You’re running an online store, your very own eCommerce operation, a remote seller in the fifty states of the USA. How exciting!
But eCommerce sales tax rules, not so much. We know sales tax can really kill your buzz. This post will explain the various US sales tax rules for eCommerce businesses. We promise you’ll leave with a better understanding of where your business is liable for taxes and what to do about it.
When must your eCommerce business start charging US sales tax?
Your eCommerce business must charge sales tax when you have nexus in a state.
“Nexus” refers to a commercial connection in that state. The term essentially answers the question, “Are you doing business here?”
States have different ways of judging whether you’re “doing business” in their borders, which is to say, they have different ways of defining nexus. It could be your physical presence in a state, or your amount of transactions there, or it could even extend to your marketing practices.
Here are the most common forms of sales tax nexus that affect eCommerce businesses:
- Physical presence nexus. If you use, in any capacity, “an office, place of distribution, sales or sample room, warehouse or storage place” — OR if you employ, in any capacity, “a representative, agent, salesman, canvasser, or solicitor” in that state.
- Economic nexus. If you make a certain number of transactions or reach a certain amount in sales.
Click-through nexus. If you run ads or links on an in-state website, which channel potential customers and new business to you.
- Affiliate nexus. If you’re affiliated with a business or individual in the state and sales are generated from this connection.
- Web cookies. If you us software or web cookies on in-state devices.
Check out our Quick Guide to US Nexus for more information!
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Where does your eCommerce business have nexus in the US?
Next, you should determine where your eCommerce business has nexus. Here’s how you can get started.
1. Ask yourself these questions to identify the states where you probably have nexus.
- Where do I have a physical presence? This could be a studio, warehouse, production site, or brick-and-mortar store.
- Where do I have employees or contractors?
- Where am I storing products?
- Do my sales or number of transactions in a state exceed that state’s economic nexus threshold?
- Where do I have dropshipping vendors?
- Where are my affiliates in my affiliate program?
- Where do I travel to sell my products at a trade show, craft fair or other event?
2. Once you have a list of states, look into each state’s tax nexus policy to confirm whether your business applies. (You could still be below the tax registration threshold, which means you aren’t liable yet!)
|STATE||SALES||TRANSACTIONS||IN EFFECT ON|
|Alabama||$250,000||–||October 1, 2018|
|Arkansas||$100,000||200||July 1, 2019|
|Arizona||$200,000||–||October 1, 2019|
|California||$500,000||–||April 1, 2019|
|Colorado||$100,000||–||December 1, 2018|
|Connecticut||$250,000||200||December 1, 2018|
|Georgia||$250,000||200||January 1, 2019|
|Hawaii||$100,000||200||July 1, 2018|
|Iowa||$100,000||–||January 1, 2019|
|Idaho||$100,000||–||June 1, 2019|
|Illinois||$100,000||200||October 1, 2018|
|Indiana||$100,000||200||October 1, 2018|
|Kansas||$0||0||October 1, 2019|
|Kentucky||$100,000||200||October 1, 2018|
|Louisiana||$100,000||200||January 1, 2019|
|Massachusetts||$100,000||–||October 1, 2017|
|Maine||$100,000||200||July 1, 2018|
|Maryland||$100,000||200||October 1, 2018|
|Michigan||$100,000||200||September 30, 2018|
|Minnesota||$100,000||200||October 1, 2018|
|Mississippi||$250,000||–||September 1, 2018|
|North Carolina||$100,000||200||November 1, 2018|
|North Dakota||$100,000||–||October 1, 2018|
|Nebraska||$100,000||200||January 1, 2019|
|New Jersey||$100,000||200||November 1, 2018|
|New Mexico||$100,000||–||July 1, 2019|
|Nevada||$100,000||200||November 1, 2018|
|New York||$500,000||100||January 15, 2019|
|Ohio||$100,000||200||August 1, 2019|
|Oklahoma||$100,000||–||November 1, 2019|
|Pennsylvania||$100,000||–||July 1, 2019|
|Rhode Island||$100,000||200||July 1, 2019|
|South Carolina||$100,000||–||November 1, 2018|
|South Dakota||$100,000||200||November 1, 2018|
|Tennessee||$500,000||–||July 1, 2019|
|Texas||$500,000||–||October 1, 2019|
|Utah||$100,000||200||January 1, 2019|
|Virginia||$100,000||200||July 1, 2019|
|Vermont||$100,000||200||July 1, 2018|
|Washington||$100,000||–||October 1, 2018|
|Washington DC||$100,000||200||January 1, 2019|
|Wisconsin||$100,000||200||October 1, 2018|
|West Virginia||$100,000||200||January 1, 2019|
|Wyoming||$100,000||200||February 1, 2019|
* Both conditions at the same time ↵
When you do have nexus, here are the next steps for your eCommerceFor a quick reference of which states have economic nexus laws, check our Ultimate Guide to US Economic Nexus.
Once you have nexus in a state, you need to set up as a tax-registered business and do everything by the book. That generally means following these three steps.
1- Register for state sales tax permit: Apply with the State Department of Revenue. You must have a valid sales tax permit before you can legally collect sales tax. The tax permit is the very first step, and it’s serious, too! If you begin collecting sales tax without the permit, some states may consider this tax fraud.The good thing is that many states allow you to register online. Usually you’ll either receive your sales tax permit number instantly, or within 10 business days. If you register via snail mail, it may take 2-4 weeks to receive your sales tax permit.
Here’s some standard information you’ll need when registering for a sales tax permit:
- Your personal contact info
- Your business contact info
- Social security number (SSN) or Federal Employer Identification Number (FEIN) also known as
- Employer Identification Number (EIN)
- Business entity (sole-proprietor, LLC, S-Corp, etc.)
- Your NAICS Code (The NAICS code for online stores is 454110)
Note: You can register in all 24 SSUTA streamlined states at once, with one registration process. Sounds great, but this may come with some extra tax liabilities. You’d likely end up liable for tax in some states even though you don’t have nexus there, simply because you’ve registered. Learn more on the SSUTA tax registration page.
2- Collect sales tax: Begin adding sales tax to every transaction in the state, and set aside that amount for Step 3.
- Set up your shopping carts and online checkouts to collect sales tax.
- Configure them for “origin-based” or “destination-based” tax rates, according to state laws. And make sure you have the right tax rates.
Note: There could be more levels than just a statewide sales tax! There’s state, county, city and other local sales tax rates.
3- Remit sales tax: All that sales tax you’ve collected from customers must be paid forward to the appropriate state agency.
- Take note of the frequency of returns (quarterly? annually?) and the deadlines for filing and payment.
- State sales tax returns don’t just want to know how much tax you collected in the entire state. They want tax collection broken down by county, city, and any other locality.
Note: File “zero reports” if you didn’t collect anything in a certain jurisdiction where you’re registered with a tax permit. Yes, you still have to file. This is an obligatory check-in!
Other tips on how to comply with eCommerce sales tax in the US
Brush up on “Notice and Report” laws, which are special tax obligations for online sellers with no physical presence — or even any nexus! — in the state. Following these laws, you don’t need to register your business for sales tax. But you are responsible for some use tax obligations. These include notifying certain customers that they need to pay taxes to their state revenue office, and then reporting the list of these customers (and the amount of tax they owe) directly to that revenue office. Check our guide for a list of states with Notice and Report laws.
Watch your sales totals in each state, so you know when you’re approaching a tax registration threshold. Once you pass the threshold, you’ll need to start the sales tax process there. Better to stay ahead of the game!
Track sales and transaction amounts automatically with a tool like Quaderno. This way, you’re alerted when you’re approaching a threshold. You’re also notified whenever tax policies change in any state, region, or country where you’re collecting sales tax.
Get clear, concise tax reports whenever you want, with a breakdown of state-by-state collections. These instant tax reports make filing tax returns a total breeze, plus help you make smarter business decisions. All the numbers are accurate and at your fingertips.
- The Quick Guide to US Sales Tax Nexus
- Dropshipping and Sales Tax: who collects, who pays?
- Sales Taxes for SaaS Products in the US
- Sales Tax for Digital Products in the US
- Distance Selling in the EU: How to do it right
- What is a tax registration threshold?
- Contact list of each state’s tax revenue from SSUTA