The US doesn’t have a federal sales tax. Instead, every state sets its own definitions of what's taxable, who has to collect it, and when those obligations kick in. Retail sales tax alone accounts for 24% of state and local revenue in the US, but the same product might be taxable in one state and fully exempt in another. As businesses expand across more channels and into more states, the possible combinations multiply fast.

Below, we discuss what sales are subject to tax, what nexus laws mean for your collection obligations, and how your specific business model shapes your tax exposure.

Highlights

• What counts as a taxable sale depends on what you're selling, where you're selling it, and who's buying it.

• The 2018 South Dakota v. Wayfair decision led to widespread use of economic nexus laws. Growing businesses can have tax obligations in more states than they realize.

• Your business model affects which transactions are taxable and how compliance works.

What is a taxable sale?

In the US, a taxable sale is any transaction taxed by the state. Individual states can define taxability quite differently, although there are some common categories and requirements.

How does nexus determine which sales are subject to tax?

Nexus is the connection between your business and a state that creates a tax obligation. There are two categories: physical nexus and economic nexus.

Physical nexus

Having an office, warehouse, employee, or inventory in a state means you have physical nexus in that state. If you store goods in an Amazon fulfillment center in a state, you typically have physical nexus there.

Economic nexus

After the Supreme Court's 2018 decision in South Dakota v. Wayfair, states can require out-of-state businesses to collect sales tax once they cross certain sales thresholds. The amount varies by state, but a common threshold for many states is $100,000 in sales or 200 transactions in the state per year. Some states have thresholds as high as $500,000 per year, so companies should research each state in which they do business. Every state with a sales tax has now enacted some form of economic nexus law, although the thresholds and measurement periods differ.

What types of goods are subject to sales tax?

Physical goods are at the core of sales tax. But in some states, certain digital goods and services are taxed as well.

Here are the main categories that might be subject to sales tax:

• Tangible personal property: Nearly every state taxes the retail sale of physical goods. Exemptions carve out certain categories (e.g., groceries, prescription drugs, agricultural equipment), but definitions differ state by state. Clothing exemptions also vary widely between states.

• Downloaded software: Software is taxable in many states that tax digital goods. Some states distinguish between off-the-shelf software and custom software.

• Streaming services: States such as Pennsylvania, Texas, and Wisconsin tax streaming video and music. Other states don't.

• Software-as-a-service (SaaS): SaaS is one of the categories that particularly differs state by state. Some states treat it as a taxable software sale, while others treat it as a nontaxable service. Several states have issued specific SaaS guidance.

Are services taxable?

The traditional sales tax model taxed goods only, not services. This has shifted considerably as service-based businesses have grown.

Here’s how services are taxed:

• Telecommunications: Telecommunications are broadly taxed across states, often at rates higher than the general sales tax rate.

• Professional services: Legal services, medical services, accounting, and consulting remain tax-exempt in many states, although Hawaii, New Mexico, South Dakota, and West Virginia tax services by default with a few exemptions.

• Entertainment: Admission to concerts, sporting events, and amusement parks is taxable in many states.

• Lodging: Hotel stays and short-term rentals are taxable in many states, often with additional occupancy taxes layered on top.

• Repair and installation services: Many states tax labor when it's tied to a taxable good. For example, if you sell and install a water heater, some states tax the full transaction, including labor.

• Data processing and information services: Some states, such as Texas, tax data processing and information services at a reduced rate.

In general, the safest assumption is that if you're selling services across state lines and you've hit nexus thresholds in multiple states, you’ll need to research each state's specific treatment. There's no reliable general rule.

Does your business model change which sales are subject to tax?

Your business model greatly affects your sales tax responsibilities. Two businesses with the same revenue can have entirely different tax profiles.

Here’s how it works for some common business models:

• Subscription businesses: A SaaS company selling a $50 per month subscription might owe full sales tax in some states, a reduced rate in others, and none at all in a few more, all for the same product. If that subscription includes both software access and human services, some states will tax the entire bundle, some will tax only the software portion, and some will require itemized documentation.

• Marketplaces: Many states now have marketplace facilitator laws that shift the tax collection obligation from individual sellers to the platform itself. If you operate a marketplace, you're responsible for collecting and remitting tax on all the transactions that are processed through it in those states.

• B2B businesses: Sales to resellers, manufacturers buying inputs, and certain nonprofits are exempt from sales tax in many states, but only if the buyer provides a valid exemption certificate. Accepting a certificate in good faith generally protects you from liability if a buyer misrepresents their status, but you need a process for collecting and storing those certificates.

• Physical retail: Businesses with locations in multiple states have a simpler nexus situation, but they still have to deal with local rate variations and product-specific exemptions at the point of sale.

How can a business manage sales tax compliance across multiple jurisdictions?

The combination of nexus tracking, rate lookups, product taxability rules, exemption certificate management, and filing deadlines across dozens of jurisdictions is genuinely hard to manage. The practical answer for many businesses is tax compliance software integrated directly into their payments infrastructure.

Here’s what tax compliance software can help you track:

• Rate accuracy: Sales tax rates in the US can include state, county, city, and special district components. This means that a single US address might be subject to four overlapping tax rates. A sales tax calculator can determine the rate at the address level.

• Product taxability: A product might be taxed in one state and exempt in another. Assigning a tax code to each product allows the software to automatically apply the correct treatment per jurisdiction.

• Exemption certificates: If you sell to tax-exempt buyers (e.g., nonprofits, resellers, government entities), you need to collect and store their exemption certificates. Software can support this as a separate workflow.

• Filing: Modern software gives you jurisdiction-level reports to support filing. Some businesses use additional software to automate this step.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Stripe Tax helps you monitor your obligations and alerts you when you exceed a sales tax registration threshold based on your Stripe transactions. In addition, it automatically calculates and collects sales tax, VAT, and GST on both physical and digital goods and services—in all US states and in more than 100 countries.

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 API.

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: Let Stripe manage your global tax registrations and benefit from a simplified process that prefills application details—saving you time and simplifying compliance with local regulations.

• 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 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.