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Sales Tax for Online Sellers: A State-by-State Overview

Published April 2026

Online sales tax is one of the most confusing aspects of running an e-commerce business. Since the 2018 South Dakota v. Wayfair Supreme Court decision, states have broad authority to require online sellers to collect and remit sales tax. Understanding your obligations is critical to avoid penalties.

Understanding Nexus

Nexus determines whether you have a sales tax obligation in a state. Traditional nexus meant having a physical location (office, warehouse, employee) in the state. Economic nexus means you owe taxes if you exceed a sales threshold in a state, regardless of physical presence. Most states require nexus when sales exceed $100,000 to $500,000 annually, though thresholds vary.

Know Your State Tax Rates

State sales tax rates range from 0% (Alaska, Delaware, Montana, New Hampshire, Oregon) to 7.25% (California). However, many states allow local jurisdictions to add additional taxes. Tennessee has the highest combined rate at 9.55%. Your responsibility is to collect the correct total rate for each customer's location, which includes state and applicable local taxes.

Digital Products Have Different Rules

Some states tax digital products differently or not at all. Software as a Service (SaaS), e-books, and digital downloads may be taxed at lower rates or exempted entirely depending on the state. If you sell digital products, research each state's specific treatment to ensure accurate collection.

Marketplace Facilitator Laws

If you sell on Amazon, eBay, or Etsy, the marketplace may already be collecting sales tax on your behalf under "marketplace facilitator" laws. However, you are responsible for verification. Some marketplaces handle all tax obligations, while others require you to pay tax on certain transactions. Reconcile your records with the marketplace's tax summary regularly.

Economic Nexus Thresholds by State

As of 2026, most states have adopted economic nexus rules. The most common threshold is $100,000 in annual sales or 200+ transactions. However, states like Vermont, Massachusetts, and Maryland have lower thresholds. Illinois recently lowered its threshold to $30,000. Track your sales by state to ensure you register when you hit the threshold.

Registering for Sales Tax Permits

Once you have nexus in a state, you must register for a sales tax permit. Registration is typically free and can be done online through the state's Department of Revenue website. Most states allow you 30 days from the date you establish nexus to register, though penalties apply for late registration. Keep all registration documents for tax compliance records.

Filing and Payment Requirements

Sales tax returns are filed on a monthly, quarterly, or annual basis depending on the state and your sales volume. Most online sellers file monthly or quarterly. Returns include total sales, taxable sales, tax collected, and applicable deductions. Payments are typically due on the same date as your return filing. Use accounting software to track collections by state automatically.

Handling Returns and Refunds

When you refund a customer, you must also reverse the sales tax collected on that transaction. This reduces your tax liability for the period. Document refunds separately from original sales in your accounting records to ensure accurate tax filing.

Sales tax compliance for online sellers is complex but manageable with proper systems. Use accounting software that tracks sales by state, maintain detailed records, and consider consulting a tax professional to ensure you are meeting all obligations.