If you've been running an online store without collecting sales tax, you're not alone. Thousands of sellers either assume they don't have to, assume someone else handles it, or just haven't gotten around to figuring it out.

Here's the honest answer: most online sellers are required to collect sales tax in at least their home state, and many need to collect in multiple states.

Whether you owe sales tax in a given state depends on one concept: nexus. Once you understand nexus, the rest falls into place.

What Is Nexus?

Nexus is the legal connection between your business and a state that requires you to collect sales tax from customers there. No nexus = no obligation to collect. Nexus = you need to register and collect.

There are three main ways online sellers create nexus:

Physical presence nexus — The old-school rule
Economic nexus — The post-2018 rule that catches most online sellers
Marketplace facilitator — Applies if you sell through Amazon, Etsy, etc.

Let's walk through each one.

Type 1: Physical Presence Nexus

Before 2018, physical presence was the only thing that created nexus. If you had a storefront, office, warehouse, or employees in a state, you had nexus there. Purely online sellers with no physical presence in a state didn't have to collect tax there.

You have physical presence nexus in a state if you have:

A home office in that state (yes, even if it's just your kitchen table)
A warehouse or fulfillment center — including Amazon FBA inventory stored in that state
Employees, contractors, or sales reps who work from that state
A physical retail location
Attendance at trade shows or in-person events (creates temporary nexus in some states)

The most common gotcha: If you use Amazon FBA and your inventory is stored in, say, Pennsylvania — you have nexus in Pennsylvania. Amazon doesn't tell you which states have your inventory; you have to look it up in your FBA inventory reports.

Rule of thumb: You have physical presence nexus in your home state, full stop. If you operate out of Texas, you're collecting Texas sales tax. Start there.

Type 2: Economic Nexus

In 2018, the Supreme Court's South Dakota v. Wayfair decision changed everything. Now states can require you to collect sales tax based purely on your sales volume — no physical presence needed.

Every state with a sales tax now has an economic nexus threshold. The most common: $100,000 in sales OR 200 transactions in a state in the prior year.

States with Higher Thresholds

A few states set their bar higher:

State	Threshold
California	$500,000 in revenue
New York	$500,000 in revenue AND 100 transactions
Texas	$500,000 in revenue

What This Means for You

If your online store generates $120,000 in sales to customers in Illinois, you have economic nexus in Illinois — even if you're headquartered in Nevada and have never visited Illinois. You're required to register for an Illinois sales tax permit and collect Illinois sales tax on every sale to an Illinois customer.

The question to ask for each state: "Have I sold more than $100,000 worth of products to customers in this state in the past 12 months?"

If yes: you likely have nexus there and need to register.

Type 3: Marketplace Facilitator Rules

If you sell through Amazon, Etsy, eBay, Walmart Marketplace, or similar platforms, this is probably the most relevant rule for you.

In all 50 states with a sales tax (plus Washington D.C.), the marketplace is now responsible for collecting and remitting sales tax on sales made through their platform. This is called the Marketplace Facilitator law.

What This Means in Plain English

If you sell through Etsy:

Etsy calculates the sales tax for your customer
Etsy adds it to the order total
Etsy collects it from the buyer
Etsy sends it to the state

You don't have to do anything for those marketplace sales.

The Catch

Marketplace sales may still count toward your economic nexus threshold.

Here's a real-world example: You sell $55K directly through your Shopify store and $55K through Amazon — all to customers in Ohio. Amazon collected the tax on the Amazon sales. But combined, you've done $110K in Ohio, crossing the $100K threshold. For your direct Shopify sales to Ohio customers, you may now need to collect tax yourself.

The rules on whether marketplace sales count toward your threshold vary by state, and several states have updated their rules recently. The safe approach: count all your sales and consult a professional if you're close to a threshold.

The Decision Tree: Do You Need to Collect?

Work through this for each state where your customers live:

Step 1: Do you have physical presence there?

Yes → You have nexus. Register and collect.
No → Go to Step 2.

Step 2: Have you exceeded the state's economic nexus threshold?

Yes → You have nexus. Register and collect.
No → Go to Step 3.

Step 3: Do you only sell through marketplace platforms (Amazon, Etsy, etc.)?

Yes → The marketplace collects for you. No action needed (but watch your threshold!).
No → You don't have nexus yet. Monitor your sales as you grow.

"I'm Just a Small Seller — Do I Really Need to Worry?"

Yes, but let's be practical about it.

If you're just starting out (under $10K/year in revenue), economic nexus probably isn't your problem. Focus on your home state first.

If you're doing $50K–$100K/year, check whether your home state sales alone require registration (they almost certainly do), and start monitoring your sales in high-volume states where customers are buying from you.

If you're doing $100K+/year, you almost certainly have economic nexus in multiple states. This is the zone where non-compliance gets expensive. States have become much more aggressive about enforcement since Wayfair.

The Home State Rule Is Non-Negotiable

No matter how small your business is: if you're selling products from your home state, you need a sales tax permit in that state.

There's no revenue threshold for physical presence nexus. If you run an Etsy shop from your garage in Minnesota, you owe Minnesota sales tax from your first sale.

What Products Are Taxable?

Even when you have nexus, not everything you sell may be taxable. Some common exemptions:

Groceries: Exempt in many states (varies significantly)
Clothing: Exempt in New York, Pennsylvania, Minnesota, and a few others
Prescription drugs: Exempt almost everywhere
Digital products: Taxed in some states, exempt in others — this one's especially tricky

If you sell exclusively in a product category with broad exemptions (like food or prescription medication), you may have nexus but owe very little tax. It depends on what you sell and where.

What Happens If You Don't Collect When You Should?

If you have nexus and don't collect sales tax, you don't escape the tax — you're just personally responsible for it. The state will still come after the amount owed, plus:

Interest (typically 0.5–1% per month)
Penalties (5–25% of tax owed, depending on the state)
Potential back-period liability — States can audit prior years

The good news: many states have voluntary disclosure programs that let you come clean, cap how far back they look, and reduce penalties. If you suspect you have unfiled obligations, getting ahead of it is almost always better than waiting.

Steps to Get Compliant

Identify your nexus states — Start with your home state, then check economic nexus thresholds for states where you have significant sales.
Register for sales tax permits — Go to each state's department of revenue website. Most registrations are free; a few states charge a small fee.
Set up collection — Update your store to collect the right sales tax from customers in those states.
File and remit on schedule — Each state sets its own filing frequency and deadlines.
Monitor as you grow — As your business scales, new states may cross your threshold. Keep watching.

Not sure if you have nexus? Sails connects to your Shopify, WooCommerce, or BigCommerce store and tracks your sales exposure automatically — showing you exactly which states you're approaching or exceeding thresholds in. Start free →

Last updated: March 2026. Sales tax rules change frequently. This guide provides general educational information and should not be construed as legal or tax advice. Consult a qualified tax professional for guidance specific to your situation.

Do I Need to Collect Sales Tax on My Online Store? (The Honest Answer)