Should your e-commerce business be collecting sales tax?

E-commerce’s popularity was exploding even before the pandemic hit. With its increased use came a lot of questions about sales tax, especially if you sell to customers outside the state where you’re based.

In addition to the 45 states and Washington, D.C. that collect sales tax, there are also cities, counties, and “special taxing districts.” In fact, there are over 11,000 taxing authorities that collect sales tax. So, if someone buys something from you online, you might have to charge that customer sales tax and then remit that money to the right jurisdiction.

How do you know if you have to collect sales tax? There are usually a couple of rules for whether or not you have to collect and remit sales tax:

1. The product you’re selling is taxable in the state you’re selling it in.
2. Your business has a sales tax “nexus” in the state where your customer is.

“Nexus” is basically the legal term for a kind of connection to a state other than the one you’re based in (note: you’ll always have a sales tax nexus in the state you’re based out of.)

The different kinds of sales tax nexus can include:

• The physical business presence, like a store or office or a storage warehouse
• People working for or on behalf of your business, like an employee or a contractor or a salesperson
• When your business goes over a certain state-mandated dollar amount or if you sell more than a certain number of transactions in that state (a result of South Dakota vs. Wayfair)
• Using affiliates to advertise your products in exchange for a portion of the profit
• Using a third party to ship your goods to your customers.
• Selling products at a trade show or other event, even if you’re only there temporarily

E-commerce Sales Tax Requirements by State

These links were current when this blog was written. Please check with each state’s websites — or your friendly tax expert — to make sure you’re following the most up-to-date rules. (Note: As of right now, Alaska, Delaware, Montana, New Hampshire, and Oregon don’t collect sales tax.)

A lot of this information is dense and complex. But you don’t have to try to navigate all the complexities alone. We’re here to help.

• Alabama
• Arizona
• Arkansas
• California
• Colorado (The site can take a while to load.)
• Connecticut
• Florida
• Georgia
• Hawaii
• Idaho
• Illinois
• Indiana
• Iowa
• Kansas
• Kentucky (Many of the links to Kentucky’s tax requirements are broken as of this writing.)
• Louisiana
• Maine
• Maryland
• Massachusetts
• Michigan
• Minnesota
• Mississippi
• Missouri
• Nebraska
• Nevada (Opens a Word document.)
• New Jersey
• New Mexico
• New York
• North Carolina
• North Dakota
• Ohio
• Oklahoma
• Rhode Island
• South Carolina
• South Dakota
• Tennessee
• Texas
• Utah
• Vermont
• Virginia
• Washington
• Washington, D.C.
• West Virginia
• Wisconsin
• Wyoming