If I Sell My Products Online, Do I Have to Charge Sales Tax?

I recently had a business owner ask me if they needed to register their business in every single state they were shipping their product. They had just recently gone viral so their volume of sales was increasing quickly and they were selling to nearly every state. This was going to be a huge undertaking to get their sales tax setup in every state.

The good news is, they don’t need to set up accounts in every state right away. Each state has different thresholds that determine when sales tax needs to be collected. And, it all depends on your nexus. Nexus refers to a connection with a state that will trigger the requirement to collect sales tax.

There are three primary reasons that you may need to collect sales tax.

1. Economic Activity is when you hit a certain threshold of sales (either dollar value or number of transactions) in a certain state.
2. Physical Presence is when you have a physical presence in the state – you may have an office, an employee working from home, a warehouse, or even certain sales activities (tradeshows, sales meetings, etc.) in a state that will trigger nexus.
3. Marketplace Sales is a reference to when you are selling through a large marketplace, like Amazon. This can trigger the requirement to collect sales tax.

Every state has different thresholds that trigger nexus and the requirement to charge sales tax.  

Avalara is a sales tax compliance service that serves business owners with complex sales tax issues. Avalara has a great resource page to help with the thresholds and nexus criteria. You can find the resource here – https://www.avalara.com/us/en/learn/guides/sales-tax-nexus-laws-by-state.html

If you are an online retailer, at a minimum, you need to be collecting sales tax when you are selling to customers in your home state. Beyond that, the requirements to collect sales tax will vary based on your volume of sales, the states you’re selling in, and your physical presence.

If you are selling your products online, many of the e-commerce platforms will help you manage your sales tax requirements or there are services like Avalara that you may want to consider if you have presence in multiple states or your volumes increase to $100,000 ore more.