Background and why it matters

Sales tax rules for online sellers changed after the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. (2018), which let states require out-of-state sellers to collect tax based on economic activity rather than a physical presence (see the decision at the U.S. Supreme Court). Since then, most states adopted economic-nexus rules; that means many creators who never had a brick-and-mortar store still owe sales tax in other states. (Source: IRS guidance on sales and use taxes.)

How it works — the practical steps

  • Determine nexus: Nexus is the connection that gives a state the right to tax your sales. Nexus can be physical (inventory, employees, office) or economic (sales volume or number of transactions). Many states use sales thresholds (for example, some use $100,000 in sales or 200 transactions), but thresholds and rules vary—always check the specific state rule.
  • Register for a sales tax permit: If you have nexus, register with the state tax agency before collecting tax. Operating without a permit can lead to fines and back taxes.
  • Charge the correct tax: Collect the rate based on the buyer’s shipping address or the taxing jurisdiction the state requires. Some products or digital goods may be exempt or taxed differently.
  • File and remit: File returns on the state’s schedule (monthly, quarterly, or yearly) and remit the tax collected.
  • Keep records: Maintain invoices, exemption certificates, and sales reports for at least the number of years your state requires.

In my practice I’ve helped digital creators reduce compliance risk by mapping where their sales occur and automating collection. For a digital artist selling prints, that meant registering in three states where sales exceeded the economic-nexus threshold and turning on tax collection in their e-commerce platform.

Common real-world scenarios

  • Marketplaces and facilitator rules: Many states require marketplaces (Amazon, Etsy, etc.) to collect and remit sales tax on behalf of sellers under “marketplace facilitator” laws. That can relieve individual sellers of collection duties in some states, but you still must track where you have other forms of nexus. Check the platform’s tax handling and your listing country/state settings.
  • Digital goods and services: States treat digital products differently. Some tax downloadable files and streaming; others exempt digital subscriptions. Always verify product taxability with the state tax agency or your tax advisor.

Who is affected

  • Independent creators (artists, photographers), digital product sellers (eBooks, music, templates), software or game developers, and physical-goods sellers who use online channels. If you sell anything taxable to buyers in states where you meet nexus rules, you may owe sales tax.

Key mistakes to avoid

  • Assuming no physical presence means no tax obligation. Wayfair made economic presence enough in many states.
  • Not checking marketplace facilitator treatment. Marketplaces may collect tax for you in some states but not all.
  • Poor recordkeeping. Without transaction-level records and exemption certificates, audits are costly.

Practical tips and tools

  1. Start with a nexus map: List states where you ship, store inventory, run ads, or reach sales thresholds.
  2. Use automation: Sales tax services (Avalara, TaxJar, or built-in e-commerce tools) can calculate rates, manage filings, and reduce errors.
  3. Review product taxability regularly: As your offerings change (physical vs. digital, subscriptions), revisit taxability rules.
  4. Consult a pro: For multistate exposure or large volume, get a state tax specialist to minimize backlog and penalties.

Further reading (internal resources)

Frequently asked questions

  • Do I have to register in every state I sell to? It depends—only in states where you have nexus. Check each state’s rules; many publish economic-nexus thresholds.
  • Are digital downloads taxable? It depends on the state and the product type; some states tax downloads and streaming, others exempt them.
  • What about marketplace sales? Many marketplaces now collect tax for sellers in many states, but you must verify reporting and any states where the marketplace doesn’t cover collection.

Professional disclaimer

This article provides general information and educational guidance only and does not constitute legal or tax advice. For specific obligations, consult a tax professional or state tax authority.

Authoritative sources

If you want, I can help you build a nexus checklist for your specific sales channels and monthly volume to determine where you likely need to register.