To collect sales tax when selling online, you register for a sales tax permit in any state where you have "nexus" (a connection — usually a physical presence or enough sales to cross that state's economic threshold), turn on automatic tax calculation in your store platform so the right rate is added at checkout, and then file a return and remit what you collected on the schedule each state assigns you. If you sell only through a marketplace like Amazon or Etsy, the marketplace usually collects and remits for you automatically.

That's the whole game in one breath. Now let's make it actually doable, channel by channel, without the tax-law headache.

The two questions that decide everything

Before you touch a setting, answer these:

  1. Where do I have nexus? (Which states can legally make me collect?)
  2. Who is doing the collecting — me or my marketplace?

Get those two right and the rest is mostly clicking buttons.

What is nexus, in plain English?

Nexus just means "enough connection to a state that it can require you to collect its sales tax." There are two kinds:

  • Physical nexus — a presence in the state: your home/office, an employee, a warehouse, or inventory stored there (this is why Amazon FBA sellers trigger nexus in states they've never visited — their stock sits in Amazon fulfillment centers).
  • Economic nexus — you cross a sales threshold in that state with zero physical presence. This came from the 2018 Supreme Court case South Dakota v. Wayfair. The practical takeaway is below.

How do I know if I've crossed the economic nexus threshold?

Most states use one of these thresholds, measured over the current or previous calendar year:

Common threshold What it means
$100,000 in sales to that state The most common bar (many states)
$100,000 OR 200 transactions Either one trips it in some states
$500,000 in sales The bar in big states like California, Texas, and New York

Key point: the threshold is per state, based on your sales into that state — not total nationwide revenue. A seller doing $80,000 a year spread across 40 states may owe collection in zero states. You almost always have nexus in your home state from day one (physical nexus), so that's the first permit to get.

The marketplace facilitator rule (this saves most beginners a ton of work)

Every state now has a "marketplace facilitator" law. It says the marketplace — not the individual seller — is responsible for collecting and remitting sales tax on sales made through its platform.

In practice:

  • Amazon, Etsy, eBay, Walmart, Mercari collect and remit sales tax for you automatically. You generally don't set anything up and don't file returns for those sales.
  • Your own Shopify / WooCommerce / Squarespace store is NOT a marketplace facilitator. It's your store, so you collect and remit tax on those sales.

So the real work falls on the seller with their own storefront — or one selling on both a marketplace and their own site (more on that combo in the checklist).

Quick win: if you sell exclusively on Etsy or Amazon today, your sales tax is largely handled for you. Verify it in your account's tax settings, keep the marketplace's reports, and move on. The day you launch your own Shopify store is the day this gets real.

How to set up sales tax collection on your own store

Here's the hands-on part the legal explainers skip.

Step 1: Register for a sales tax permit

Register in your home state first (free or low-cost — typically $0 to $100, depending on the state). Do it on the state's Department of Revenue website. You'll get a sales tax permit number and an assigned filing frequency (monthly, quarterly, or annually).

Do not start collecting tax in a state before you're registered there — collecting tax without a permit is itself illegal in many states. Register first, then flip the switch.

Need the bigger picture on permits and licenses? See our guide on whether you need a seller's permit to sell online.

Step 2: Turn on tax collection in your platform

Shopify

  1. Go to Settings → Taxes and duties → United States.
  2. Under "Manage sales tax collection," click Collect sales tax.
  3. Enter the state and your sales tax permit number for each state where you're registered.
  4. Shopify then calculates the correct combined state + county + city rate automatically at checkout. Shopify Tax handles rooftop-accurate rates; the basic version is free, and the advanced "Shopify Tax" tier charges a small fee (around 0.35% per order in states where it's active, capped annually) once you pass a sales floor.

WooCommerce

  1. Install a tax automation plugin — TaxJar or Avalara AvaTax are the standard choices (plans commonly start around $19–$99/month depending on order volume).
  2. Connect your registered states.
  3. The plugin calculates rates live at checkout and can auto-file returns as an add-on.

Squarespace / BigCommerce / Wix all offer built-in tax tools or a TaxJar/Avalara integration. The pattern is identical: register first, then enter your states.

Step 3: File and remit on schedule

Collecting is only half of it. You must file a return and send the money by your due date — even a "$0 return" if you collected nothing in a period (most states require it, and skipping it triggers penalties).

You can file yourself on each state's portal (fine for one or two states), or use automated filing like TaxJar AutoFile or Avalara Returns (roughly $20–$50 per return, or bundled in a subscription) once you're registered in several states.

Building the rest of your store too? Our walkthrough on starting an e-commerce business and building a thriving online store covers the operational pieces around this.

"Do I owe this?" checklist by channel

Run each sales channel through these questions:

  • [ ] Do I have a permit in my home state? (Almost certainly required — start here.)
  • [ ] Where is my inventory stored? (FBA warehouses can create nexus in multiple states.)
  • [ ] Have I crossed any state's economic threshold (usually $100K, or $500K in the big states)?
  • [ ] Is this channel a marketplace facilitator (Amazon/Etsy/eBay = they handle it) or my own store (Shopify/Woo = I handle it)?
  • [ ] Am I selling on both a marketplace AND my own site? If so, marketplace sales are covered, but your own-site sales still count toward your thresholds and must be collected by you.
  • [ ] Am I selling digital products? (See the next section — taxability varies wildly.)
  • [ ] Do I file a $0 return even in slow months? (Yes, in most states once registered.)

What about digital products and services?

This is a real blind spot. The taxability of SaaS, ebooks, online courses, downloadable software, and templates is decided state by state, and there's no national rule:

  • Some states (e.g., Texas, Washington) tax digital goods and even some SaaS.
  • Others (e.g., California for most digital downloads) do not tax purely digital products.
  • "Bundled" offers (a course + a printed workbook) can be taxed differently than a pure download.

Bottom line: if a meaningful share of your revenue is digital, confirm taxability in the states where you have nexus before assuming you're off the hook. Your platform's tax engine (Shopify Tax, TaxJar, Avalara) lets you classify products as digital so it applies the right rule per state.

What if I already sold for months without collecting?

The honest answer: once you have nexus, uncollected tax becomes your liability — states can assess back taxes plus penalties and interest. Your options:

  1. Voluntary Disclosure Agreement (VDA). Most states let you come forward voluntarily. In exchange they typically limit the "look-back" period (often 3–4 years instead of forever) and waive or reduce penalties. Usually the cheapest path if your exposure is real.
  2. Register going forward and true up what you owe. Workable for small exposure.
  3. Amnesty programs. Occasionally offered — worth checking.

If your exposure looks large (tens of thousands), spend a few hundred dollars on a one-time consult with a sales tax specialist before contacting any state. Coming forward through a VDA before a state finds you beats getting an audit notice.

A note for international and Canadian sellers

Economic nexus applies to you too. A Canadian or EU seller shipping into the US can trip a US state's threshold with no US entity at all. You can still register for a state sales tax permit as a foreign seller, but remitting from abroad is fiddly — most international sellers route US sales through a marketplace (so the facilitator handles tax) or use Avalara/TaxJar to manage multi-state filing. If you're going the other direction and setting up north of the border, see our guide on starting a business in Canada.

Want more plain-English playbooks like this? Subscribe to the howtostart.biz newsletter for one practical guide a week.

For the official small-business landscape, the SBA's small business tax guide and IRS small business resources are solid starting points (those cover federal income tax; sales tax is administered by states). And before you scale, lock down the upstream side too — choosing a reliable supplier for your online store matters more than it looks.

Frequently Asked Questions

Do I have to collect sales tax in every state I sell to?

No. You only collect in states where you have nexus — physical presence (home, employees, inventory) or enough sales to cross that state's economic threshold (commonly $100,000, or $500,000 in big states like California and Texas). Many small sellers only ever register in their home state.

How do I actually charge sales tax at checkout on Shopify or WooCommerce?

On Shopify, go to Settings → Taxes and duties → United States, click "Collect sales tax," and add each state where you're registered with its permit number — Shopify then auto-calculates the rate. On WooCommerce, install TaxJar or Avalara AvaTax, connect your registered states, and it calculates live. Always register for the permit before you switch collection on.

What happens if I was supposed to collect sales tax but didn't?

Once you have nexus, the uncollected tax becomes your liability, and states can add penalties and interest. The cleanest fix is usually a Voluntary Disclosure Agreement (VDA): you come forward, the state limits the look-back period (often 3–4 years) and typically waives penalties. Do this before an audit notice arrives.

Do I need a separate sales tax permit for every state?

Yes — there's no single national permit. You register individually with each state's Department of Revenue where you have nexus. Registration is usually free or under $100 per state, and each state assigns you a filing frequency (monthly, quarterly, or annually).

Are digital products like courses and ebooks taxable?

It depends entirely on the state. Some (Texas, Washington) tax digital goods and even some SaaS; others (like California for most downloads) don't. If digital products are a big part of your revenue, classify them as digital in your tax engine and confirm the rule in each state where you have nexus rather than assuming they're exempt.