Overview

Sales and use taxes are state-level consumption taxes: sales tax is collected by the seller at the point of sale; use tax is paid by buyers on out-of-state purchases when sales tax wasn’t charged. The 2018 U.S. Supreme Court decision South Dakota v. Wayfair, Inc. gave states the authority to require remote sellers to collect sales tax based on economic presence, reshaping compliance for online businesses (U.S. Supreme Court, 2018).

Why nexus matters

Nexus—either physical (inventory, employees, offices) or economic (sales volume or transaction thresholds)—is the trigger for registration, collection, and filing requirements. States set their own nexus tests and thresholds, so your obligations can differ by state and change over time. For practical guidance on tests and thresholds, review your state tax agency and our detailed nexus resources: “Nexus Rules for Remote Sellers After Recent Court Decisions” and the “Nexus Checklist for Online Marketplaces: When to Register in a State.”

Marketplace facilitator laws

Many states now require marketplace facilitators (platforms like Amazon, eBay, Etsy) to collect and remit sales tax on behalf of third-party sellers. This relieves many sellers of direct collection duties, but sellers still need to understand reporting, exemption documentation, and reconciliation. For marketplace-specific nexus and registration issues, see our article on how nexus rules apply to dropshipping and fulfillment models.

Registration, collection, and filing basics

  • Register where you have nexus. Each state has an online portal for business tax registration.
  • Collect the correct combined rate (state + county/city) for the buyer’s destination. Rates and taxability of goods and services vary by jurisdiction.
  • File timely returns and remit collected taxes. Frequency and filing requirements depend on state rules and your sales volume.

Use tax and consumer responsibility

If a seller doesn’t collect sales tax, the buyer may owe use tax to their state. Some sellers include clear use-tax notices at checkout; others remit on the buyer’s behalf when required. Track and document transactions so you can support customers and state audits.

Recordkeeping and automation

Keep sales records, exemption certificates, resale certificates, and marketplace reports for the period required by each state (often 3–6 years). Use tax compliance software or services that integrate with your shopping cart to:

  • Calculate destination-based tax rates in real time
  • Manage registrations and returns across states
  • Store exemption certificates and marketplace reports

Common mistakes to avoid

  • Treating every state the same—rules differ widely.
  • Ignoring marketplace facilitator rules or assuming the platform handles all obligations.
  • Poor recordkeeping and missing exemption certificates.

Penalties and enforcement

States can assess unpaid tax, interest, and penalties; repeated noncompliance can lead to liens or legal action. Penalties and interest rates vary by state—check state revenue department guidance for specific formulas and relief options.

Quick compliance checklist

  1. Run a nexus analysis across all states where you ship.
  2. Register in states where nexus exists.
  3. Implement automated tax calculations and collect the correct rate.
  4. Maintain exemption certificates and marketplace reports.
  5. File returns and remit taxes on schedule.

Professional tips

  • Reassess nexus quarterly if your sales or fulfillment footprint changes.
  • Use marketplace reports to reconcile sales and tax collected by platforms.
  • Consult a state sales tax specialist before expanding into new states.

Authoritative resources

  • South Dakota v. Wayfair, Inc., 585 U.S. ___ (2018).
  • National Conference of State Legislatures, Marketplace Sales Tax resources (NCSL).
  • State revenue departments and the Streamlined Sales Tax Governing Board for state-specific rules.

Internal resources

Disclaimer

This article is educational and not tax or legal advice. State laws change frequently; consult a qualified tax advisor or your state revenue department for guidance tailored to your business.