If you sell products — and sometimes services — you may be required to collect sales tax from customers and send it to the state. It’s not your money; you’re a collector on the state’s behalf. Get it wrong and you can owe back taxes, penalties, and interest out of your own pocket. The rules vary by state and have grown more complicated for online sellers, but the core obligations are manageable once you understand them.
What Sales Tax Is — and Isn’t
Sales tax is a percentage added to a sale that the buyer pays and the seller collects, then remits to the state (and sometimes city or county). It is not a tax on your business’s income — that’s separate. You’re simply the middleman: you charge it, hold it, and pass it along on a schedule the state sets. Because it isn’t your money, mixing collected sales tax into your spending is a fast way to come up short when it’s due.
Do You Have to Collect It?
It comes down to nexus — a connection to a state strong enough that the state can require you to collect. Two kinds matter:
- Physical nexus — a location, employees, or inventory in a state generally creates an obligation to collect there
- Economic nexus — since a 2018 Supreme Court decision, selling above a state’s sales or transaction threshold (often around $100,000 in sales) can create an obligation even with no physical presence there
Also note: most services aren’t taxed in many states, but some are — and rules differ everywhere. A handful of states (like Oregon, Montana, and New Hampshire) have no statewide sales tax at all. Check your own state’s rules first, then any state where you cross the economic-nexus threshold.
How to Handle It Correctly
- Register for a sales tax permit — before you collect, register with each state where you have nexus. Collecting without a permit is itself a problem
- Charge the right rate — rates vary by state and often by city or county; many states tax based on where the customer is (destination-based)
- Keep it separate — set collected tax aside so it’s there when you file. It was never your income
- File and remit on time — states assign a monthly, quarterly, or annual schedule. File even in periods when you collected nothing if the state requires a “zero return”
- Let your platform help — online marketplaces and many e-commerce and point-of-sale tools can calculate, and sometimes remit, sales tax for you
Marketplace Sellers: One Big Relief
If you sell through a large online marketplace, “marketplace facilitator” laws often make the platform responsible for collecting and remitting sales tax on your behalf in many states. That removes a big burden — but you still need to understand your obligations for sales you make on your own website or in person.
Selling Across State Lines: Economic Nexus
Sales tax used to be simple: you collected it where you had a physical presence. That changed with the 2018 South Dakota v. Wayfair decision, which let states require out-of-state sellers to collect sales tax once they pass a sales or transaction threshold in that state — what’s called “economic nexus.”
- Thresholds vary by state — many use a figure like $100,000 in sales or 200 transactions a year, but the exact numbers differ, so you have to check each state where you sell a lot.
- Marketplace facilitators may handle it — if you sell through a large online marketplace, the platform often collects and remits sales tax on your behalf, but confirm rather than assume.
- Services are taxed differently — many states don’t tax services at all, while others tax specific ones; product sales are far more commonly taxable.
- Resale certificates — if you buy goods to resell, a resale certificate lets you skip paying sales tax on those purchases, since the end customer pays it.
If you sell online to customers in multiple states, this is the area most likely to trip you up. When your out-of-state sales grow, it’s worth a conversation with a tax professional or a sales-tax automation tool.
Frequently Asked Questions
Do I charge sales tax on services?
It depends on your state. Many states don’t tax services, some tax certain categories (like repair or data services), and a few tax services broadly. Check your specific state’s rules for the services you provide.
What is a resale certificate?
A document that lets you buy inventory for resale without paying sales tax on it, because the tax will be collected when you sell to the final customer. You give it to your suppliers; you don’t file it with the state.
I sell online — do I owe sales tax everywhere?
Only in states where you have nexus — either physical presence or enough sales to cross that state’s economic-nexus threshold. Below the threshold in a state, you generally don’t have to collect there.
The Bottom Line
Sales tax is money you collect for the state, not income you keep — so register where you have nexus, charge the correct rate, hold the tax separately, and file on time. Watch the economic-nexus thresholds if you sell online across state lines, and lean on your selling platform’s tools. Because the rules differ by state and change, confirm your specific obligations with your state’s tax authority or a CPA before you start selling.
Further Reading
This article is educational only and is not legal, tax, or financial advice. Business, tax, and lending rules vary by state and situation and change over time. Consult a qualified attorney, CPA, or financial professional before making decisions about your specific business.