Quick answer

State sales tax is collected by the seller at the point of sale when the seller has a taxable presence (nexus) in the buyer’s state. Use tax is paid by the buyer when sales tax was not collected (for example, from out‑of‑state purchases) but the item is used, stored, or consumed in the buyer’s state. The 2018 Supreme Court decision in South Dakota v. Wayfair allows states to require many remote sellers to collect sales tax, so remote sellers must monitor nexus rules, register with states where they meet thresholds, and either collect or make sure buyers understand use tax responsibilities (U.S. Supreme Court, South Dakota v. Wayfair, 2018).

Why this matters to remote sellers

E-commerce growth means more transactions cross state lines. Before 2018, many remote sellers didn’t need to register in states where they had no physical presence. After Wayfair, states may require collection based on economic activity alone (commonly called “economic nexus”). Failing to comply can result in back taxes, interest, penalties, and administrative headaches. In my practice advising small and mid‑sized retailers, the biggest compliance failures I see are: not tracking sales by state, missing registrations after passing nexus thresholds, and not updating tax engines when product taxability rules change.

Authoritative resources: SCOTUS decision (South Dakota v. Wayfair, 2018) and state departments of revenue provide the legal basis and current thresholds; see also the Streamlined Sales Tax Governing Board for guidance on multi‑state simplification programs (Streamlined Sales Tax Governing Board).

How state sales tax and use tax work in practice

  • Sales tax: When a seller has nexus in a state and sells taxable goods or services to a buyer in that state, the seller must collect the state (and often local) sales tax at checkout and remit it to the state. Nexus can be physical (office, inventory, employees) or economic (sales dollar amount or transaction count).
  • Use tax: If sales tax is not collected at the point of sale — for instance, a customer buys from an out‑of‑state seller that didn’t collect tax — the buyer generally owes use tax to their home state. States may enforce use tax through audits, cross‑matches with 1099s, and tax notices.

Practical example: An online seller in Ohio sells $200,000 worth of goods into Texas in one year and meets Texas’s economic nexus rules. Texas can require the seller to register, collect Texas sales tax on future sales, and potentially collect tax on past sales (subject to state look‑back rules and amnesty programs).

Nexus: the trigger that determines responsibility

Nexus is the legal link between your business and a state. It can be created by:

  • Physical presence (inventory, office, employees, contractors or frequent trade show activity),
  • Economic activity (sales thresholds based on dollars and/or transactions),
  • Affiliate relationships or marketplace facilitator rules.

States set their own nexus rules and thresholds. After Wayfair, most states adopted economic nexus thresholds; many states use $100,000 or $500,000 in sales or a combined test including transaction counts. Because thresholds change and vary by state, you must monitor each state’s Department of Revenue notices and adjust your registrations and collection settings accordingly. For guidance on establishing and monitoring nexus, see our article on State Sales Tax Nexus: When Remote Sales Require Registration.

(Internal link: State Sales Tax Nexus: When Remote Sales Require Registration — https://finhelp.io/glossary/state-sales-tax-nexus-when-remote-sales-require-registration/)

Marketplace facilitators and marketplace sellers

Many states now require marketplace facilitators (platforms that facilitate third‑party sales) to collect and remit sales tax on behalf of sellers. If you sell on marketplaces like Amazon, Etsy, or Shopify’s marketplace, check whether the marketplace collects tax for your transactions. If the marketplace handles tax collection, you may be relieved of collecting tax for those sales — but you still need to track where sales are happening for reporting and registration purposes.

For sellers who use drop‑shipping or third‑party fulfillment, physical inventory in a state often creates physical nexus, so review your fulfillment network carefully.

Use tax: who pays it and how states enforce it

Use tax is generally the buyer’s responsibility when tax wasn’t collected. States enforce use tax through a mix of:

  • Audits and cross‑matches of business purchases and personal purchases,
  • Information reporting by payment processors and marketplaces,
  • Education and voluntary disclosure programs to bring taxpayers into compliance.

From a seller’s perspective, you should:

  1. Collect tax where required to avoid leaving the compliance burden to customers.
  2. If you cannot collect tax for some reason, provide clear documentation and sales receipts so customers can self‑report use tax.

A common issue: small businesses buy supplies from out‑of‑state vendors that do not charge sales tax; the small business then resells those goods locally without having paid sales tax or claiming an exemption — this can trigger use tax liabilities and create audit exposure.

Practical compliance checklist for remote sellers

  1. Inventory where you have physical presence (warehouses, third‑party logistics, employees). Physical presence usually creates immediate nexus.
  2. Track sales by state and transaction counts monthly. Compare activity to each state’s economic‑nexus thresholds and set alerts for thresholds.
  3. Register to collect sales tax in states where you meet nexus rules. Many states allow online registration with the state Department of Revenue.
  4. Configure your checkout system or tax engine to calculate correct state and local rates, and to apply product taxability rules (taxable vs. exempt items, digital goods, shipping taxation).
  5. Review marketplace facilitator rules and your platform settings to understand who is responsible for collection.
  6. Maintain clear resale/exemption certificates for exempt resale purchases and store them per state retention rules.
  7. Reconcile collected taxes monthly, file returns on time, and remit taxes to each state.

Tool recommendation: Use a reputable sales tax automation tool for rate calculation, registration trackers, and return filing. In my work I’ve seen automation reduce errors and prevent missed registrations.

Common mistakes to avoid

  • Assuming one-size-fits-all: Every state treats products, digital goods, and services differently.
  • Waiting until an audit letter arrives: States increasingly use data sources to identify out‑of‑state sellers.
  • Ignoring marketplace rules: Platform collection does not always equal no responsibility — you may still need to register.
  • Poor recordkeeping: Losing exemption certificates or failing to document drop‑ship arrangements creates audit risk.

Frequently asked questions (short)

  • Do I need to register in every state where I have customers? Only if you meet that state’s nexus rules. Registration is required once nexus is established.
  • What if I didn’t collect tax in prior years? States may assess back taxes, interest, and penalties; some states offer amnesty or voluntary disclosure programs — contact the state revenue department.
  • Can I pass sales tax to the customer? Sales tax is typically shown as tax on the invoice; you collect it from customers and remit it to the state.

Where to get reliable, up‑to‑date information

  • State Departments of Revenue: each state publishes its nexus and registration guidance.
  • Streamlined Sales Tax Governing Board: guidance for states participating in the SST system (https://www.streamlinedsalestax.org).
  • Federal summaries and analyses: the U.S. Supreme Court opinion in South Dakota v. Wayfair, Inc. (2018) is the landmark decision that enabled economic nexus rules.
  • Consumer and small‑business resources: the Consumer Financial Protection Bureau and Tax Policy Center publish plain‑language explanations of sales and use taxes.

Authoritative links: U.S. Supreme Court (South Dakota v. Wayfair), Streamlined Sales Tax Governing Board, IRS general guidance on state taxes (note: states—not the IRS—administer sales/use taxes).

Related reading on FinHelp

Final notes and professional disclaimer

Sales and use tax compliance is a technical, state‑by‑state process. The guidance in this article is educational and based on commonly used rules as of 2025; it is not legal or tax advice. For decisions that affect your business, consult a qualified tax professional or an attorney familiar with state sales and use tax law.

This article reflects practical experience advising remote sellers and draws on primary sources including the South Dakota v. Wayfair decision and state Department of Revenue guidance. For next steps, track your state sales by month, review marketplace rules, and consider sales tax automation early to reduce risk and administrative cost.