Quick overview

Selling online lets you reach customers across state lines — and that raises sales tax responsibilities. Since the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. (2018), states can require remote sellers to collect sales tax based on economic activity, not just physical presence. That decision changed the rules for most e-commerce businesses and makes ongoing compliance an operational priority for any online seller with interstate customers (South Dakota v. Wayfair, Inc., 2018).

This guide explains the practical steps to stay compliant, how nexus is determined, marketplace facilitator rules, recordkeeping basics, and how to prepare for audits. It is written to be actionable for small-business owners and e-commerce managers. This is educational information and not individualized tax advice — consult a CPA or tax attorney for your situation.

Sources: U.S. Supreme Court (South Dakota v. Wayfair, Inc., 2018); IRS, Sales and Use Tax (irs.gov).

Why sales tax compliance matters for online sellers

Noncompliance can mean back taxes, penalties, interest, and reputational harm. States actively pursue unpaid sales tax because it’s a major revenue source, and many have automated systems and marketplace rules that make enforcement easier. Even if your business is small or just starting to sell to out-of-state customers, you need a repeatable process for evaluating nexus and tracking where you must collect tax.

Practical impacts include:

  • Cash-flow planning for taxes you collect but must remit.
  • Pricing decisions (whether to show tax separately or include it in prices).
  • Administrative work to register, file, and manage exemptions.

How sales tax compliance works — step by step

  1. Determine nexus

Nexus is the legal link between your business and a taxing state. Traditionally based on a physical presence (store, warehouse, employee), nexus now commonly includes economic thresholds set by states — for example, a minimum dollar amount of sales or a number of transactions into the state. Each state sets its own rules; thresholds and definitions vary. Start by mapping sales by state and identifying any physical footprints (inventory locations, employees, trade shows).

  1. Check marketplace facilitator rules

Many states require marketplace facilitators (Amazon, eBay, Etsy, etc.) to collect and remit sales tax on behalf of third-party sellers. If you sell through a marketplace, check whether the marketplace is collecting tax for you — but remember that marketplace rules differ by state and by platform.

  1. Register for a sales tax permit where required

If nexus exists, register with the state revenue department to get a sales tax permit or account number. Registration is typically free. Once registered, you are authorized (and required) to collect sales tax for sales subject to tax in that jurisdiction.

  1. Configure tax collection

Set the correct tax rates on your checkout and invoicing systems. Sales tax can include state, county, city, and special-district components. Use a reliable rate source and keep rate tables current. Many sellers automate this step with a tax engine or ecommerce plugins that pull official rate data.

  1. File returns and remit collected tax

States set filing frequencies (monthly, quarterly, annual) based on your sales volume and tax liability. Filing on time is essential — late filings trigger penalties and interest. Some states also require local tax filings for certain jurisdictions.

  1. Maintain records and exemption documentation

Keep sales invoices, exemption certificates, shipping records, and tax returns for the retention period required by each state (often 3–7 years). Proper records shorten audits and support exemption claims (e.g., resale certificates, exempt organization status).

Common compliance traps and how to avoid them

  • Confusing sales tax with income tax. Sales tax is collected from customers and remitted to states; it’s not your income tax. Keep collected sales tax separate in accounting.
  • Relying on platform statements without verification. Confirm whether a marketplace collects tax for each state and for each product type. Marketplace reporting formats vary and can be incomplete.
  • Assuming occasional sales don’t create nexus. Economic nexus laws mean even occasional sales can trigger registration if thresholds are met.
  • Using outdated rate tables. Sales tax rates and rules change frequently; automated rate services or periodic manual reviews are necessary.

Marketplace facilitators and platform sellers

Marketplace facilitator laws simplify compliance for many sellers because the platform charges and remits tax. However, marketplaces and states differ in how they apply these laws and whether specific product or service categories are covered. Verify your platform’s approach and document what tax the platform collected for your transactions.

Automation and software: what to use and why

Automation reduces errors and administrative burden. Popular tax engines include Avalara, TaxJar, and vertex solutions integrated into major shopping carts. Automation helps with:

  • Rate calculation by jurisdiction and product taxability.
  • Managing multiple seller registrations and filing calendars.
  • Preparing returns and remittances or transmitting data to tax preparers.

If your annual cross-state sales are material, automation usually pays for itself through saved time and fewer compliance mistakes.

Practical compliance checklist (first 90 days)

  • Export sales by shipping destination for the last 12 months.
  • Identify states where you have physical presence (warehouses, offices, employees).
  • Compare sales by state to each state’s economic nexus guidance; flag states that likely require registration.
  • Confirm whether marketplaces you use collect tax for the states where you sell.
  • Register in states where you have nexus and obtain sales tax permits.
  • Implement tax calculation at checkout (plugin or API) and test transactions.
  • Create a filing calendar with due dates and responsible staff or service provider.
  • Store exemption certificates and reseller resale certificates in a central repository.

What records states commonly request in an audit

  • Monthly and annual sales reports.
  • Invoices and receipts showing tax collected and shipping destinations.
  • Exemption certificates (resale, nonprofit, government).
  • Shipping proof (carrier records) to confirm customer location.
  • Marketplace sales detail if the marketplace collected tax on your behalf.

Good recordkeeping shortens audits and often reduces assessed liabilities.

Which states should you watch closely?

Rules vary widely. Rather than memorizing thresholds, use a living document that links to each state revenue department’s guidance and your sales reports. The IRS provides general information on sales and use taxes (IRS, Sales and Use Tax). State-specific guidance is authoritative for thresholds and filing requirements.

For additional reading on nexus and practical steps, see our related FinHelp guides: State Sales Tax Nexus for Online Sellers: Establishing and Managing Obligations and Sales Tax Registration for Online Sellers: Where to Start. For collection and operational best practices, see Sales Tax Collection Best Practices for Online Sellers.

Professional tips from practice

  • Build tax compliance into your product launch checklist whenever you add new sales channels or inventory locations.
  • Keep a separate liability account on your books for tax collected but not yet remitted.
  • Plan for retroactive exposures: if you discover uncollected tax for past periods, contact the state revenue department — many states offer voluntary disclosure programs with reduced penalties.
  • Implement a periodic (quarterly or semiannual) nexus review tied to sales reports.

In my experience advising small e-commerce businesses, proactively registering and automating collection cuts future liability and dramatically simplifies audits.

Key resources and where to confirm rules

  • U.S. Supreme Court, South Dakota v. Wayfair, Inc. (2018).
  • IRS — Sales and Use Tax: https://www.irs.gov/taxation/sales-and-use-tax
  • State revenue departments (search for “[State] department of revenue sales tax nexus” for official guidance).
  • Streamlined Sales Tax Governing Board and National Conference of State Legislatures (NCSL) track state law changes.

Final checklist before you file

  • Confirm registrations are active for every state where you have nexus.
  • Reconcile collected tax to sales by jurisdiction.
  • File required returns even if you collected no tax but the state mandates a zero return.
  • Keep copies of filings, payments, and supporting documents for at least the state-specified retention period.

Professional disclaimer

This article provides general information about sales tax compliance for online sellers and is not legal or tax advice. For guidance tailored to your business — including state-specific thresholds, taxability of your products or services, or voluntary disclosure options — consult a qualified CPA, tax attorney, or your state revenue department.

Authoritative citations

Related FinHelp resources

If you need a checklist tailored to your ecommerce platform or help configuring tax automation, consult a tax professional or reach out to a certified e-commerce tax specialist.