Ecommerce Sales Tax 101: An Online Seller’s Guide to 2026

As your business grows and gains customers in multiple states (and countries), it also takes on new responsibilities related to complying with the tax laws where those customers are located, even if your business has no physical presence there.

By Lizzie Davey
Content Contributor
Lizzie is a freelance writer and experienced content creator. She has worked with leading brands in ecommerce and SaaS, including Shopify, Klaviyo, and Lemon Squeezy.

Reviewed by Nate Matherson
Head of Growth
Nate is the Head of Growth at Numeral. He has founded multiple venture-backed companies and is a two-time Y Combinator Alum. He is based in Charleston, SC.

Published: July 14, 2026

Compliance can be complicated because sales tax rates and laws vary by state (and country). What’s more, different cities or counties within a state may even have different rates and requirements. There’s a lot to keep track of, and there are many potential pitfalls.

The penalties for mishandling sales tax can be steep, financially, legally, and reputationally. So, implementing a robust, reliable tax management strategy is vital.

How does e-commerce sales tax work?

Understanding a few basic principles will help you avoid falling foul of sales tax rules and regulations.

At a high level, these are the things that you need to get right:

• Tracking “nexus” — that is, understanding where you need to collect sales tax.
• Correctly classifying your products.
• Registering for sales tax permits where necessary.
• Collecting the right tax amounts.
• Filing documents and remitting tax amounts on time.

Nexus and the 2018 South Dakota v. Wayfair, Inc. case

An e-commerce business is said to have nexus in a state when it has established a presence there that creates an obligation to collect sales tax. There are two types of nexus: physical and economic. Nexus thresholds vary from state to state, so figuring out where you have nexus isn’t always straightforward.

Physical nexus is simply a physical presence in a state. Having a store, an office, inventory, or employees or representatives in a state will likely establish physical nexus there.

Physical nexus used to be the only type of nexus that businesses had to keep track of. But in 2018, the Supreme Court’s ruling in South Dakota v. Wayfair, Inc. allowed states to start setting economic thresholds for nexus — typically, a total amount in annual sales and/or a number of transactions in a year.

This gives states more flexibility in how they define nexus, and it means that online sellers must pay attention to where their sales are happening and when they hit economic thresholds in the states where they do business.

Complicating matters, these thresholds vary from state to state. For instance, in Nevada, the threshold for total sales is $100,000. Next door in California, it’s $500,000. In Arkansas, you establish economic nexus when you have 200 separate transactions there in a calendar year. In New York, there is a revenue and transaction threshold.

Understanding sales tax rates and registering for permits

Sales tax rates vary from state to state — and in many states, local jurisdictions also set their own sales tax rates. This means you might need to collect a base state tax and an additional county- or city-level tax on a sale, depending on where a buyer lives.

For instance, Texas has a statewide sales tax rate of 6.25%, but some cities and counties add their own taxes on top, meaning the total rate for a sale in Texas could be as high as 8.25%.

Once you know the amounts you need to collect, you must register for sales tax permits in every state where you have nexus.

Registering usually requires submitting an application to a state’s Department of Revenue. After you’re registered, you need to start filing returns immediately — reporting and paying the sales tax you’ve collected.

Filing frequency varies by state and usually depends on sales volume; it could be monthly, quarterly, or annually.

The importance of getting it right

Not collecting or remitting sales tax in states where you have nexus can have serious consequences.

If you fail to collect sales tax on eligible sales, a state can not only require you to pay what you should have collected, but also tack on interest fees and penalties for underpayment.

Noncompliance might also lead to a costly, time-consuming audit by tax authorities.

7 best practices for handling sales tax

Keeping track of where you have nexus is probably the most complicated part of the process. Once you’ve done that, you can determine how much sales tax you need to collect in each location and when you need to file.

Here are some tips for keeping it simple:

1. Determine where you have nexus

Start by reviewing each state’s nexus criteria and identifying the states where they apply to you. Each state sets its own thresholds, so check whether you meet them, based on factors like sales volume or transaction count.

Another important aspect to consider is sourcing—whether sales are taxed based on your location (origin-sourced) or the customer’s location (destination-sourced).

Origin-based sourcing is simpler, as you need to apply sales tax rates based only on your own location. However, destination-based sourcing, which most states use, means you’ll need to calculate rates according to each customer’s location.

2. Register for a sales tax permit in states where you have nexus

Once you know where you have nexus, register for sales tax permits with the authorities in those states. These permits let you legally collect and remit sales tax. Registration costs range from free to around $100. Nearly all states offer online registration.

Note that these permits often have expiration dates. Permits in some states are active until canceled, while those in other states need to be renewed every two years. It’s really important to keep track of these renewal dates to avoid accidentally doing business without a valid permit.

3. Classify products correctly

States have varying rules about which products are taxable, and they sometimes charge different tax rates for different kinds of items. As a result, e-commerce sellers must correctly classify their products so they can determine whether they must collect tax on a sale and, if they must, how much tax to collect.

4. Understand state-specific exemptions

Sellers do not have to collect tax on all products they sell. Exemptions exist for two primary reasons:

• Certain products are exempt from tax. For example, many states deem food, clothing, and some professional services nontaxable.
• Certain buyers are exempt from tax. This can include government entities, nonprofits, schools, and resellers.

5. File your sales tax returns on time

Each state has specific filing schedules, and they are often tied to sales volume. It’s important to file a return for every state you’re registered in, even if you didn’t collect any tax in a state during the filing period.

6. Document everything and stay on top of changes

Keep meticulous records of the sales tax you’ve collected, exemption certificates, filing deadlines, rate changes, and all your filings.

7. Automate your sales tax tracking and filing

With more than 12,000 tax jurisdictions across the US, a dedicated sales tax automation tool can help you streamline the process.

State-by-state breakdown of e-commerce sales tax requirements

What happens if you’re selling on Amazon or eBay?

If you’re selling through a platform like Amazon or eBay, your sales tax process can look a little different. These platforms are subject to marketplace facilitator laws, which means they’re responsible for collecting and remitting sales tax on your behalf in states where such laws are active.

How marketplace facilitator laws work

Amazon, Walmart, and Etsy, for example, all sell products from third parties. Marketplace facilitator laws require these platforms to collect and pay sales tax on these transactions.

Final thoughts

Understanding and managing sales tax is a crucial part of e-commerce accounting and running an e-commerce business, in general. With laws now placing more responsibility on sellers to collect and remit taxes across various states (and countries), getting it right from the start will help you avoid errors that could lead to fines, penalties, and other serious consequences.