of Goods + Shipping Fee x
State Sales Tax Rates +
Local Sales Tax Rates
= Your Total Sales Tax

Example Scenario:

You’re selling a taxable product worth $50 with a shipping fee of $10. This brings your total sale price to $60.
The product was shipped to New York City, New York, where shipping is taxable.
The combined state, county, city, and other local rates in New York City, New York, is 8.875%.
Convert the state’s combined sales tax rate into decimal format.
8.875% turned into decimal format is: 0.08875
Now, multiply your sale price by the decimal format of the combined sales tax rate of the city, county, and state.
60 x 0.08875 is = $5.325
When rounded off, this amount becomes = $5.33
Finally, add everything to your base sales price to accurately collect sales tax from your customers.
[Product Price] $50 +
[Shipping Fee] $10 +
[Calculated Sales Tax] $5.33
TOTAL = $65.33

To simplify the calculation, you can also use TaxHero’s FREE Sales Tax Calculator.

As shown in the example above, the combined sales tax rate refers to the combined state and local (i.e., County, City, District) sales tax rates.

You must also understand that the collection and remittance are the sole responsibility of the seller. Learn more about this in the following sections.

How Sales Tax Applies to Goods and Services

Not all transactions are subject to sales tax. So, how or when does sales tax apply to goods and services? The answer varies depending on the state’s specific rules.

What’s taxable in one state may be exempt in another. Additionally, what’s exempt at a state-level could still be taxable by the local government. With this complexity, navigating sales tax can be difficult.

So, how to easily identify the taxability of goods and services? Here’s what you can do:

Check the state’s specific rules – Most states tend to have a dedicated page indicating which goods and services are subject to sales tax or not. As long as you engage in business with a taxing state, reading the rules is a crucial compliance step.
Verify the local taxability – Once confirming information at the state-level, you can take an extra precautionary step by verifying whether the county or city applies any local surcharge to the product you are selling. This practice can help avoid calculation errors.
Read detailed guides – Just as you are reading this blog, you can also check out other posts that can guide you in terms of identifying whether a product is taxable or not. TaxHero offers state-by-state guides you can always refer to.

NOTE: Sales tax rates and rules change intermittently. To stay compliant, always keep an eye on relevant news updates.

Which States Collect and Do Not Collect?

As of February 2026, a total of 45 states, including the District of Columbia, collect state-wide sales tax. On top of this, most local governments within the states also collect their own. However, the following states do not allow their local governments to collect:

For clarification, New Jersey still has an Urban Enterprise Zone, where a reduced local sales tax of 3.3125% is applied.

Meanwhile, the states that do not collect sales tax are called the “NOMAD” states, a name derived from the first letter of those states.

The members of the NOMAD states do not have a sales tax, and those states are:

NOTE: Alaska allows its local jurisdictions to impose and collect local sales tax. Also, Oregon has a Corporate Activity Tax that functions similarly to a gross receipts tax, which can affect businesses in Oregon.

What are the Sales Tax Rates in each State?

Check out the table below to know what the rates are in each state:

STATE	SALES TAX RATE
Alabama	4%
Alaska	0% * Local rate varies across jurisdictions
Arizona	5.60%
Arkansas	6.50%
California	7.25%
Colorado	2.90%
Connecticut	6.35%
Delaware	0%
District of Columbia	6%
Florida	6%
Georgia	4%
Hawaii	4%
Idaho	6%
Illinois	6.25%
Indiana	7%
Iowa	6%
Kansas	6.50%
Kentucky	6%
Louisiana	5.00%
Maine	5.50%
Maryland	6%
Massachusetts	6.25%
Michigan	6%
Minnesota	6.875%
Mississippi	7%
Missouri	4.225%
Montana	0%
Nebraska	5.50%
Nevada	6.85%
New Hampshire	0%
New Jersey	6.625%
New Mexico	4.875%
New York	4%
North Carolina	4.75%
North Dakota	5%
Ohio	5.75%
Oklahoma	4.50%
Oregon	0%
Pennsylvania	6%
Rhode Island	7%
South Carolina	6%
South Dakota	4.20%
Tennessee	7%
Texas	6.25%
Utah	4.85%
Vermont	6%
Virginia	4.30%
Washington	6.50%
West Virginia	6%
Wisconsin	5%
Wyoming	4%

When to Collect Sales Tax?

Knowing what sales tax is and how it works is one thing, but knowing when to start collecting sales tax is another concern most new businesses tend to ask.

The short answer: You must start collecting sales tax once your business is registered in a state and it has established a sales tax nexus.

What is Sales Tax Nexus?

A sales tax nexus is a rule created to define your business presence in a state. You may view it as a bridge that connects your business to a state’s economic system. Once you fully cross that bridge, a sales tax nexus is formally established with that state.

When a sales tax nexus is created, your business is generally required to register in the state and begin collecting and remitting sales tax.

But how can you identify once a sales tax nexus exists for your business? Two types of sales tax nexus determine your business’s presence in a state: physical nexus and economic nexus.

Physical Nexus

A physical nexus is established by having a substantial physical presence or engaging in enough taxable sales activities within a state. Here are the common factors that create a physical nexus in most states.

Physical Location: Having an office, a place for distribution, sales, or showcasing products, a warehouse or storage facility, or any other place where you conduct business.
Inventory in the State: Storing products within the state, whether it’s done via a third-party fulfillment center or 3PL (such as Amazon FBA) or an online marketplace.
Business Representatives: Having employees, independent contractors, agents, or other representatives operating within the state on your behalf.

Keep in mind that these are only 3 common factors for a physical nexus. Some states may have other conditions for establishing a physical nexus, such as an affiliate nexus or click-through nexus, as well as being present in trade shows, and more.

Economic Nexus

Economic nexus is established based on two common factors.

Total sales revenue
The number of transactions you’ve had within the state.

Each state has different thresholds, and these thresholds are also subject to change.

For example, in Alabama, the economic nexus threshold is only $250,000 in gross revenue in the previous calendar year’s sales. Once you meet that amount when making taxable sales in Alabama, you now have an economic nexus in the state.

Note that Alabama has already eliminated its 200-transaction threshold, and other states may also do the same.

To check each state’s economic nexus threshold, read: Ultimate Guide to Understanding Economic Nexus

Who Should Register for Sales Tax

As explained above, you should start collecting sales tax once you create a sales tax nexus. Now that you know the two types of nexus, which one can your business trigger?

State-based Businesses: Generally, in-state businesses can quickly establish a physical nexus in the state due to having physical presence, such as having physical stores or warehouses. This often leads local businesses to register almost immediately, unlike remote sellers selling in another state.
Out-of-state Businesses or Remote Sellers: Remotely selling taxable goods in a state can still make you liable to sales tax obligations once you establish an economic nexus in a state. This means that even if you have no physical presence in the state, businesses must still register for sales tax as long as they create an economic nexus.

Did you know there’s an easy way to keep track of your nexus nationwide? You can try TaxHero’s nexus analysis through our free demo!

How to File Sales Tax Returns

Once you register your business in a state, you become responsible for collecting and remitting sales taxes accurately and on time. If it’s your first time filing a sales tax return, a general rule is that every state has different procedures, requirements, and due dates when filing sales tax returns.

In today’s digital age, where most things can be done online, we can generalize the steps for filing sales tax returns online into this standard process:

Step 1: Prepare your ecommerce tax report (e.g., tax report from Shopify) – Make sure that your report is accurate and contains all the information you need to file your sales tax return correctly.
Step 2: Search for your state’s filing website – For example, Colorado instructs filers to use “Revenue Online” for a simplified filing process. Usually, the filing website is the same page when you register a business online. However, other states could have unique links that may direct you to.
Step 3: Log in using your sales tax account – Generally, this account refers to your state sales tax account, which is typically created when you register your business online.
Step 4: Locate the “File Return” option – Different state websites have different layouts, but since your goal is to file a return, most of them should have this option, or it may be worded differently.
Step 5: Begin filing your sales tax return – Make sure you select the correct filing period and enter your data based on your tax report. Usually, there’s an option to save your return as a draft and continue later, in case you can’t complete the return immediately.

FILING TIP: A few states offer a discount for those who file their returns on time. This is commonly referred to as a “timely filing discount.” However, some states may use different terms, like Nevada’s “Collection Allowance.”

To claim the discount and help save, ensure you always file on time.

How to Stay Compliant with Sales Tax Regulations

With the complex nature of sales tax rules in the U.S., staying compliant feels like a difficult endeavor. To ensure your business abides by the varying laws, here are 7 critical things every business should know to stay compliant.

Keep track of your nexus – It’s important to know where you stand in the “invisible bridge” that connects your business to a state’s economic system. Once you cross that bridge and establish a nexus, you’ll have to comply with tax regulations. Failure to comply results in penalties that can harm your business.
Check every state’s specific rules – Never assume that one state’s sales tax rule is the same as another’s. Even if some rules seem common among many states, it’s still best to navigate safely by verifying every individual state’s specific rules.
Always keep records – Your transactions are proof of your business activities. Once your business creates a nexus, a good practice to stay compliant is to maintain records. These records will help your business stay clear during audits and avoid penalties.
Register your business – Once a nexus is established, don’t delay your business’s registration. Otherwise, you risk being liable for non-compliance. If you need help registering your business, you can let TaxHero do it for you or read our state-by-state guides.
Identify your product’s taxability – The taxability of goods and services varies depending on the state’s specific rules and guidelines. You must know where your product is subject to taxation and where it is exempt.
Calculate with precision – Even a small difference in the report can cost you an audit. This is why tip #3 is crucial; your records can also help you calculate your total sales tax accurately. Always be mindful of local taxes, district taxes, and local option taxes that may apply to your transactions.
Remit sales tax on time – After registering your business, make sure you never miss your returns and their filing due dates. Dates vary across states, so always check the correct due dates for the states you are selling in.

NOTE: You can also consider outsourcing sales tax compliance by choosing the most fitting tax software for you. With TaxHero, we take care of all your compliance needs so you don’t have to.

What are Sales Tax Penalties?

Sales tax penalties are given to those who fail to comply with state and local laws. When they charge a penalty, it often comes with fees and interest, plus the risk of imprisonment. In some cases, authorities may also revoke business permits.

Depending on the offense and the state’s rules, the charges may vary. To learn more about penalties, read our guide.

Looking for help with your business’s needs? TaxHero got you!

We understand that it could be a lot for online businesses, especially the newly established ones, to handle their sales taxes. But worry not, for TaxHero’s team of experts and certified public accountants is here to take the stress of doing your taxes off your list so you can focus on building and expanding your business.

You may book a time with our CEO. TaxHero is eager to contribute to your success by helping streamline your tax compliance matters.

Frequently Asked Questions

1. I am an online seller. Do I have to collect sales tax on all the sales
I make?+

Yes, online sellers do have to collect sales tax, but not on all sales that you make. Generally, you should only collect if you meet two conditions. First, you have a nexus in the state where you are selling. Second, the product you’re selling is subject to taxation in that state.

2. What does sales tax holidays mean?+

A sales tax holiday is a limited time when states allow a tax-free purchase of specific items. States typically offer this to encourage consumer spending. There are 3 common recurring sales tax holidays across various states:

Energy Star Appliance – This holiday encourages buyers to purchase energy-saving appliances like refrigerators and washers.
Emergency Preparedness – Common in states that are prone to hurricanes, such as Alabama, Florida, and Texas.
Back-to-School Sales Tax Holiday – The most common sales tax holiday that typically occurs between late July and August. This holiday usually exempts goods like clothing, footwear, school supplies, and sometimes even personal computers or tablets.

3. Are products like food, clothing, SaaS, and shipping taxable?+

Products like food are generally not taxable in most states. However, some states do impose sales tax on it. There are also states that exempt grocery food from the state-level, but still allow the local government to impose taxation on food.

Clothing is considered a tangible property that can either be taxable or non-taxable, depending on the state. Many states offer partial exemptions from sales tax for clothing that they deem necessary.

SaaS is currently non-taxable in a few states, but many states are beginning to impose sales tax on electronically-acquired software. Additionally, as states continue to adapt to the changing marketing trends, more states may eventually broaden their tax base to include the taxability of SaaS and other digital goods.

Sales tax on shipping differs by state, as some states impose tax while others don’t. There are also unique conditions depending on the state. For example, in Florida, shipping is exempt if the shipping option is optional and the buyer has a pick-up option. Additionally, the invoice must state the shipping charges separately for the exemption to be valid.

Meanwhile, in states like New York and Texas, businesses generally charge customers taxes on shipping charges by default, even if they itemize the goods separately.

Selling online? Learn about ecommerce sales tax | TaxHero

Sales tax and Ecommerce go hand in hand. Whether you like it or not, you must pay sales tax as a customer. As a seller, you must collect and remit it unless you live in a state with no sales tax. In a 2020 Statista report, 35% of tax revenue collected by the US government was from sales tax.

Whether you are collecting sales tax using Shopify or another ecommerce platform, sellers always look for ways to simplify tax collection and management. Understanding the basics of sales tax to comply with relevant legal formalities and requirements is essential.

Here is the complete sales tax guide for ecommerce sellers with a step-by-step breakdown for Shopify stores and other online businesses. Let’s begin with the definition of sales tax.

What is Sales Tax?

Sales tax is a consumption tax charged as a percentage of the taxable goods purchased during the point of sale. The sales tax goes to the state government for developmental projects.

In ecommerce sales, sales tax collection and remittance are the responsibility of the online retailer to the state. The seller is responsible for charging customers the right amount of tax, collecting it, filing, and remitting it to the state.

You are responsible for sales tax collections and remittances in the following conditions.

The product you sell or the service you offer is taxable.
Your business has a physical or economic sales tax nexus in the state.

What is Nexus?

Many sellers are curious about the term nexus and what it means. It represents a connection between a seller and the state where their business resides.

Regarding business, a sales tax nexus can be of two types.

Physical Nexus: A physical nexus refers to the physical presence of a business in a state. It can be an office, store, warehouse, inventory, employees, etc.
Economic Nexus: This was based on South Dakota v. Wayfair 2018 US Supreme Court decision. The decision resulted in the state’s ability to collect sales taxes from ecommerce and other remote transactions. The ruling eliminates the requirement that a seller must have a physical presence in the taxing state to collect and remit sales taxes to that state.
An economic nexus is formed when an online business meets a specific sales threshold or crosses a particular number of transactions. These transaction limits and sales thresholds keep changing, and economic nexus laws vary among states. Some do not set a transaction limit, while others do, along with a sales threshold.

Ecommerce sellers must check and understand the sales tax rules for each state to know if they need to collect and remit sales tax.

How to Collect Sales Tax? 5 Steps to Sales Tax Compliance.

The following are the steps you need to undertake as an ecommerce retailer to comply with sales tax laws in your state.

1. Check Taxability and Sales Tax Requirements for each State

Every state tax the products you sell or services you offer differently. For instance, if you deal with groceries or prescription drugs, you may be exempt from sales tax in many states. On the other hand, most tangible personal property is subject to sales tax. Also, some products under a specific price limit are exempt from sales tax in some states. Some other items that may not be taxable in each state include clothing, supplements, and digital items, such as Software-as-a-Service (SaaS) products.

You must check taxability by each state since every state has different sales tax rules for product taxability.

As an online seller or a service provider, you must also determine if your business meets the requirement for nexus within each state. You must collect and file sales tax when you identify that you meet these requirements. While this can be complex, sales tax solutions and services like those offered by TaxHero exist. You can contact their Sales Tax experts team, who will simplify the process for you.

2. Register for a Seller’s Permit

It is necessary to register yourself as a seller in your nexus state. You need a sales tax permit, also known as a seller’s permit, before collecting and remitting sales tax as an ecommerce seller.

Some states may allow you to collect tax without a permit, but most don’t. You must know how to get a seller’s permit before applying. Visit the website of the Department of Revenue for each state to understand the application process. You can refer to our guide to learn everything you need to know about a seller’s permit.

3. Collect Sales Tax

Now, you are all set to collect the sales tax from your customers. As you may already know, every state has a different sales tax rate.

Not only are 45 states collecting state sales tax, but 38 states also collect local sales tax. Therefore, it is essential to check the local tax rate too. As the names indicate, state sales taxes are imposed by the state, while local municipalities impose a local sales tax. In the US, state sales tax rates range between 2.9% – 7%, whereas local tax rates vary between 0.30% – 8.3%.

Some states require ecommerce sellers to collect sales tax on origin-based sourcing, while others prefer destination-based sourcing. Online sellers must correctly set up their sales tax collection on their Shopify store or other ecommerce platforms like BigCommerce and WooCommerce.

4. Report and File Sales Tax

Knowing how to collect sales tax is one part of the step, and reporting and filing it is the other.

While all states allow online sales tax filing, it is more complex than just adding up the total transactions in each state. States need to know how much sales tax you’ve collected in their revenue jurisdictions by city, county, and special tax districts. If you sell on multiple sales channels, you must combine your sales tax into one report for each state to submit the returns accurately.

What if you did not collect sales tax during the taxable period? You still need to file zero sales tax returns.

Breaking down your tax transactions may get complicated, especially with large sales volumes. You can use a full-stack sales tax solution, like TaxHero, to make it simple.

You must also ensure you file the sales tax returns timely and by the due date. Each state will have a specific due date and assign a tax filing frequency when you get your seller’s permit. Your frequency of tax remittance also varies state by state, which may be monthly, quarterly, semi-annually, or annually. You must remember to file your sales tax returns a day or two before the due date.

5. Avoid Penalties

The sales tax compliance process continues even after the collection and remittance of sales tax to the state. You must consistently improve your tax filing record to avoid penalties for unsatisfactory sales tax collections and remittances.

Knowing and remembering your sales tax due dates is essential to avoid penalties, as it can result in the revocation of your sales tax license. As mentioned, due dates and tax filing frequencies differ by state. If you conduct business in multiple states, keep track of all the due dates and filing frequencies separately.

Do Ecommerce Platforms Automatically Handle Sales Tax?

Many online sellers believe that turning on tax settings inside their store means everything is taken care of. Platforms can assist with calculations, but they do not monitor your business activity or make compliance decisions for you.

Here is what platforms usually help with:

Applying tax rates during checkout based on the address entered by the customer.
Showing sales reports that summarize how much tax was charged.
Collecting tax for certain marketplace transactions when laws require it.

Here is what platforms typically do not manage:

Notifying you when your sales activity creates new obligations in another state.
Registering your business with tax authorities.
Submitting full tax returns across multiple jurisdictions.

Origin-Based vs Destination-Based Sales Tax for Ecommerce Sellers

Different states use different rules to decide which tax rate applies to an order. This decision is based on location, not on how much tax you collect or how often you file.

These terms simply describe where the rate comes from:

Origin-based sourcing means the rate is tied to the seller’s business location.
Destination-based sourcing means the rate follows the customer’s delivery address.
Some states use a combination of both, depending on how the order is fulfilled.

For online sellers, this affects how tax appears at checkout rather than how returns are filed. Reviewing which rule applies to your store helps prevent incorrect rate calculations.

Common Ecommerce Sales Tax Mistakes That Lead to Compliance Issues

Many problems happen because sellers assume ecommerce works the same way everywhere. The challenges below are not about filing steps but about how businesses interpret their responsibilities.

Common misunderstandings include:

Believing that marketplace tax collection removes every reporting obligation.
Expanding into new states without realizing that sales volume alone can create new requirements.
Leaving default platform settings unchanged even after business growth changes where orders come from.
Focusing only on state rates while overlooking smaller local jurisdictions.

These issues usually develop slowly, which is why periodic reviews of your setup can help reduce risk.

When Do Ecommerce Sellers Need Professional Sales Tax Support?

Some businesses reach a point where managing tax internally begins to slow down operations. This does not always happen because rules are difficult, but because growth increases the number of moving parts.

You may consider outside support when:

Sales data comes from multiple platforms and is difficult to combine into one report.
Orders ship to many different locations, making rate verification time-consuming.
Filing calendars become difficult to track across several states.
Administrative work starts taking time away from running the business itself.

Professional guidance can help sellers organize processes without needing to manage every detail alone.

Need Help with Sales Tax? We’ve got your Back.

Understanding sales tax is one thing; doing it is another. Book a call with TaxHero and let a certified public accountant take your sales tax woes away! Whether you have just begun your ecommerce business or are a market leader, we are eager to contribute to your success by streamlining your sales tax matters…

Does Shopify Collect Sales Tax? A Complete Guide to Compliance

Does Shopify collect sales tax for you? Yes, it calculates and collects sales tax from your customers at checkout. However, it does not remit those taxes to the government on your behalf.

Shopify’s automated system determines the correct sales tax rate based on your customer’s shipping address and applies it to each transaction, making the collection process straightforward.

This guide explains how to identify where you owe sales tax (nexus), set up Shopify Tax, and understand the difference between collecting and remitting sales tax to help you stay compliant with state and local regulations. By the end, you’ll have a clear understanding of your responsibilities and the tools available to help you manage sales tax effectively.

Does Shopify Collect Sales Tax?

Shopify serves as the platform that automates sales tax calculations and collection at checkout, but it is the taxing authorities, such as state and local governments, that set the rules and receive the remitted taxes.

As the “merchant of record,” the seller is ultimately responsible for tax compliance, including registering for permits, filing returns, and remitting collected taxes. However, as of 2026, Shopify Tax is a comprehensive service that includes Shopify Tax Automated Filing as an integrated feature for eligible U.S. states. This facilitates both the filing and remittance of collected sales tax on your behalf, streamlining compliance and reducing manual effort.

What is Shopify Tax?

Shopify Tax is a specialized tool designed to streamline sales tax compliance for U.S.-based merchants. By analyzing customer addresses and specific product categories, the feature automatically calculates and applies the most accurate tax rates at checkout.

It also includes a liability insights tool, which monitors your sales data to help you identify where your business may have reached nexus. While the system provides the data and calculations needed, it is not automated by default; merchants must manually enable tax collection for specific jurisdictions within their admin settings.

The service is accessible to all Shopify users, offering a cost-effective solution for growing businesses. It is free of charge for your first $100,000 in annual U.S. sales each calendar year. Once you surpass that threshold, Shopify applies a small calculation fee to orders in states where tax collection is active: 0.35% for standard plans and 0.25% for Shopify Plus users.

Shopify Tax vs. Manual Tax

When managing sales tax on Shopify in the U.S., merchants can choose between Shopify Tax (Shopify’s automated tax solution) and a manual tax setup. Here’s how they compare:

Shopify Tax: Shopify’s automated tax engine for U.S. merchants, offering advanced features like smart product categorization, address-level rate accuracy, and automated filing in supported states.
Manual Tax: Merchants manually configure tax rates and rules for each state and locality, update rates as laws change, and handle all compliance steps without automation.

Comparison between Shopify Tax and Manual Tax

The right choice depends on your store’s size, complexity, and desire for automation. Here’s a side-by-side comparison:

FEATURE	Shopify Tax (Automated)	Manual Tax Setup
Tax Rate Calculation	Automated, rooftop-level accuracy	Manual entry, zip code, or state
Product Tax Categorization	Automated, with guidance	Manual, must research categories
Rate Updates	Shopify updates rates automatically	Merchant must update rates
Reporting Tools	Enhanced, exportable reports	Basic, manual reconciliation
Automated Filing & Remittance	Integrated in eligible states	Not available
Compliance Risk	Lower, due to automation	Higher, due to manual processes
Filing Fee	$75 per return ($50 for Plus)	Varies by state; typically free if self-filed
Pricing	Transaction-based (no subscription)	Free
Best For	Growing/multi-state U.S. merchants	Small, single-state merchants

Note on Pricing: Shopify Tax does not charge a monthly subscription fee. It is free for your first $100,000 in annual sales. After that, a small transaction fee applies (0.35% for most plans; 0.25% for Plus), capped at $0.99 per order.

Understanding Sales Tax Nexus: When Are You Required to Collect

While Shopify makes it easier to calculate taxes, understanding sales tax nexus ensures you know where you must collect tax. Various factors establish nexus, such as having a physical presence, employees, or economic activity in a state.

Physical Nexus

A physical nexus is established when your business has a tangible presence in a state, such as an office, warehouse, or employees, creating a legal obligation to collect and remit sales tax in that state. Consequently, this requires compliance with local sales tax laws.

Economic Nexus

An economic nexus ensures you know where you must collect tax. Various factors establish nexus, such as having a physical presence, employees, or economic activity in a state.

Currently, most states, including California, New York, Texas, and Illinois, base their economic nexus solely on sales volume and no longer consider the number of transactions. Now, their economic nexus is typically based solely on sales volume, often $100,000 or $500,000 in annual sales, regardless of physical presence.

Always check each state’s current requirements, as thresholds and rules can change.

Tracking exposure inside Shopify

To help sellers monitor their tax obligations, Shopify provides a liability tracker tool that highlights where your business is approaching or has crossed nexus thresholds.

This automatically reviews your Shopify sales data, and highlights states where you have either reached or are approaching nexus thresholds, displaying statuses such as:

Monitoring: If you have reached 80% of a state’s threshold.
Action Required: If you have crossed the threshold and must register to collect tax.

By regularly reviewing this tracker, you can proactively identify new tax liabilities, register in the appropriate states, and ensure you remain compliant as your business grows.

Step-by-Step: How To Configure Shopify For Tax Collection

Before you can legally collect sales tax from customers, you must register for sales tax permit with each state where you have established nexus. Collecting sales tax without a valid permit is prohibited and can result in penalties.

The registration process typically involves applying through the state’s Department of Revenue, providing business details, and receiving a permit number. After that, you can begin setting up your Shopify account.

From your Shopify admin, go to Settings > Taxes and duties.
In the Manage sales tax collection section, click your country or region.
Click Collect sales tax.
In the Tax number, enter your tax number. If you have applied for a tax number, but don’t have one yet, then leave this field blank. You can update it when you receive your number.
Click Collect tax.
Optional: To add more regions and account numbers, click Collect sales tax.

Managing Overrides and Exemptions

Overrides are where brands either get very precise or very confused. Common override needs include tax-exempt products, reduced rates, and differences in shipping taxability by state.

For B2B sales and exemption claims, Shopify Tax now offers an integrated exemption feature. Sellers can now upload and manage exemption certificates directly within the customer profile in the Shopify admin, streamlining compliance and recordkeeping.

While Shopify can improve the transaction experience, maintaining accurate exemption records in the platform is essential for audit defense.

Setting Up International Taxes

If you sell to customers outside the United States, you may need to collect and remit international taxes such as VAT (Value Added Tax).

Shopify provides tools to help you configure these taxes for different countries, ensuring you meet global tax obligations. Be sure to research the requirements for each country you sell to, as international tax laws can vary widely.

Shopify Collection vs. Remittance

A common misconception among Shopify merchants is that Shopify handles the entire sales tax process, including sending the collected tax to the state.

In reality, Shopify only calculates and collects the tax at checkout, then deposits those funds (along with your order proceeds) into your bank account. The responsibility for filing sales tax returns and remitting payment to the state remains entirely with you, the merchant.

A simple flow looks like this:

Manual process of Shopify sales tax remittance

However, the gap between collection and remittance is bridged with the Shopify Tax Automatic Filing feature. For eligible U.S. states, Shopify can now facilitate the remittance process, effectively taking the funds and filing the returns for you.

Shop Channel Orders: Limited Remittance Scope

Currently, Shopify automatically collects and remits sales tax for all U.S. orders placed within the Shop app marketplace. However, this automatic remittance does not apply to Shop Pay checkouts on your own website, but only orders made directly through the Shop App are covered.

If you sell across multiple channels, be sure to document which channel is responsible for remitting tax and reconcile accordingly.

Shopify Tax: Is It Worth It?

Shopify Tax is designed to minimize manual work and reduce the risk of costly errors, especially as your business grows and tax complexity increases. Key features that set Shopify Tax apart include:

Smart Tax Categorization: Automatically applies the correct tax rates to different product categories, such as clothing, digital goods, or other items, helping you avoid misclassification and compliance issues.
Address Validation: Calculates sales tax based on precise rooftop locations rather than just zip codes, ensuring more accurate rates and reducing the risk of under- or over-collection in states with complex local tax rules.
Enhanced Reporting: Offers improved reporting tools that make it easier to export detailed tax reports for reconciliation and tax season, streamlining your accounting workflow.

Shopify Tax is free for the first $100,000 in annual sales, then charges a small per-order fee (0.35% for most plans and 0.25% for Plus, up to $.99 per order), with no separate subscription required.

If your store operates in a limited number of states with a simple product catalog, Shopify’s basic tax calculation may be sufficient. However, if you’re expanding into new states, adding more SKUs, or want to automate compliance and reduce manual oversight, Shopify Tax’s advanced features can provide significant value and peace of mind.

Common Pitfalls Sellers Should Avoid

Most sales tax issues do not come from “Shopify calculated the wrong rate.” They come from process gaps around registration timing, product taxability, and filing discipline.

A few recurring pitfalls are:

Collecting without a permit: Turning on collection before registration can create problems with the state.
Marketplace confusion: Amazon may remit on marketplace orders; your Shopify storefront generally does not.
State nexus assumptions: a state you did not owe last year may become a requirement after a few months of growth.
Product miscoding: taxability varies for apparel, groceries, supplements, and digital items.
Missed filings: Many states require a return even when you had no sales during the period.

These are also the pitfalls that create compounding pain: once you are late in multiple states, cleanup takes time, documents need to be prepared, and careful amendments are required.

Let TaxHero Manage Your Shopify Sales Tax Compliance

Shopify provides powerful tools to calculate and collect sales tax, but true compliance is an ongoing, multi-step process that goes beyond checkout.

With TaxHero, you stay compliant nationwide without the hassle of tracking changing rules, rates, and deadlines across multiple states. We integrate seamlessly with your Shopify setup, so you can focus on growing your business while we handle compliance.

Ready to take action? Book a consultation today!

Compare and discover which sales tax software is best suited to your ecommerce business. In this comprehensive guide, you’ll learn about 11 leading sales tax software for ecommerce businesses.

What is the best sales tax software for ecommerce?

The best sales tax software for ecommerce depends on your business’s needs. Small or medium businesses can invest in simple yet efficient sales tax software such as TaxHero, which offers a complete done-for-you service so growing businesses can skip the hassle of navigating sales tax compliance.

Meanwhile, large enterprises benefit more from utilizing advanced sales tax automation software such as Avalara and Sovos.

To help you choose the best sales tax software for your ecommerce business, check our comprehensive list below for guidance.

Discover the top 11 sales tax software for ecommerce businesses.

1. Avalara

Learn why Avalara is a top sales tax software for ecommerce businesses.

Avalara has been around since 2004, making it a pioneer among tax compliance software companies. With its trustworthy reputation, businesses can confidently rely on Avalara’s sales tax solutions. Avalara provides advanced and automated services to businesses worldwide.

Best Features

Integrations: Shopify, Stripe, Amazon, Woo, and over 1,000 enterprises
Global Coverage: Provides tax compliance services outside of the U.S., offering tax solutions for VAT, excise taxes, and GST in more than 190 countries
Automated Systems: Offers automatic filing and reporting systems across hundreds of jurisdictions
Flexible Plans: With Avalara’s various sales tax compliance services, you can choose which features you want for your ecommerce business
Compliance Management: Nexus tracking is made easier with Avalara’s advanced systems, notifying you whenever your sales have exceeded a certain state’s nexus thresholds

Pricing

Avalara uses a quote-based pricing system, making its average costs vary depending on the plan your business chooses to set up. With flexible options, you can decide whether you wish to have a transient support system or a long-term software partner for your business.

Setup

Avalara’s services are moderately complex to set up and often need expert guidance. This software’s implementation generally requires third-party access, requiring technical assistance from Avalara’s external partners.

2. Kintsugi

Learn why Kintsugi is a top sales tax software for ecommerce businesses.

Founded in 2022, Kintsugi has been making a name for itself as one of the leading sales tax automation software brands in recent years. Kintsugi AI emphasizes the importance of simplified automated systems, narrowing down the complex process of sales tax compliance with the help of advanced AI technology.

Best Features

Integrations: Shopify, Stripe, Chargebee, eBay, and over 20 more notable partners
Global Coverage: Offers coverage in more than 100 countries, simultaneously providing services for managing VAT and GST
AI Automated Systems: With its advanced automated technology, Kintsugi offers quick and straightforward sales tax solutions around the clock
Ease of Access: With Kintsugi’s no-code setup, users can enjoy a smooth onboarding experience, allowing them to start using Kintsugi’s services right away
Free Services: Offers a limited range of complimentary services, such as free nexus analysis, which allows users to utilize its sales tax software without any cost

Pricing

Kintsugi offers 3 pricing tiers. First is the “Free” tier, giving users access to a limited range of services. Second is the “Starter” tier, starting as low as $75 for every filing or registration. Lastly, Kintsugi has a “Custom” tier where the price varies depending on the services you want to avail.

Setup

Using Kintsugi requires no code when onboarding, making the setup a simple plug-and-play process. API Integration is available to users with advanced knowledge or experience.

3. Numeral

Learn why Numeral is a top sales tax software for ecommerce businesses.

Despite being a new brand among pioneers in sales tax compliance software, Numeral’s tax automation software has quickly proven itself through its excellent service. Numeral AI’s advanced features, paired with the company’s expert support system, make it a reliable software for ecommerce businesses.

Best Features

Integrations: Shopify, Amazon, Stripe, eBay, Walmart, and more
Human Support: Numeral does not solely rely on its AI tools, offering active human assistance for its users
Penalty Protection: Numeral guarantees its effectiveness by offering a penalty protection system, covering any fees in case of service errors
Advanced AI Automations: Nexus tracking, real-time sales tax rates, and streamlined filing systems
Global Coverage: Offers global coverage in 60+ countries in its Pro subscription, which comes with VAT and GST tax compliance support

Pricing

Numeral offers free nexus analysis. On the other hand, its standard subscription starts at $75 per filing and $150 per registration. In Pro mode, you can access custom plans and global coverage in over 60 countries.

Setup

Getting started with Numeral is simple thanks to its standard integrations. Advanced users can manually import APIs. Any user experiencing difficulties with complex setups can benefit from Numeral’s supportive guidance.

4. TaxCloud

Learn why Taxcloud is a top sales tax software for ecommerce businesses.

Another pioneer in the sales tax software scene is TaxCloud, which was created in 2008. With years of expertise in sales tax, TaxCloud offers more than just straightforward tax compliance solutions. Adapting to any changes in the tax industry, TaxCloud provides growth and stability to its partners.

Best Features

Integrations: Shopify, Amazon, eBay, Etsy, and more
Easy Setup: Using standard integrations, users can quickly get started with TaxCloud’s services. Extensive API connectors are also an option, allowing users to configure their desired setup
Affordability: TaxCloud has a usage-based pricing system. It also offers valuable free services, such as free streamlined sales tax (SST) filings
Automated Services: You can get automatic calculations with TaxCloud’s integration features, giving you real-time, accurate tax calculations for your business
SST Certified: TaxCloud is among the few sales tax automation software supported by the Streamlined Sales Tax (SST) board, securing coverage for 24 states

Pricing

TaxCloud is renowned for its affordability, offering a usage-based pricing system. Its free tier offers a 30-day trial access to premium features as well. The starter tier is $199 annually, while the premium tier is $799.

Setup

TaxCloud gives you a plug-and-play setup experience, making it easy for every new user. Along with the easy setup, TaxCloud also provides human guidance during the onboarding process. This ensures a smooth startup for anyone trying out the software.

5. TaxJar

Learn why TaxJar is a top sales tax software for ecommerce businesses.

TaxJar has been providing sales tax solutions for multi-channel sellers since 2013. With a decade of experience, the software continuously improves its services, automating everything related to sales tax compliance. From simple calculations to nexus tracking and business registrations, TaxJar fulfills all your requirements.

Best Features

Integrations: Shopify, eBay, Amazon, PayPal, and more
Ease of Access: Setting up TaxJar is easy with its standard integrations. If you are also an existing Stripe user, the setup becomes easier with Stripe’s plug-and-play setup, allowing you to use the software’s features immediately. Custom setups are optional
Sales Tax Focus: TaxJar is an excellent software for U.S.-based sellers as it solely focuses on providing sales tax solutions. This means it won’t support calculation features for VAT or GST
Optional Automations: You can choose whether you want automatic filings or not, giving you the chance to carefully review your sales tax reports before filing and remitting your sales tax
Supportive Assistance: Offers email and ticketing support; phone support is also available in the professional tier plan

Pricing

TaxJar has a subscription-based pricing model. Depending on what your business requires, the costs may vary.

Setup

Enjoy a plug-and-play setup process with TaxJar’s easy integration system. The setup can be done within a few minutes. However, any custom setups are optional and can be done with TaxJar’s assistance.

6. Vertex

Learn why Vertex is a top sales tax software for ecommerce businesses.

Vertex is one of the oldest brands known in the tax management industry. Praised for its advanced technology and extensive knowledge in providing tax solutions for all kinds of businesses, Vertex is guaranteed to meet its users’ expectations.

Best Features

Integrations: Adobe Commerce, Shopify, BigCommerce, and more
Complex Database: With Vertex’s decades of experience, its database covers accurate sales tax information over 19,000 jurisdictions, keeping your business up to date with every crucial detail
Global Coverage: Vertex offers sales tax solutions across the world, also covering other tax management services such as GST and VAT
Flexible Setup: You can choose between using a cloud-based software service or an on-premise deployment, granting better security measures and data protection based on your preference
Advanced Technology: Vertex consistently grows and updates its software to cater to businesses around the world, implementing helpful features that improve the experience of sales tax compliance management

Pricing

Presently, Vertex has no fixed pricing system. The price varies depending on the custom package your business avails.

Setup

In general, setting up with Vertex can be moderately difficult for users without prior experience with sales tax software. The integration system is deep and requires advanced technical assistance, typically provided by Vertex itself.

7. Taxwire

Learn why Taxwire is a top sales tax software for ecommerce businesses.

Beginning its journey around 2023, Taxwire is a newer brand compared to the many pioneers on this list. Despite its fresher arrival, Taxwire comes equipped with years of experience from handling the tax technology of Avalara, TaxJar, Amazon, and Fonoa. With this level of expertise, Taxwire delivers an advanced sales tax software catering to businesses across the world.

Best Features

Integrations: Amazon, Woo, Shopify, and more
Global Coverage: Taxwire automates sales tax compliance across the US and other countries, helping businesses keep track of their nexus and other tax concerns
Taxability Mapping: To help you keep track of your product’s taxability, Taxwire maps your products and labels each one as either taxable or exempt, offering you full transparency and insight into tax rules
Advanced Automated Features: With the use of AI, Taxwire provides real-time data and analysis, providing accurate sales tax rates across numerous jurisdictions
Compliance Management: Other than filing returns and registering your business, Taxwire also keeps track of notices and tax alerts across all states in one unified tax inbox

Pricing

Presently, Taxwire has no specified price list. The price may vary based on the customized plan you will avail with Taxwire.

Setup

Taxwire supports standard integration systems, making it simple for new users to set up. In general, you can begin implementing the software’s features and go live within 24 hours, and be fully configured within a few weeks.

8. Zamp

Learn why Zamp is a top sales tax software for ecommerce businesses.

Zamp is also fairly new in the sales tax software industry, but it stands among the leading brands as of today. Its strongest feature is its full-service coverage, taking everything off your hands so you don’t have to go through the trouble of learning anything about sales tax.

Best Features

Integrations: Shopify, Stripe, Amazon, BigCommerce, Adobe Commerce, and more
Full Service Coverage: Zamp manages everything related to sales tax compliance for your business, from nexus tracking to calculating your sales tax returns
Ease of Access: Unlike most sales tax software, Zamp offers a completely done-for-you service when setting up its software, saving you the trouble of processing the implementation system
Dedicated Account Manager: Users are assigned a sales tax professional as their account manager. This manager will handle all concerns and deliver the solutions your business needs
All-Inclusive Plan: With its subscription-based pricing model, Zamp offers transparency and no add-on fees when availing its service

Pricing

Zamp offers a fixed monthly rate based on the number of states in which your business operates. For example, the starter tier plan starts at $2,149 per year for 2 states. The cost varies depending on your business’s transaction volume. You’ll need to upgrade your plan to cover more states as your business grows.

Setup

Getting started with Zamp is easy; you can leave everything to Zamp’s implementation team. This means you won’t have to go through the setup process, saving you time and confusion from understanding how the integration works.

9. Stripe Tax

Learn why Stripe Tax is a top sales tax software for ecommerce businesses.

If you already have experience in using Stripe for payments, it becomes easier to understand why it’s a top sales tax automation software. As the name implies, Stripe Tax integrates your business into Stripe’s system. This simplifies the complexity of tracking sales tax and provides other features your business needs to stay tax-compliant.

Best Features

Integrations: Any platform that is compatible with Stripe
Global Coverage: Stripe is used across numerous countries, giving you real-time sales tax calculations and reports in its supported countries and jurisdictions
Ease of Access: Instant setup without any required codes using the Stripe dashboard; API integration is optional
Automated Tracking: Keep track of your sales tax reports with ease with Stripe Tax’s advanced automated systems, giving you accurate nexus status reports and calculations
Flexible Payment Plans: You can choose to pay per use or go for a subscription plan

Pricing

Stripe Tax offers flexible payment plans, including a pay-as-you-go system and subscription packages. With this simple system, you can easily test the software first and opt out whenever you decide.

Setup

Stripe Tax can be activated immediately as long as you already have your Stripe account set up. On your Stripe dashboard, you only have to click a button to start automatically collecting taxes. You also have the option to use Stripe’s API integration for a more advanced setup.

10. Sovos

Learn why Sovos is a top sales tax software for ecommerce businesses.

Sovos is another sales tax compliance pioneer. It was made to support large enterprises dealing with multiple jurisdictions, providing in-depth management services to ensure every business stays compliant, no matter where they operate. Instead of automated services, Sovos directly manages your compliance while coordinating with other external partners.

Best Features

Integrations: Oracle, SAP, Salesforce, and Magento
Global Coverage: Sovos is a global sales tax compliance software offering services in more than 185 countries, providing management for VAT and GST, aside from US sales tax
Full Service Coverage: From nexus tracking to automatic sales tax return filings, Sovos covers every compliance requirement a business needs
Advanced Automation Systems: Sovos’s advanced automated system works best because it’s still directly managed by its professional partners, providing guaranteed solutions in case automation fails
Flexible Pricing Plans: You can customize your payment plan. Depending on your business’s needs and the volume of your transactions, the costs may vary

Pricing

Sovos offers flexibility by allowing you to decide which features your business wants to avail. Thus, depending on what your business requires, the costs may vary.

Setup

Getting started with Sovos may involve a complex setup process, requiring ERP and advanced engineering support. You will need the assistance of an implementation expert from Sovos, as its software is not a plug-and-play tool.

11. TaxHero

Learn why TaxHero is a top sales tax software for ecommerce businesses.

Since 2022, TaxHero has consistently delivered success in fully managing sales tax compliance for ecommerce businesses. Unlike most sales tax software, TaxHero doesn’t solely rely on software automation for its services. Instead, it offers a complete done-for-you service provided by real sales tax experts, allowing you to exclusively focus on handling your business.

Best Features

Integrations: Shopify, Marketplace, and other marketing platforms
Expert Human Support: TaxHero offers 24/7 customer support with a team of professional accountants, directly handling all your sales tax compliance concerns instead of relying on AI support systems
Transparent Pricing: No add-ons, no hidden fees, full transparency, and a one-price package is what you get, allowing you to freely customize the plan you wish to avail and stay within your budget
Full Service Coverage: From nexus analysis, registering your business, to regular daily monitoring of your sales tax and managing back taxes, TaxHero’s done-for-you service takes everything off your plate so you never have to worry about managing sales tax
Guaranteed Protection: In the rare event that a penalty occurs while TaxHero manages your business, TaxHero will cover the costs, granting you security and peace of mind

Pricing

TaxHero’s pricing is set at $0.15 per order, capped at $1500 monthly, preventing excessive payments or surprise fees. Its services can be availed for as low as $10 a month, offering flexible pricing plans that allow you to customize your package based on your needs.

Setup

To get started with TaxHero, you can begin with our free demo. Get in touch with our CEO, a reputable CPA specializing in US sales tax for ecommerce and CPG brands. The onboarding process is simple, and you’ll be fully guided throughout the setup.

How to choose the right sales tax automation software

While there are several excellent sales tax software brands to choose from, the right product still depends on what your business needs. To choose the right sales tax automation software for your business, consider these 7 crucial factors:

Coverage: Do you sell internationally? Or do you plan to keep your sales within the U.S in the meantime? Some sales tax software supports global coverage, some do not. Look for the one that fits your business’s coverage.
Future Plans: If your business is steadily growing, you can invest in more advanced software that covers your future sales tax requirements rather than sticking to simple software with limited features.
Human Support: A good software will not function without real human support. Even if you are an independent business requiring minimal assistance, you will need a supportive team to handle your sales tax concerns, especially during the onboarding process, which generally requires technical knowledge.
Accounting Expertise: Advanced AI sales tax software isn’t always guaranteed to work on its own, as technology can still have its hiccups. Therefore, you should check your brand’s background. Is it comprised of accounting experts that you can directly turn to for assistance?
Features Compatibility: Some software offers extensive features that may not always be beneficial for your business, such as providing GST or VAT compliance services, which may not be useful for businesses only selling within the U.S nation. Carefully decide your business’s needs before choosing which sales tax software you will invest in.
Audit Support and Representation: Search for software that keeps everything in one place for you. In the event of an audit, you’ll have easy access to all the information you need to support yourself in an audit. Some brands will also represent your business directly, providing financial security and peace of mind.
Automated Services vs. Done-For-You Service: In general, plenty of sales tax software tools can do automatic calculations and tracking. However, not all of them file and remit sales tax for you, including registering your business. If you’re searching for software that manages all your compliance requirements, look for software that offers a done-for-you service, like TaxHero or Zamp.

Frequently Asked Questions

FAQ: What is the most popular tax software?

For ecommerce sales tax, there is no singular brand that holds the title of being the most popular sales tax software. However, as of 2026, the industry leaders among sales tax software brands are Avalara, TaxJar, and Vertex.

FAQ: Which is the best online tax software?

There is no specific software that holds the title of being the best online tax software. However, the best online sales tax software for ecommerce brands depends on what your business needs.

FAQ: What is the best software to handle sales tax and VAT compliance?

Avalara and Vertex are two reliable sales tax software brands that support both sales tax and VAT compliance.

FAQ: Which tax software is actually free?

No sales tax software is actually free. However, there are a few brands that offer valuable free features, such as Kintsugi, Numeral, and TaxCloud.

FAQ: Is tax software better than a tax professional?

Both sales tax software and a sales tax professional provide unique benefits for your business’s compliance needs. A software may still need a tax professional to manage it correctly for your business. Therefore, the answer depends on your business’s complex requirements.

Still can’t decide? Try TaxHero’s FREE DEMO and experience our sales tax software today!

Tax guide for marketplace facilitator laws by state | TaxHero

Do you sell your products on marketplaces like Amazon, eBay, Facebook, and Instagram? Online shopping has boomed since the pandemic and has caused a rise in various online marketplaces and marketplace facilitators.

A marketplace facilitator is a business that forms contracts with third parties and sells any services or goods. You can understand a marketplace facilitator as a retailer, facilitating third-party sales of goods and services. They promote sales by listing products, keeping track of sales, and sometimes helping with the shipment. Amazon.com is a famous example where customers can discover and shop multiple products from different brands and sellers.

The marketplace facilitator contracts with businesses to facilitate retail sales. Marketplace sales are subject to sales tax regulations implemented under marketplace facilitator laws.

It can get complicated, especially with the legal compliance requirements and regulations. So, here we are, explaining what marketplace facilitators are and how they affect sales tax collection for sellers.

What are Marketplace Facilitator Laws?

The USA has implemented marketplace facilitator laws so that the states can simplify sales tax collection by collecting it from one entity rather than several sellers.

For instance, if you sell your products through Etsy or eBay and have a sales tax nexus, you are not responsible for collecting and remitting tax on your sales. Instead, the concerned marketplace facilitator (i.e., eBay or Etsy) is accountable and will do it on your behalf.

Marketplace facilitators are responsible for gathering and paying sales tax to the state where they do business or have customers. Marketplace facilitator laws enable states to collect sales tax from consumers while simplifying the tax collection process for states and businesses.

Marketplace facilitator laws include legislation surrounding the sales tax responsibilities of marketplace facilitators. They aim to increase sales tax compliance while reducing the time consumption and complexity of sales tax collection.

How do Marketplace Facilitator Laws Affect Sellers?

States have different legislatures about what constitutes a marketplace facilitator and when marketplace facilitator tax applies to your business. Taxes are easier for states and businesses with the marketplace facilitators’ laws. However, understanding how it works for your business can get complicated.

Although your marketplace facilitator is responsible for collecting and remitting sales tax, you may have to register for sales tax if you sell your products on your website in a state with marketplace facilitator laws. If you don’t sell outside the marketplace facilitators’ states, you may have to register for non-reporting tax status.

Marketplace Facilitator Tax Laws in Different States

Here is how marketplace facilitator law applies in different states and affects your business.

STATE	SALES THRESHOLD	MARKETPLACE ADOPTION
Alabama	$250,000 revenue	Amazon eBay Etsy Walmart
Alaska	$100,000 gross revenue	Amazon eBay Etsy
Arizona	$100,000 gross revenue	eBay Etsy Walmart
Arkansas	$100,000 gross revenue or 200 retail transactions	Amazon eBay Etsy Walmart
California	$500,000 revenue	Amazon eBay Etsy Walmart
Colorado	$100,000 gross revenue	eBay Etsy Walmart
Connecticut	$250,000 revenue	Amazon eBay Etsy Walmart
Florida	$100,000 gross revenue	Amazon eBay Etsy Walmart
Georgia	$100,000 gross revenue	Amazon eBay Etsy Walmart
Hawaii	$100,000 gross revenue or 200 retail transactions	Amazon eBay Etsy Walmart
Idaho	$100,000 gross revenue	Amazon eBay Etsy Walmart
Indiana	$100,000 gross revenue or 200 retail transactions	Amazon eBay Walmart
Illinois	$100,000 gross revenue	Amazon eBay Etsy Walmart
Iowa	$100,000 gross revenue or 200 retail transactions	Amazon eBay Etsy Walmart
Kansas	$100,000 gross revenue	Amazon eBay Etsy Walmart
Kentucky	$100,000 gross revenue or 200 retail transactions	Amazon eBay Etsy Walmart
Louisiana	$100,000 gross revenue or 200 retail transactions	n/a
Maine	$100,000 gross revenue or 200 retail transactions	eBay Etsy Walmart
Maryland	$100,000 gross revenue or 200 retail transactions	eBay Etsy Walmart
Massachusetts	$100,000 gross revenue	Amazon eBay Etsy Walmart
Michigan	$100,000 gross revenue or 200 direct and facilitated sales transactions	Amazon eBay Etsy Walmart
Minnesota	$100,000 gross revenue or 200 retail transactions	Amazon eBay Etsy Walmart
Mississippi	$250,000 revenue	Amazon eBay Etsy Walmart
Missouri	$100,000 gross revenue	Amazon eBay
Nebraska	$100,000 gross revenue or 200 separate sales transactions	Amazon eBay Etsy Walmart
Nevada	$100,000 gross revenue or 200 separate sales transactions	Amazon eBay Etsy Walmart
New Jersey	$100,000 gross revenue or 200 sales transactions	Amazon eBay Etsy Walmart
New Mexico	$100,000 revenue	Amazon eBay Etsy Walmart
New York	$500,000 revenue or 100 in-state transactions	Amazon eBay Etsy Walmart
North Carolina	$100,000 revenue	eBay Etsy
North Dakota	$100,000 revenue	Amazon eBay Etsy
Ohio	$100,000 revenue or 200 sales transactions	Amazon eBay Etsy Walmart
Oklahoma	$10,000 revenue	Amazon eBay Etsy Walmart
Pennsylvania	$10,000 revenue	Amazon eBay Etsy Walmart
Puerto Rico	All mail-order sales of goods and services	Amazon eBay Etsy Walmart
Rhode Island	$100,000 revenue or 200 sales transactions	Amazon eBay Etsy Walmart
South Carolina	$100,000 revenue	Amazon eBay Etsy Walmart
South Dakota	$100,000 revenue or 200 sales transactions	Amazon eBay Etsy Walmart
Tennessee	$500,000 revenue	Amazon eBay Etsy
Texas	$500,000 revenue	eBay Etsy Walmart
Utah	$100,000 revenue or 200 in-state sales transactions	eBay Etsy Walmart
Vermont	$100,000 revenue or 200 in-state sales transactions	Amazon eBay Etsy Walmart
Virginia	$100,000 revenue or 200 in-state sales transactions	Amazon eBay Etsy Walmart
Washington	$100,000 revenue	Amazon eBay Etsy Walmart
West Virginia	$100,000 revenue or 200 in-state facilitated sales transactions	Amazon eBay Etsy Walmart
Wisconsin	$100,000 revenue or 200 transactions	Amazon eBay Etsy Walmart
Wyoming	$100,000 revenue or 200 transactions a year	Amazon eBay Etsy Walmart

Need Help with Marketplace Facilitator Tax Laws in your State?

It is important to know the details about marketplace facilitator laws in your state to ensure compliance with all legal requirements. Book a call with TaxHero and let experts take care of your state’s latest compliance laws and requirements.

Learn what sales taxes pay for in your state | TaxHero

Sales tax is a crucial source of revenue for governments at different levels, and understanding what sales tax pays for is essential to comprehend public services and infrastructure funding. Sales taxes are vital in financing various aspects of society, including education, healthcare, transportation, public safety, and more.

Where does the collected sales tax go? What is sales tax used for? This blog sheds light on how paying sales tax improves communities and provides citizens with necessary resources.

What is Sales Tax?

Sales tax is a consumption tax the government imposes on retail or online sales. Every business, including ecommerce retailers, is responsible for collecting and remitting sales tax to the government.

State or local governments can impose a sales tax in their respective jurisdictions, and businesses must comply with the relevant requirements. The definition of taxable items and sales tax rates vary among states, so you must understand them before beginning your business.

Importance of Sales Tax

Sales tax is an important component of government revenue. Usually, people are reluctant to pay income or wealth taxes and try to hide their finances. At the same time, they pay sales tax indirectly and find it comparatively more straightforward than other types of taxes.

The sales tax collected from the consumers is used for the betterment of the citizens. States with well-managed tax collection systems grow their economy exponentially. For instance, Florida’s robust sales tax collection system generates steady economic growth.

What do Sales Taxes Pay for?

Most states imply a variety of taxes besides sales tax, such as income tax, use tax, wealth tax, and others. Governments usually collect the revenue from all taxes and use it collectively to finance different projects. It serves as the backbone of state and local government budgets.

Here is how states usually spend sales tax.

The General Fund

Many states create a general fund, pooling the funds collected through sales tax and other taxes. A significant amount of sales tax goes into the general fund. The government uses this fund to finance various developmental projects in the state. Every state has a different plan for the allocation of the general fund. Usually, they spend this fund on the following:

Infrastructure improvement: Infrastructure improvement includes projects related to building and repairing roads, transit systems, water pipes, waste facilities, and others. It results in ease of transit and mobility for the people.
Betterment of transportation facilities: Public transport makes life easier for people. The general fund is spent on enhancing transportation facilities and their affordability for the general public.
Recreational facilities: The government can spend general funds on improving recreational facilities such as public parks. As a result, people can strengthen their community relations.
Fire department development: The fire department plays a significant role in protecting the lives and properties of people through firefighting. The tax is spent on getting the latest equipment, providing training, and improving the services of this department.
Police department development: The police department aims to provide a safe and secure environment to the public. The government uses the sales tax revenue to develop the police department to provide better public security services.
Public schools: Education is one of the most important concerns of governments, and they use tax revenue to improve public education facilities. The development of new schools and the improvement of existing schools are the focus of the general fund.
Provision of healthcare facilities: Local and state governments ensure that the citizens get the best healthcare facilities when needed. They use tax revenue to improve emergency healthcare and other medical care projects. It includes the provision of free or subsidized healthcare facilities and health insurance.
Sustainability projects: Another vital area is environmental safety. The government spends the general fund on projects that promote environmental sustainability. They may run awareness campaigns, conduct training programs and seminars, or provide alternative products that create environmental carbon footprints.

Besides these projects, the government may spend the sales tax on other activities promoting individuals’ social and economic security. Mass awareness programs, training facilities, seminars, and workshops are also a part of government expenditures.

Some states allocate a significant portion of the general fund for healthcare facilities while others for educational facilities. The difference in allocation depends on the specific needs of the states.

Special Allocations

Sometimes, the government may decide to spend the sales tax on projects other than the general allocations. In such a situation, they pass a bill through the legislature to allocate the sales tax for a specific project. This may result in local and state governments temporarily increasing the sales tax rate to finance special projects.

Some states have a separate fund allocated for special projects. They keep a specific percentage of the collected sales tax in that fund and use it when needed. The remaining portion of the sales tax revenue goes to the general fund.

How Sales Tax Spending Decisions Are Made

Sales tax revenue does not go directly into one fixed program. Instead, state and local governments decide how funds are distributed through a budgeting process that evaluates economic conditions, population needs, and long-term priorities. These decisions often happen months before the fiscal year begins and may change depending on revenue projections.

Several elements influence how spending decisions take shape:

Legislative budgeting: Lawmakers review expected tax revenue and determine how much funding different departments receive each year.
Economic forecasts: If consumer spending rises or falls, governments may adjust their funding strategies to maintain stability.
Public priorities: Some regions allocate more toward safety programs, while others focus on transportation or education, depending on local needs.

Because each state follows its own process, the same level of sales tax revenue can produce very different outcomes across the country.

How Sales Tax Supports Everyday Community Services

When people think about sales tax spending, they often picture large infrastructure projects. However, many smaller services rely on this revenue to operate consistently. These daily improvements may not always be visible, yet they contribute to how communities function over time.

Examples of everyday impact include:

Public space upkeep: Maintenance of parks, sidewalks, and shared facilities helps communities remain accessible and safe.
Local programs: Cities may fund training sessions, public workshops, or neighborhood initiatives that support residents.
Routine safety improvements: Small upgrades such as signage, lighting, or emergency preparedness programs often come from local budgets supported by sales tax.

These smaller services demonstrate how tax revenue influences daily life beyond major construction or development projects.

Why Sales Tax Spending Looks Different in Every State

Not all states allocate sales tax revenue in the same way. Differences in population size, industry focus, and economic activity shape how funds are distributed once they enter a state’s budget.

For example, a tourism-focused state may invest more heavily in transportation networks, while a rapidly growing region might prioritize expanding schools or public safety programs. Geographic and economic differences also play a role, as rural areas may focus on maintaining essential services rather than launching large projects.

Key factors that influence spending differences include:

Population growth and urban development
Regional industries such as tourism or manufacturing
Legislative decisions tied to local priorities

Recognizing these variations helps explain why two states with similar sales tax rates may still invest in very different areas.

The Indirect Benefits Sales Tax Spending Can Have on Businesses

Sales tax is often discussed from a consumer perspective, but businesses may also benefit indirectly when revenue is used to improve local infrastructure and services. These benefits do not always appear immediately, yet they can influence long-term growth and customer activity.

Some ways businesses may feel these effects include:

Improved accessibility: Better roads, transit routes, and public spaces can increase customer traffic and make it easier for employees to commute.
Safer business environments: Investments in emergency services and community safety initiatives can create more stable operating conditions.
Economic development projects: Revitalized public areas or upgraded facilities may attract more visitors, which can support nearby retailers and service providers.

While sales tax spending is not directed toward individual businesses, the improvements funded through public budgets can help strengthen the overall business environment.

What is Sales Tax used for? Frequently Asked Questions

1. Where does most sales tax money go?

Most sales tax money goes to the general fund. This fund is used to finance infrastructure, public health, transportation, education, and environmental safety projects.

2. What are the 3 common things taxes are used for?

The three common things taxes are used for are healthcare, education, and social security.

3. Are there any states with no sales tax?

Yes, four states, Delaware, Montana, New Hampshire, and Oregon, have no state sales tax. Additionally, Alaska has no state sales tax, but the local government charges local sales tax. However, these states might have other taxes that are imposed on businesses. You must understand the tax obligations for each state with no sales tax before setting up your business there.

4. Which states have the highest sales tax?

California, Indiana, Mississippi, Rhode Island, and Tennessee have the highest sales tax rates. You can check out the current highest and lowest sales tax rates by state here.

5. Who collects sales tax?

The retailer/seller collects sales tax directly from the consumers and remits it to the government. Even if you buy something online, you pay sales tax on it if it is taxable. Read this ecommerce sales tax guide to understand the tax collection process.

Get Complexity out of Sales Tax Compliance

Besides managing a full-fledged business, sales tax collection and remittance can get complicated, but automation can help. Connect with TaxHero by booking a call and learn how we can streamline your sales tax compliance.

Your Complete Guide to Understanding Sales Tax Nexus | TaxHero

In the ever-evolving world of ecommerce, one term that continually pops up is “Sales Tax Nexus.” But what exactly is it, and why is it garnering so much attention? Grasping the ins and outs of nexus regulations is vital to building and running a successful venture.

This guide is designed to simplify this concept, spotlighting its critical role in today’s ecommerce environment. Together, we’ll navigate the essentials of managing compliance effectively, setting the stage for your business to thrive. Let’s start, shall we?

What is Sales Tax Nexus?

A sales tax nexus is a connection between a business and a state, which dictates whether or not the business must collect sales tax from customers in that state. Imagine it as an invisible bridge connecting your business to places where you have many customers. Being aware of this connection helps you conduct your business correctly and stay on the right side of the law regarding sales tax collection, fostering a smooth and successful operation.

Different Ways to Establish Nexus

Sales tax nexus becomes considerably more straightforward once you clearly understand the primary routes that can establish a nexus. There are two main ways you can establish nexus: physical and economic. Now, let’s dive into both of those categories.

1. Physical Nexus

Let’s visualize for a moment – perhaps you have a welcoming storefront, a bustling warehouse, or even an employee based in a specific state. Any of these scenarios create a physical nexus. It forms a concrete bridge between your business and the geographical boundaries of that state, a link that comes with its set of responsibilities.
Here are the main ways you can have physical nexus:
- Storing inventory in a location, like a third-party fulfillment center (3PL), or maintaining a warehouse of your own
- Employing staff or sales representatives in the state.
- Regular physical presence through business activities such as meetings or providing services.
Remember that the specifics can vary between states, but these are common ways a physical nexus is established.

2. Economic Nexus

This is the other way you can establish nexus within a state. This targets more out-of-state/ remote online sellers and the digital realm. Have your sales in a particular state hit a remarkable milestone, either in the number of transactions or the total sales volume? If yes, you might have entered the territory of economic nexus. Each state has its own economic nexus laws, which means the threshold for the number of transactions and total sales in the state varies from state to state. States continue to change these thresholds, so it’s important to keep an eye on the compliance requirements for each state.
It’s important to keep a close eye on these sales thresholds, as exceeding the thresholds means your business has created a physicalconnection with that state, introducing new sales tax responsibilities to fulfill.
But why did these thresholds come into play, and what changed that we need to watch out for?

Historical Context: The Wayfair Case

Need help understanding sales taxes for online sales? You’re not alone. A significant change came with the South Dakota v. Wayfair, Inc. case in 2018. This landmark case changed the game by setting new standards for establishing nexus, significantly affecting online businesses.

What Was the Norm?

Before this case, businesses only needed to collect sales taxes in states with physical nexus,such as having a brick-and-mortar store or office. This approach was more straightforward but didn’t consider the growth of online sales, where businesses could make significant sales in states without any physical presence.

What Changed?

This case marked a shift in how sales tax liability was determined. Now, states can require businesses to collect sales taxes if they have considerable sales or transactions in that particular state, even without a brick-and-mortar store. This new rule considers the volume of online sales, making it a fairer system for both states and brick-and-mortar businesses.

Why should you care? Because it means you’ll need to track your sales carefully in each state and keep up with the regulations for the economic nexus threshold. Understanding this rule will help you plan better and avoid unexpected tax bills at the end of the year, letting you focus on growing your business instead of dealing with tax headaches.

Importance of Sales Tax Nexus

Much like having a well-oiled machine at the heart of your operations, understanding the crucial role of the sales nexus keeps the gears of your ecommerce business turning seamlessly. Recognizing its importance serves as a roadmap in several vital areas:

Dodging Legal Hurdles: By getting a clear grasp on sales tax nexus, you can steer clear of legal potholes that might appear due to non-compliance with state laws.
Smart Financial Planning: A solid understanding of these rules is like having a reliable compass, guiding you in planning your finances adeptly and avoiding unforeseen tax complications.
Smooth Business Expansion: When you are gearing up to expand your ecommerce business into new states, knowing about economic nexus is your trustworthy guide, helping you identify potential tax obligations and strategize accordingly.

Frequently Asked Questions About Sales Tax Nexus

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

To determine if you have an economic nexus in a state, you’ll need to examine that state’s specific sales and transaction thresholds. These criteria may vary between states. At TaxHero, we offer services such as nexus checking to guide you smoothly through this process, ensuring you stay on the right side of the law.

What are the penalties for not complying with sales tax nexus regulations?

Non-compliance can result in various penalties, including fines and interest on unpaid taxes. In extreme cases, it might lead to legal action. The specifics can depend on the state’s regulations.

Are there certain states that do not impose a sales tax?

Yes, there are a few states, specifically Delaware, Montana, New Hampshire, and Oregon, where no state sales tax is collected. While Alaska doesn’t impose a state sales tax, it allows local governments to charge a local sales tax. It’s essential, though, to note that these states may have other forms of business taxes in place.

Navigate Sales Tax Nexus with Confidence!

Feeling overwhelmed with sales tax nexus intricacies? You’re not alone. At TaxHero, we’re committed to guiding entrepreneurs and small businesses through the maze of sales tax regulations. Simplify your compliance journey, avoid pitfalls, and focus on what you do best: growing your business.

Sales Tax vs Other Taxes: A Tax Comparison Guide | TaxHero

Sales tax is often the most talked about tax for US remote sellers. However, there are several other taxes that sellers may need clarification on. Tax compliance around remote sellers involves other taxes, such as use, excise, and value-added (VAT) taxes.

People often face difficulty differentiating them and consider them as the same thing. If you are one of them, this blog is for you. It discusses the difference between sales tax and other types of taxes.

What is Sales Tax?

A sales tax is a consumption tax assessed on the sale of taxable goods or service. It is usually added to the selling price of an item, so the seller collects it when a customer makes a taxable purchase.

The customer pays sales tax in addition to the cost of the purchased product or service to the seller, who collects and remits it to the US federal government. The seller is responsible for sales tax collection, remittance, filing, and reporting. As a seller, you must have an economic or physical nexus to become eligible to collect and remit sales tax to the state.

Each state has its regulations and rates for sales tax. Glimpse and learn about various sales tax facts in each state in our earlier blog. Lastly, some key points to remember about sales tax are:

- Sales tax is imposed on tangible personal property, including furniture, toys, clothing, and other goods.
- It is collected at the point of sale from the buyer.
- The sales tax rate is usually calculated as a percentage of the transaction price.
- If the seller fails to collect the due sales tax, they must pay it out of their pockets.

What is Use Tax?

Use tax is the tax on the use, consumption, or storage of taxable products and services. It is imposed on items where no sales tax has been paid earlier. If the sales tax is imposed on some products or services, use tax does not apply to such items.

Use tax serves as a way to ensure that buyers who purchase items from online or out-of-state sales, where sales tax was not collected, still contribute to tax collection.

Use tax is also called consumer use tax, as the buyer or consumer pays sales tax. Consumers directly pay use tax to the state’s Department of Revenue and file separate use tax returns.

Example of Use Tax

If your business is based in any state that charges sales tax, such as Florida, and sells to local customers there, you must collect and remit sales tax.

If a buyer purchases a taxable item from some state that does not impose a sales tax and uses it in another state, they must pay use tax as a consumer if they don’t plan on reselling the item.

Key Differences between Sales Tax vs. Use Tax

Use tax and sales tax are often considered the same, but the two have some differences. Here are some of the critical differences between use tax and sales tax.

Use tax rates can be different from sales tax rates. It is complementary to sales tax.
It is only applicable on the purchase of taxable products where no sales tax was paid at the time of purchasing.
It may apply to items exempt from sales tax.
In consumer use tax, the purchaser is responsible for remitting the tax to their respective taxing jurisdiction.

What is Excise Tax?

The government imposes an excise tax to generate revenue that could be used to fund state programs. Excise tax refers to the tax imposed on specific items, mainly luxury goods or non-essential activities. The tax is usually included in the price of the taxable product or service.

Understanding excise tax implementation is relatively simple. It entails that all businesses pay excise tax on certain goods and services. However, goods used for a specific purpose, for instance, alcohol used in medicines, might be tax-exempt.

Example of Excise Tax

Excise tax is usually imposed on fuel, alcohol, tobacco, airline tickets, and wagering. If a buyer visits a gas station to fill up their vehicle, a portion of the price includes excise tax. The seller collects and pays this tax to the government.

In contrast, sales tax is imposed on a wide range of tangible goods, including furniture, toys, packaged food, and clothing.

Key Differences between Sales Tax vs. Excise Tax

Here are some critical differences between excise tax and sales tax.

Excise tax only applies to specific goods and services.
Excise tax is determined based on the volume of the taxable goods sold.
The calculation for excise tax can be more complex than sales tax.
Some excise taxes are known as sin taxes because they discourage certain activities harmful to society (such as cigarette production).

What is Sales Tax vs. Value-Added Tax?

Value Added Tax, commonly known as VAT, is a consumption tax on goods and services imposed throughout all phases of the supply chain where value is added: from sourcing, manufacturing, packaging, and order fulfillment until the point of sale VAT is imposed.

Around 170 countries impose a value-added tax, but the US is an exemption. The United States does not have VAT; we impose excise, sales, and use taxes.

Ready to navigate the complex world of Sales Tax? TaxHero can help.

Understanding the differences between sales tax and use tax, excise tax, and VAT reveals that handling sales tax is complicated yet crucial for the business. Discuss sales tax and explore TaxHero services with our CEO for your business’s growth.

Learn to calculate sales tax: Multiply purchase cost by state & local rates. Discover the sales tax formula in our blog.

Sales tax calculation is essential to financial transactions, whether you’re running a business or making personal purchases. Understanding how to calculate sales tax accurately is crucial to ensure proper budgeting and compliance with tax regulations. By utilizing a sales tax calculator and formula, individuals and businesses can swiftly determine the correct amount of sales tax to be paid, enabling them to make informed financial decisions and avoid any potential errors.

This blog will delve into the fundamentals of sales tax calculation, explore the formula for determining sales tax, and provide practical examples to illustrate its application in various scenarios.

Why do you need to calculate sales tax?

Before you start collecting sales tax from your customer, you must know how to calculate it. Since sales tax laws vary in all states, you might need help figuring out how much sales tax to collect from customers.

The states use the tax you collect for various projects of public interest. Learn more about what sales tax is used for in our earlier blog.

If you fail to collect the due amount from the customers, you must pay it out of pocket. So, it is crucial to determine the amount of sales tax you must collect as a business.

You might not need to calculate and collect sales tax in the following conditions.

Your business is based in a state with no sales tax, or you don’t meet economic nexus in any other state.
The product or service you offer is not taxable in that state
You sell products to resellers (i.e., wholesalers or distributors)
You sell products to tax-exempt organizations
There is a sales tax holiday

How is sales tax determined?

The state government administers sales tax, but the local government also imposes its own sales tax in some states. Thirty-eight states impose local sales tax along with state sales tax. For example, Alaska has no statewide sales tax but imposes a local sales tax of up to 7%.

To get the combined sales tax rate for your calculation, you must add all sales tax rates for the state, county, and city if the location has local sales tax rates.

The sales tax rate is also given as a percentage, but converting the rate into a decimal format is easier for calculation purposes. To do this, you will need to remove the % and divide the sales tax rate by 100 and move the decimal two places to the left. For example, a 7% sales tax rate will be 0.07 in decimals.

Calculating sales tax doesn’t need to be stressful. The first step is to find the sales tax rates in your state. Once you know the sales tax rates, you can calculate how much to collect from customers.

Sales Tax Formula

Below is the formula to calculate the sales tax amount for purchasing any taxable item or service:

Sales Tax Amount = Price of item x [State sales tax rate in decimals + Local sales tax rate in decimals]

How to Calculate Sales Tax?

To calculate sales tax, follow these steps:

Determine the selling price of the item or service you intend to purchase.
Add all sales tax rates applicable at the point of sale. Add all state, county, and city tax rates. See the sales tax rates in different states here. If you buy something online, your shipping address would be the location used for sales tax at the point of sale.
Convert the sales tax rate into decimal format.
Calculate the sales tax amount using the formula mentioned above.
Add the sales tax amount to the selling price of the item or service. This amount is the total that the customer will pay for your item or service.

Example of how to calculate sales tax

Let’s walk through a real-life example of calculating the sales tax amount.

Kyle Cosmetics sells skincare products online to customers throughout the US. The business and all employees are located in California. All inventory is also stored in a warehouse in California. The business has no secondary location and only meets economic nexus requirements in Florida, which they already have a sales tax permit for.

A customer purchases a Vitamin C serum for $28. The order is placed to be shipped to Miami, Florida.

As of February 2025, Florida’s current state sales tax rate is 6%, the county sales tax rate (Miami-Dade County) is 1%, and the city’s sales tax rate (Miami Beach) is 0%. Therefore, the combined sales tax rate for 3120 Collins Avenue, ZIP code 33140 in Florida is 7.00%.

Let’s convert it into decimal format: 7% = 0.07.
Now, let’s use the formula to calculate the sales tax amount.
The price of the item x sales tax rate in decimals = Sales tax amount
$28.00 x 0.07 = $1.96
The sales tax amount that will need to be collected for this order is $1.96, as shown in the screenshot. This amount will need to be remitted to the state.
To calculate the total cost before adding the shipping cost, you can add the sales tax amount to the item’s price:
$28.00 + $1.96 = $29.96

Ecommerce platforms, such as Amazon and Shopify, can automatically calculate and collect the sales tax amounts from customers once additional steps are taken to configure your tax settings. As part of our all-inclusive, full-stack sales tax solution, TaxHero will help configure your tax settings in your ecommerce platforms to ensure you’re collecting the right amount for every order.

TaxHero Sales Tax Calculator

Use the TaxHero calculator for a straightforward way to apply the sales tax formula.

Item Cost (USD)

Street Address

City

ZIP Code*

State

SALES TAX CALCULATOR

Your Combined Sales Tax Rate is

0.00%

Sales tax amount = N/A

State 0.00%

County 0.00%

City 0.00%

District(s) 0.00%

The TaxHero sales tax calculator provides a combined sales tax rate based on a full address lookup. A complete address ensures precision since ZIP codes may cross different tax jurisdictions. Results are for reference and may need additional context for compliance. Contact us today for a demo and learn how TaxHero can support your business.

Need help calculating sales tax? Connect with TaxHero

As an online business, calculating sales tax for every transaction and ensuring you get all sales tax due can get complicated. TaxHero offers an all-inclusive, full-stack sales tax solution to this by taking care of your sales tax calculation, collection, filling, and all other functions. Talk to our CEO to see how we can help transform your sales tax compliance.

What is streamlined sales tax for your business | TaxHero

Thanks to globalization and the World Wide Web, businesses can now sell their products across the United States and worldwide, leading to opportunities for growth. However, complying with various rules and regulations can be challenging. Fortunately, the Streamlined Sales Tax Program (SSTP) offers a solution.

Sales tax can be a complicated matter due to constantly evolving rules and requirements regarding its collection and remittance. To ensure businesses can properly understand and comply with these regulations, seeking professional assistance is often the best course of action.

The SSTP is an initiative by the state and local governments to reduce the complexity of tax collection for retailers. This article provides everything you need to know about Streamlined Sales Tax.

What is Streamlined Sales Tax?

Streamlined Sales Tax (SST) is a program designed and run by states to simplify sales and use tax compliance for retailers by developing an organized sales and use tax system. It was formed in 1999 – 2000 to streamline sales tax compliance with retailers responsible for collecting and remitting sales tax.

The Streamlined Sales Tax Project (SSTP) is a collective national effort of the states to modernize the collection and remittance system of sales and use tax. States that become program members enter the Streamlined Sales and Use Tax Agreement (SSUTA). It requires them to comply with the policies and take measures to achieve the objectives of this initiative.

The project benefits brick-and-mortar and ecommerce sellers alike. You can talk to a sales tax expert at TaxHero to determine if you qualify for SST or need registration.

The Objectives of the SSTP

The following are the main objectives of the Streamlined Sales Tax Program.

To minimize administrative costs and responsibility for the retailers.
To modernize the sales and use tax collection system.
To offer a fair, competitive environment to remote sellers and brick-and-mortar stores.
To develop a simple and business-friendly tax collection system

How Does the Streamlined Sales Tax Project Work?

Besides modernizing the sales tax collection system and simplifying it for businesses, the SSTP aims to provide a comprehensive plan to the states to streamline sales tax collection.

This program simplifies tax administration by offering state-level tax collection administration. In addition, it provides uniformity in tax base definitions and state and local sales tax bases. Under this program, all member states have a central electronic registration system.

It establishes uniform sales tax collection standards and provides the latest technology systems to facilitate the whole process. All these measures encourage more businesses to register and collect sales tax promptly. It benefits both the government and businesses.

How does SSTP Benefit Businesses?

As discussed earlier, the primary aim of the SSTP is to reduce the complexities of sales tax collection to encourage businesses to collect and remit sales tax to the concerned authorities voluntarily.

Small businesses can maximize this program to get worthwhile tax collection incentives. The following are the compelling benefits of SST registration.

If you conduct business in multiple states, you only need to register once, which applies to all SSTP member states. The registration process is simple and quick and occurs through the Streamlined Sales Tax Registration System.
There is no need to update information separately in each state. One update applies to all states.
You can use the same filing forms and exemption certificates for all streamlined sales tax states.
Tracking one identification number is enough for tax payment and filing in all member states.
You can reduce the burden of sales tax collection and filing by using certified sales tax administration software.
You can benefit from the uniform sourcing rules across all member SST states.
Volunteer sellers get free access to sales tax calculation and reporting services from a Certified Service Provider.
Businesses can save their cost by collecting, filing, reporting, and paying sales tax for all jurisdictions at one location.

What are Streamlined Sales Tax States?

The Streamlined Sales Tax Project currently has 23 full member states and one associate member state. Let’s call them the Streamlined Sales Tax States. The list exempts the states with no sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.

The full member states change their sales tax laws according to Streamlined Sales and Use Tax agreement requirements. On the other hand, the associate member states do not change their laws but comply with SSUTA requirements.

The following states have full SSTP membership.

Arkansas
Georgia
Indiana
Iowa
Kansas
Kentucky
Michigan
Minnesota
Nebraska
Nevada
New Jersey
North Carolina
North Dakota
Ohio
Oklahoma
Rhode Island
South Dakota
Utah
Vermont
Washington
West Virginia
Wisconsin
Wyoming

Tennessee is an associate member of the project.

Conditions to Qualify in SSTP

You need a sales tax permit or license to collect and remit sales tax in a state where you have your economic or physical nexus. If you have nexus in any of the SSUTA member states, you can benefit from the streamlined sales tax program by registering as a volunteer seller.

You must meet the following conditions to qualify and register as a volunteer seller in the Streamlined Sales Tax Program. These conditions must be fulfilled over 12 months.

You must not have a fixed place of business for more than a month in a member state.
The value of your property in the member state must be less than $50,000.
Your payroll in the member state must be less than $50,000.
Your total property or payroll in the member state must not exceed 25%.

Besides these, there might be some additional conditions that you must check before registering.

Why the Streamlined Sales Tax Program Exists

Before the Streamlined Sales Tax Program existed, multi-state selling often meant dealing with sales tax rules that were structured differently from one state to the next.

Even when two states taxed the same type of transaction, the steps for registration, product definitions, and reporting requirements could be inconsistent, which created avoidable work for businesses expanding across state lines.

To understand the “why” behind SST, it helps to focus on the problem it was built to solve: reducing compliance burden without taking away state authority.

The Streamlined Sales and Use Tax Agreement (SSUTA) describes this as simplifying and modernizing sales and use tax administration to substantially reduce compliance burden. (This is the core “purpose statement” that supports the section.)

What the program was designed to improve (in practical terms):

More consistent administration, not “one national tax”: SST is designed to standardize the way certain tax rules are administered across participating states, so sellers do not have to relearn an entirely different system every time they expand.
A central path for multi-state registration: Instead of approaching every state separately with different registration experiences, SST supports a centralized registration approach for participating states.
Modernized rules that support ecommerce reality: The SSUTA framework includes sourcing and administrative standards that support remote selling, rather than treating interstate sales as a special case that requires totally different logic every time.

What Streamlined Sales Tax Does Not Change

SST helps standardize parts of the process, but it does not remove the core obligations businesses still have under state law.

This section is important for SEO because it matches what searchers are often really asking: “Does this program make sales tax go away?” The answer is no, and this clarifies exactly what remains unchanged.

What SST does NOT do (quick clarity list):

It does not create a nationwide tax system: Member states still control their own sales tax systems and remain responsible for their own laws and enforcement. The SSUTA is an agreement to improve administration, not a replacement for state authority.
It does not erase nexus considerations: Whether you need to collect tax in a state still depends on your activity and obligations under that state’s rules. SST does not decide that for you. (It helps with the process once you’re registered/participating.)
It does not make local tax “disappear”: Participating states may streamline administration, but local taxes can still exist, and businesses still need accurate rate calculation and correct reporting.

How SST Helps Remote Sellers Navigate Multi-State Sales

Remote sellers usually struggle with sales tax for a simple reason: once you sell into multiple states, compliance becomes a systems problem. SST supports remote sellers by offering structured paths that reduce repetitive setup work and can support automation through certified providers.

Instead of repeating “benefits” you already listed earlier, this section adds how the workflow actually becomes easier.

Where SST can reduce friction for remote sellers:

Central registration reduces repeated onboarding: Remote sellers can register for participating states through the Streamlined system rather than starting from scratch every time.
Certified Service Providers support calculation + reporting workflows: SST has a Certified Service Provider (CSP) program, which is specifically designed to support sellers with the mechanics of compliance.
Volunteer sellers may qualify for free CSP services (in certain cases): SST outlines criteria for when sellers can receive free CSP services in a state, tied to registering through the Streamlined system and meeting eligibility conditions.

Their SST Eligibility

Many sellers wait until sales tax becomes painful before reviewing SST eligibility. A more practical approach is to evaluate sooner, when operational complexity starts showing up in predictable ways.

This section is designed to capture search intent like “Do I qualify?” and “When should I use SST?” without repeating your qualification rules.

Signals it may be time to review SST eligibility:

You are adding new states faster than your admin process can handle: If each new state expansion creates a new manual setup and internal checklist, SST may help reduce repeated work through its centralized approach.
You are relying on manual tax rate updates or inconsistent tools: If your team is updating rates, mappings, or reporting logic manually, it’s often a sign you’ve outgrown a DIY approach and should evaluate a structured compliance workflow. (SST’s CSP model exists for this reason.)
You want to know whether “volunteer seller” status applies to you: The SST free services program is tied to specific criteria and registration steps, so sellers who may qualify typically benefit from reviewing this early, not after problems occur.

Want to Learn More?

SST can be a game changer for your business. It is not only time-saving but also cost-effective. Connect with TaxHero to get in touch with sales tax experts and get an in-depth understanding of your qualification, the need for registration, and the proceeding compliance requirements.

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