Quick overview

Maintaining sales tax compliance when selling online nationwide means four things: know where you have nexus, register for permits in those states, collect and remit the correct tax, and keep clear records. After South Dakota v. Wayfair, Inc. (2018) many states impose “economic nexus” based on sales volume or transaction counts rather than physical presence (South Dakota v. Wayfair, 138 S. Ct. 2080 (2018)). Use automation and a clear internal process to keep obligations manageable.

Why this matters now

States aggressively enforce sales tax because remote sales are a major revenue source. Penalties can include late fees, interest, and assessments for back taxes going back several years. For small and mid-size sellers, proactive compliance avoids audits and protects cash flow. In my practice advising e-commerce businesses, the most common failures come from not tracking marketplace sales, misapplying exemptions, or missing small-volume thresholds that still trigger registration.

Common nexus triggers (what creates an obligation)

  • Physical presence: having an office, warehouse, employee, contractor, or inventory stored in a state. This still creates nexus in most states.
  • Economic nexus: many states set thresholds (often expressed as $ sales or transaction counts) that, when exceeded, require registration and collection. Examples include California ($500,000 in sales), New York ($500,000 and 100 transactions), Texas ($500,000), and Florida ($100,000). These are illustrative; always verify with the state tax agency.
  • Marketplace facilitator rules: when you sell through Amazon, Etsy, or other marketplaces, those platforms in many states are now required to collect and remit tax on your behalf (see more on marketplace rules below).

(For an accessible primer on nexus and remote sellers, see our guide on Multi-State Sales Tax Nexus: Rules for Remote Sellers.)

Step-by-step compliance checklist

  1. Map where you sell and where orders ship. Export the last 12 months of sales by ship-to state and count transactions by state. This exercise tells you whether you are close to economic thresholds.
  2. Identify nexus types. Note physical locations, inventory/fulfillment partners, remote employees, in-state affiliates, and marketplace sales.
  3. Register for sales tax permits where nexus exists. Registration is state-specific and sometimes requires a few business details and your federal EIN.
  4. Configure your selling platforms. Set up tax rules in your e-commerce platform and point-of-sale systems so tax is calculated at checkout.
  5. Collect and document resale and exemption certificates. Keep signed resale certificates for exempt sales and document the reason for any tax-exempt sale.
  6. File and remit on time. States have monthly, quarterly, or annual filing schedules based on volume. Missing a filing can produce late penalties.
  7. Reconcile sales and tax reports monthly. Match collected tax to deposits and filings to avoid surprises.
  8. Maintain records for at least the state-specified period (commonly 3–7 years). Keep invoices, exemption certificates, and register logs.
  9. Re-check nexus periodically (every quarter or after business changes). Sales growth, new marketplaces, or adding fulfillment locations change obligations.

Automation: when to use it and why

Sales tax automation tools reduce manual errors and speed up multi-state compliance. In practice I recommend automation once you exceed five to ten states or when you use multiple sales channels. Popular tools include TaxJar and Avalara for tax calculation, return filing, and nexus tracking. Automation handles rate lookups, destination-based taxation, and marketplace reconciliation. Our guide on How to Implement Sales Tax Automation for Small Businesses explains how to evaluate providers and integrate them with common platforms.

Marketplace facilitators and third-party platforms

Most states now require marketplace facilitators (e.g., Amazon, Etsy, Walmart Marketplace) to collect and remit sales tax on marketplace transactions. This often relieves individual sellers of collection duties for sales that the marketplace handles — but it does not always relieve you of registration or reporting duties in every state. Confirm whether a marketplace collects tax in a given state and whether your seller records must still be filed. See our explainer Marketplace Facilitator Rules: Who Collects and Remits Sales Tax? for details.

Handling exemptions and resale certificates

  • Accept and store properly completed resale certificates from buyers who will resell goods.
  • Know state-specific certificate forms and allowed formats — some states accept multi-state certificates, others require their own.
  • For exempt products (e.g., certain groceries, medicines, or services), keep a written policy and supporting documentation to defend exempt transactions during audits.

Filing, remittance, and recordkeeping best practices

  • Use a single system of record for sales taxes so filings, payments, and collected tax reconcile.
  • Date-stamp all filings and payments. Save confirmation emails or payment receipts.
  • Keep copies of exemption/resale certificates and any correspondence with state agencies.
  • If you discover prior noncompliance, consider voluntary disclosure agreements (VDAs) many states offer to limit lookback periods and penalties — consult a tax professional.

Audit preparedness

Expect states to audit sales tax registrations and returns if they discover uncollected tax or if you trigger a nexus review. Prepare by:

  • Maintaining a clear nexus log showing when and why you registered or deregistered in states.
  • Keeping transaction-level details for at least three years (longer if you operate in states with extended lookback periods).
  • Documenting decisions about taxability (e.g., why a product was treated as non-taxable) with references to state guidance.

Practical examples (how I’ve helped clients)

  • Handcrafted goods seller: After running a ship-to analysis, we found the seller exceeded New York’s thresholds. We registered for a New York sales tax permit, updated checkout rules to collect the correct local rates, and organized exemption certificates for wholesale buyers. This eliminated audit risk and freed up cash that had been set aside as contingency.
  • Growing DTC brand using 3PLs: A client used several fulfillment centers. Each 3PL facility created physical presence nexus. We consolidated inventory or used tax automation to file correctly in those jurisdictions, which reduced administrative overhead.

Common pitfalls to avoid

  • Assuming marketplace sales always remove your obligations. Marketplaces may collect tax, but you still might need to register or file informational returns.
  • Forgetting inventory stored in a third-party warehouse creates nexus.
  • Misclassifying products: similar products can be taxed differently depending on state rules (e.g., clothing exemptions in certain states).

Penalties and practical cost considerations

Penalties vary by state and can include late fees, interest, and assessments for uncollected tax. Some states assess tax plus penalties going back several years. Proactive registration and voluntary disclosure programs often reduce interest and penalties and are usually cheaper than waiting for an audit.

Where to confirm rules and get help

  • Read the U.S. Supreme Court decision: South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018).
  • Use state department of revenue websites for current thresholds and registration steps (each state posts its economic nexus and registration guidance).
  • IRS Sales and Use Tax overview is a helpful federal resource on sales and use tax interactions (IRS: Sales and Use Tax, https://www.irs.gov/businesses/sales-and-use-tax).
  • For software and practical guides, see providers like TaxJar and Avalara; they maintain frequently updated state guides.

Professional tips

  • Re-run a ship-to analysis quarterly and after major business events (new fulfillment center, large sales spike, new marketplace channel).
  • Build tax into pricing decisions — especially when expanding into many states at once.
  • Keep a checklist for registration and de-registration so you can document compliance decisions.

Helpful internal resources

Final takeaways

Sales tax compliance for online sellers is manageable with a repeatable process: map sales, identify nexus, register, automate calculations, file on time, and keep records. When growth or new channels complicate the situation, bring in a specialist or certified tax advisor to limit risk. Early investment in automation and internal controls typically pays for itself by avoiding penalties and simplifying reporting.

Disclaimer

This article is educational and does not constitute tax or legal advice. Specific state rules change; consult the relevant state tax authority or a licensed tax professional for advice tailored to your business.