Understanding your online sales tax obligations can be challenging. A physical storefront has more straightforward compliance requirements, but online sellers must be aware of sales tax laws in all the states and cities where their customers are located. For example, a Texas-based business might sell online to customers in New York, Michigan, and California. So it has to manage its tax obligations in Texas, as well as in three additional states.

State and local governments use sales tax to pay for projects such as schools, roads, and public safety. Sales tax is a type of indirect tax because it's collected by the business or online retailer on behalf of the government. Sales tax is governed at the state level, which means each state creates its own tax laws. This is part of the reason online sales tax compliance is so complex. An e-commerce business that sells in multiple states must be aware of all the different sales tax laws and track when sales tax is due in each state.

Key takeaways

• Online sellers can trigger sales tax obligations in multiple states through economic nexus (based on sales activity) or physical nexus (based on presence), and the specific rules and thresholds vary by state.

• Sales tax collection rules offer exceptions for certain marketplace sellers, B2B transactions, and non-taxable goods.

• Once you have a sales tax obligation, you'll need to register for a permit, collect tax from customers, and file returns on an ongoing basis – even for periods when you didn't collect any tax.

Do I need to collect sales tax when selling online?

Online businesses are required to collect sales tax from customers when they exceed certain thresholds.

What are economic and physical nexus?

Businesses that exceed certain thresholds of total revenue, transaction count, or both – which are referred to as "economic nexus thresholds" – will have to collect sales tax. For example, in the state of Georgia, businesses need to collect sales tax from customers only if they exceed US$100,000 in revenue or 200 transactions from customers in Georgia. Some states have only revenue thresholds, and others require sales tax collection only when both the revenue and transaction thresholds are exceeded. These thresholds vary from state to state.

Businesses can also trigger sales tax obligations by having a physical presence in a state. This is referred to as physical nexus. A business can create it by having an office space, remote employees, or a warehouse in a state. In general, if you store your inventory in a state, you'll likely have sales tax obligations there. Selling online from your home can also create physical nexus in a state.

Do I need to collect tax if I sell through a marketplace?

If you plan to sell through a marketplace (e.g., Amazon, Etsy, eBay), the marketplace will generally be responsible for collecting and remitting sales tax on your behalf, not you. This is due to marketplace facilitator laws, which have been adopted by every state that levies sales tax. Under these laws, the marketplace itself collects and remits sales tax on transactions it facilitates, shifting that obligation away from the individual seller.

However, this doesn't eliminate all of your sales tax responsibilities. Marketplace facilitator laws cover only sales made through marketplaces. If you're going to also sell through your own website, at a trade show, or through any other non-marketplace channel, you'll still be responsible for tracking nexus thresholds and collecting and remitting tax on those sales when required. If you plan to sell through multiple channels, you'll want to track marketplace and non-marketplace sales separately.

Is everything I sell taxable?

Just because you've exceeded a nexus threshold in a state doesn't mean you're required to collect sales tax. Not all goods and services are taxable. If the items you're going to sell aren't taxable, then you won't be required to collect sales tax on them. It's important to remember that tax laws change often, and state governments can change how products and services are taxed throughout the year.

Do I need to charge tax on B2B sales?

To avoid double taxation, many B2B purchases are exempted from sales tax. If a business purchases an item specifically to resell it, it can use a resale certificate to avoid paying sales tax on the item since it'll charge sales tax to the end customer.

Do I need a sales tax permit to sell online?

Not every online seller needs a sales tax permit. You'll need one only if you trigger a sales tax obligation in a state. This involves exceeding that state's economic nexus threshold, having a physical presence there, or selling goods that are taxable in that state. If you don't meet any of those requirements, you won't need to register. But once you do have an obligation, you'll need to register for a sales tax permit before you collect tax from your customers.

How do I register for a sales tax permit?

You must register individually in each state where you meet the registration requirements. Some states might also require registration at the local level. To register for a sales tax permit, you'll need your general business information. And certain states charge a small fee for registering. Registration is done online.

To make this process easier, let Stripe manage your tax registrations in the US and benefit from a simplified process that prefills application details – saving you time and ensuring compliance with local regulations.

How do I file and pay online sales tax?

Once you collect sales tax from your customers, you'll file a sales tax return and remit the sales tax you collected to the correct state agency or another local tax authority. Each state tax authority's website will have details on how to file and your due date.

How often do I need to file?

Due dates vary from state to state, and the filing frequency could also vary. Generally, large businesses with higher tax liabilities file more often (monthly), while smaller businesses might be required to file only bimonthly or quarterly returns.

What if I didn't collect any sales tax this period?

Even if you don't collect sales tax during a reporting period, you might still need to file a return. This is called a "zero return". And while you won't remit any tax to the state, you'll still be required to fill out and submit a return.

What happens if I file late?

Filing on time is the best way to avoid the penalties and interest that come with a delinquent filing. If you miss a due date, states will generally charge a late filing penalty, a late payment penalty, and interest – each set and calculated separately by the individual state. Penalties are typically a percentage of the tax due (often growing the longer the return goes unfiled, up to a cap) or a flat dollar amount; some states charge a late filing penalty even on a zero-dollar return. Interest accrues separately on any unpaid tax, usually with no cap, and states rarely waive it even when they reduce or forgive the penalty itself.

Because these amounts vary by state, consider checking your state tax authority's website for its specific penalty and interest rates and filing as soon as possible if you miss a deadline. Some states also offer voluntary disclosure programmes or penalty waivers for sellers who come forward before they're contacted.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful application programming interface (API).

Stripe Tax helps you monitor your obligations and alerts you when you exceed a tax registration threshold based on your Stripe transactions. It can also register to collect tax on your behalf in the US, automate US filings in the Dashboard, and manage global filings through trusted partners. Stripe Tax automatically calculates and collects sales tax, value-added tax (VAT), and goods and services tax (GST) on:

• Digital goods and services in all US states and over 100 countries

• Physical goods in all US states and 42 countries

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration, or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: If you need to register for a sales tax in the US, let Stripe manage your tax registrations. You'll benefit from a simplified process that prefills application details – saving you time and simplifying compliance with local regulations. If you need help registering outside of the US, Stripe partners with Taxually to help you register with local tax authorities.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax automates US filings in the Dashboard, powered by TaxJar. For global filings, Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business.

Learn more about Stripe Tax or get started today.