Charging sales tax to out-of-state customers comes down to one question: does your business have “nexus” in the customer’s state? If it does, you must register there, collect the state’s sales tax at checkout, and send it in on a regular filing schedule. Nexus is triggered by physical presence (an office, employees, or inventory in the state) or by economic activity above a threshold the state sets. Most states put that threshold at $100,000 in annual sales into the state. Below every threshold and with no physical footprint, you don’t charge that state’s tax.
When You Have to Charge: Physical and Economic Nexus
A state can only require you to collect its sales tax if you have nexus there. Two kinds count, and either one is enough.
Physical Nexus
Physical nexus is the older standard. An office, retail location, warehouse, or distribution center in a state gives you nexus. So does inventory sitting in a third-party fulfillment center. Sellers who use services like Amazon FBA often discover they have physical nexus in states where Amazon stores their products, even though the seller never chose those locations.
People working on your behalf inside a state can create nexus too. Sales reps visiting customers, technicians performing installations, and workers attending a trade show can each establish the connection. The duration required varies by state, but the principle is consistent.
Economic Nexus
The bigger shift came in 2018, when the U.S. Supreme Court ruled in South Dakota v. Wayfair that states could require remote sellers to collect sales tax based purely on economic activity, with no physical presence needed.1Supreme Court of the United States. South Dakota v. Wayfair, Inc., Et Al. Every state with a sales tax has since adopted an economic nexus law.
Economic nexus kicks in when your sales into a state exceed the threshold that state sets. The most common figure is $100,000 in annual gross sales. The South Dakota law upheld in Wayfair paired that dollar amount with a second trigger of 200 separate transactions, and many states copied the approach.2Justia US Supreme Court. South Dakota v. Wayfair, Inc., 585 U.S. ___ (2018) The trend has shifted since. As of mid-2025, only about 16 states plus the District of Columbia still use a transaction-count threshold; the rest rely solely on the dollar amount. A few states set the bar higher; California uses $500,000.
The measurement period is typically the current or preceding calendar year. Once you cross, the obligation to register and collect usually begins within 30 to 90 days. That means you need to track cumulative sales into every state in real time. Discovering six months later that you crossed a threshold creates a messy compliance problem.
Five States You Can Set Aside
Five states impose no general statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. You won’t need to worry about sales tax nexus in these states for most transactions. Alaska is a partial exception, because some local jurisdictions there impose their own sales taxes even though the state does not.
Which Rate to Charge Once You Have Nexus
Sales tax rates aren’t uniform within a state. They stack: a state rate, plus county, plus city, and sometimes a special district on top. The rule that decides which combined rate applies is called the sourcing rule.
About a dozen states use origin-based sourcing for their in-state sellers, meaning tax is charged at the seller’s location. But remote sellers who established nexus through economic activity almost always must use destination-based sourcing instead. If you’re selling across state lines, you’ll be calculating tax based on where your customer receives the product.
Destination sourcing means you need the customer’s exact delivery address, because the rate can change from one side of a street to the other when city or district boundaries run through it. A single state can contain thousands of distinct tax jurisdictions. This is where manual compliance stops being practical. Sales tax automation software maps every customer address to the correct set of overlapping jurisdictions and calculates the combined rate at checkout.
Whether Your Product or Service Is Even Taxable
Nexus and the correct rate still don’t answer whether you charge tax on a given sale. Taxability varies by state and by category.
Physical goods are taxable in most states unless a specific exemption applies. The most common exemptions cover groceries, prescription medicine, and clothing, but even those aren’t universal. Some states tax groceries at a reduced rate. Others exempt children’s clothing but tax adult clothing.
Digital products are where things get genuinely messy. Downloaded software, e-books, streaming subscriptions, and digital music are each treated differently depending on the state. Some states tax all digital goods like physical products, some tax only certain categories, and a few exempt them entirely.
Services are the fastest-evolving category. Historically most states taxed goods but not services, and that’s changing. Services tied to physical property, like repair, installation, and maintenance, are commonly taxable. Professional services such as consulting, legal work, and accounting are generally exempt, though a growing number of states are expanding their tax base to reach them. Check your specific category against the rules in each state where you have nexus.
Registering, Collecting, and Filing
You must register for a sales tax permit in a state before you start collecting tax there. Collecting without a permit is itself a violation. Registration is typically handled online through the state’s department of revenue, and most states charge no fee. A few charge nominal fees in the $10 to $25 range, and some require a refundable security deposit or surety bond for certain business types.
If you have nexus in multiple states, registering with each one separately is tedious. The Streamlined Sales Tax Registration System lets you register in all 23 member states through a single online application at no cost.3Streamlined Sales Tax. Remote Sellers Members include Indiana, Michigan, Minnesota, New Jersey, North Carolina, Ohio, Washington, and Wisconsin, among others.4Streamlined Sales Tax. Streamlined Sales Tax Home For non-member states, you register individually.
After registering, you’ll file periodic returns and send in the tax you collected. The state assigns your filing frequency based on volume: high-volume sellers file monthly, moderate sellers quarterly, and low-volume sellers may file annually. The most common due date for monthly filers is the 20th of the following month, though this varies. Each return reports total sales, taxable sales, exempt sales, and tax collected. Late filings trigger penalties commonly ranging from 5% to 25% of the unpaid tax, with interest on top.
A small offset: roughly 30 states offer a vendor compensation discount for filing and paying on time, typically 0.5% to 5% of the tax collected. It partially covers the cost of acting as the state’s unpaid tax collector. Remote sellers who qualify as CSP-compensated sellers in Streamlined member states can also access free tax calculation and filing services through certified service providers.5Streamlined Sales Tax. Free Services
Selling Through Amazon, Etsy, or Other Marketplaces
If your sales go through platforms like Amazon, eBay, Etsy, or Walmart Marketplace, most of the compliance is already handled. Nearly every state with a sales tax has enacted marketplace facilitator laws that make the platform legally responsible for calculating, collecting, and remitting sales tax on sales it facilitates. You generally don’t need to register in states where all your sales flow through a facilitator.
The relief only covers sales made through the platform. If you also sell through your own website, those sales count separately toward your economic nexus thresholds. Say you do $80,000 through Amazon and $30,000 through your own Shopify store into a given state. The Amazon sales don’t count toward your personal nexus calculation, but the $30,000 does. If your independent sales cross the state’s threshold, you must register and collect tax on those transactions yourself.
Even when the marketplace handles remittance, keep the detailed tax reports the platform provides. You’ll need them to reconcile your books and separate revenue from tax collected on your behalf. Tax the platform collects is never your income.
Sales to Exempt Buyers
Not every sale is taxable, even when you have nexus. Businesses that purchase goods for resale, manufacturing inputs, or other exempt purposes can hand you a resale or exemption certificate to avoid tax on the transaction.
When a buyer presents a properly completed certificate, accept it and don’t charge tax on that sale. If you accept a certificate in good faith and it later turns out to be invalid, most states protect you from liability for the uncollected tax. Good faith means you didn’t know and had no reason to know the certificate was false. You’re generally not required to verify the buyer’s registration number, though Georgia is a notable exception.6Streamlined Sales Tax. Exemptions
For buyers in multiple states, the Multistate Tax Commission publishes a Uniform Sales and Use Tax Resale Certificate accepted across dozens of states.7Multistate Tax Commission. Uniform Sales and Use Tax Resale Certificate – Multijurisdiction Keep copies of every certificate you accept. Retention periods vary, but three to four years from the date of the transaction is a safe baseline. If you get audited and can’t produce the certificate, you owe the tax yourself.
If You Should Have Been Charging and Weren’t
If you’ve been selling into states where you had nexus and didn’t collect, you’re personally on the hook for the uncollected tax, plus interest and penalties. States treat sales tax as a trust fund tax: money you were supposed to collect from customers and hold for the state. Failing to collect doesn’t erase the liability. It just means the money comes out of your pocket instead of the customer’s. Corporate officers, LLC members, and anyone with authority over a company’s finances can be held personally liable, and the corporate structure won’t shield them.
The way out is a voluntary disclosure agreement, or VDA. Most states offer them, and the Multistate Tax Commission runs a multistate version that lets you negotiate with several states through a single application at no cost.8Multistate Tax Commission. Multistate Voluntary Disclosure Program The deal: you come forward, register, start collecting going forward, and file returns for a limited lookback period. In exchange, the state waives penalties and caps how far back it can reach.
Lookback is typically three to four years for sales tax, though it varies.9Multistate Tax Commission. Lookback Periods for States Participating in National Nexus Program You’ll still owe back tax plus interest for that window, but waived penalties and forgiven older years can save a business tens of thousands of dollars. The catch: you must come forward before the state contacts you. Once a state sends a notice or opens an inquiry, you’re no longer eligible for voluntary disclosure there.