Building Your Business Business Taxes A Guide for States That Require Internet Sales Tax By Jean Murray Jean Murray Facebook Twitter Jean Murray, MBA, Ph.D., is an experienced business writer and teacher who has been writing for The Balance on U.S. business law and taxes since 2008. She has taught accounting, business law, and business finance at business and professional schools for over 35 years, has authored several books on saving money and simplifying your business, and was the owner of startup-focused company Emence Enterprises, LLC. learn about our editorial policies Updated on September 19, 2022 Fact checked by J.R. Duren Fact checked by J.R. Duren J.R. is a terms editor at The Balance, a role in which he focuses on providing clear answers to common questions about personal finance and small business. J.R. has more than 10 years of experience reporting, writing, and editing. As an editor for The Balance, he has fact-checked, edited, and assigned hundreds of articles. learn about our editorial policies In This Article View All In This Article How Do Internet Sales Tax Laws Work? State Sales Tax Laws and Your Online Business Frequently Asked Questions (FAQs) Photo: Hero Images/Getty Images Do you sell online? If so, you’ve probably tried to figure out how internet sales taxes on products or services you sell to customers outside your state work. Almost all states require larger online sellers to collect and pay sale taxes on internet sales. But what does this mean for your business? Learn more about the current state of online sales tax laws and how a small business can navigate tax complexities. Key Takeaways Most U.S. states and some localities require online sellers to charge sales tax for online transactions. Each state requires only larger sellers to impose taxes on online sales.The definition of a larger seller varies by state, based on sales, number of transactions, or both. The best way to deal with the complex internet sales tax laws is to use a sales tax app. How Do Internet Sales Tax Laws Work? Sales taxes are the domain of states in the U.S., and most states have different laws for businesses that sell products and services. In addition, localities, like cities and counties, have sales tax laws in 38 states. These laws say when a seller must charge sales tax as a part of a business sale, based on the type of product or service and the tax rate for that item and on the business’s tax “nexus”. Since the advent of the Internet, businesses have been selling products and services online, but not paying sales tax. States have been frustrated by their inability to impose sales tax laws on online sales. After years of confusion, the Supreme Court, in a 2018 case called S. Dakota v. Wayfair, increased the ability of states to require online sellers to charge sales tax by eliminating something known as the “physical presence” rule. Tax Nexus in a State A state's ability to tax transactions is based on the concept of tax nexus, meaning that the seller has a taxing presence in the state. Your company can have a nexus if it is doing business in the state, including: Having a physical office or a place where you conduct business (in your home, for example)Selling or shipping products to a buyer in the stateHaving a distribution center, like a warehouse or storage area, in the stateHaving employees who work in the state, including independent contractors, salespeople, representatives, or agents Previous to the Wayfair case, nexus only applied to physical presence, limiting the ability of states to tax an online presence. With the physical presence rule now removed, states have started to crack down on making certain sellers charge online sales tax. Note Five states have no sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. So, if you are an online seller in those states, you don't have to worry about this issue unless you are in certain localities in Alaska. Sales Tax Nexus for Remote Sellers The Wayfair decision allows states to extend the concept of nexus into online sales of remote sellers. A remote seller is a business that typically doesn’t have a physical nexus in a state but that sells products or services for delivery into that state. Most states will require only larger retailers to impose online sales taxes. What determines a "larger retailer" is set in each state, based on one or both of the following thresholds: Sales (gross sales, gross revenues, retail sales, or taxable sales), or The number of transactions. By 2023, 45 U.S. states will have laws requiring remote sellers to collect and pay state sales taxes on online sales, and each state has different thresholds. Here are a few examples, showing the wide range of requirements for threshold: California requires remote sellers to charge sales tax if their total combined sales from in-person and remote sales is greater than $500,000 during the previous or current calendar year. Florida requires online sales tax if taxable sales of tangible personal property are greater than $100,000 in the previous calendar year. New York requires this tax if gross receipts are greater than $500,000 and the seller made more than 100 sales during the previous four sales tax quarters. In many cases, the threshold for sales is $100,000. Note If you have a small home-based business, it's likely that the changes to tax nexus won’t affect you. State Sales Tax Laws and Your Online Business Before you start selling products or services online, here are some suggestions for preparing to deal with online sales taxes. Check To See if You Meet the Threshold for Online Sales Taxes in a State Each state has a different way to determine if you are over the threshold for being a large seller and being required to collect and pay sales taxes. If you are under the threshold for your state, you don’t need to deal with this issue in your remote business. Because you don’t know where your products or services are going to be delivered, you must register in each state in which you go over the threshold. Check State and Local Laws Regarding Internet Sales Tax The best place to start is a state’s taxing agency to find their sales tax requirements. You’ll find information on key areas of sales tax, including: Who must pay sales taxHow it’s calculatedHow to register for sales tax collectionHow to file and pay the tax Filing frequencyTaxes on remote sales Consider Sales Tax Software You may have noticed the implication of having nexus for online sales for every state into which you could potentially deliver products or services. And then there are many localities with sales taxes. The way to deal with this almost unimaginable complexity is to get sales tax software. Common software companies like Avalara and TaxJar automate the process of charging sales tax on your transactions, and they help you by tracking these taxes for each state and locality so you know how much and when to pay these taxes. They also follow rate changes, so you don’t have to. Note Don’t forget international sales. These sales tax software programs also deal with international taxes like value-added tax (VAT) and customs and duties calculations. Frequently Asked Questions (FAQs) What states have online sales tax? Almost all U.S. states have online sales tax laws. Five states have no sales taxes, and Missouri will implement its sales tax law in 2023, at which time 45 states will have laws requiring online sellers to collect and pay sales taxes on taxable products and services. And 38 states' localities (cities and counties, for example) have local sales tax regulations. How much can I sell online without paying tax? The amount you can sell online without reporting and paying sales taxes varies by state. Each state only requires larger online sellers to deal with these taxes. The threshold for becoming a larger seller is different for each state, based on gross sales, number of transactions, or both. If you are selling online, that may mean you need to register and pay internet sales taxes in many states. Consider using sales tax software to manage this tax situation. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Tax Foundation. “State and Local Sales Tax Rates, Midyear 2022.” Supreme Court of the United States. “South Dakota v. Wayfair, Inc., Et Al,” Page 24. Tax Foundation. "State Tax Changes Taking Effect July 1, 2021." Streamlines Sales Tax Governing Board, Inc. "Remote Seller State Guidance."