Why this matters

Sales and use taxes are state and local responsibilities that can create significant exposure when ignored. After the Supreme Court’s decision in South Dakota v. Wayfair (2018), many states adopted economic nexus rules that require remote sellers to register, collect, and remit tax based on sales volume or transaction counts—so planning is essential (South Dakota v. Wayfair, 2018).

Top strategies to avoid common pitfalls

  • Conduct a regular nexus analysis: Map where you have physical presence, economic activity, employees, inventory, or marketplace sales. Re-run the analysis after major changes (new fulfillment centers, large contracts, or product launches). For tailored guidance on nexus triggers, see our Nexus Basics for Service-Based and Digital Businesses.
  • Register early and correctly: If a state’s thresholds are met, register for a sales tax permit promptly. Late registration increases audit risk and potential penalties.
  • Automate tax calculation and collection: Use tax automation that integrates with your shopping cart and accounting system to apply correct rates, taxability rules, and marketplace-facilitator logic.
  • Manage exemption certificates: Collect, validate, and store exemption certificates (e.g., resale, exemption for nonprofits) and refresh them according to state rules. Maintain a centralized certificate repository.
  • Track marketplace-facilitator rules: Many states shift collection responsibility to marketplaces for third‑party sellers; confirm whether your platform or you must collect tax.
  • Keep meticulous records: Maintain invoices, exemption certificates, sourcing documentation, resale certificates, and shipping records for at least the period states can audit (often 3–6 years).
  • Use voluntary disclosure programs carefully: If you discover past noncompliance, consider a state VDA to limit penalties and obtain a look‑back period rather than face a full audit.
  • Schedule periodic reviews: Quarterly checks of tax configuration and an annual external review reduce long‑term exposure.

Common mistakes and how to fix them

  • Mistake: Assuming physical storefront is the only nexus trigger. Fix: Test for economic nexus thresholds (many states use $100,000 in sales or 200 transactions, though thresholds vary) and consult state guidance.
  • Mistake: Not collecting or storing exemption documents. Fix: Implement a process that captures certificates at the time of sale and validates them against state requirements.
  • Mistake: Relying on a platform without verification. Fix: Confirm marketplace facilitator status in each state and retain contracts or platform statements showing who collected tax.
  • Mistake: Using inconsistent sourcing rules. Fix: Apply the correct destination‑ or origin‑based sourcing rule per state and document shipping and billing evidence.

Implementation checklist (practical steps)

  1. Run a nexus map across states and update whenever you add inventory locations, remote employees, or new sales channels.
  2. Verify marketplace‑facilitator responsibilities for each platform you use.
  3. Integrate tax automation with your checkout and accounting systems.
  4. Centralize exemption certificates and set automated expiration reminders.
  5. Keep detailed audit trails: invoices, shipping records, returns, and contract docs.
  6. Consider a state voluntary disclosure agreement if you find unfiled obligations.

Real-world example

A midsize e‑commerce seller I worked with expanded into four states after opening a fulfillment center. They implemented automated tax software, registered in two states where they met economic thresholds, and centralized exemption certificates—reducing their audit exposure and avoiding repeat penalties.

When to get professional help

Engage a sales tax specialist or CPA if your multistate footprint grows, your annual remote sales approach common economic thresholds, or you receive a state notice. Professionals can negotiate VDAs, represent you in audits, and advise on nexus nuances.

Resources and further reading

Professional disclaimer

This content is educational and not personalized tax or legal advice. Laws and thresholds change by state and year—consult a licensed tax professional or your state department of revenue for guidance specific to your situation.