Do You Need to Collect Sales Tax in Every State?
One of the biggest misconceptions I see among ecommerce business owners is the idea that selling online means you need to collect sales tax in every state.
Fortunately, that's usually not the case.
If you sell through Shopify, WooCommerce, BigCommerce, or another ecommerce platform, it's normal to receive orders from customers all over the country. Seeing sales in multiple states doesn't automatically mean you need to register and collect sales tax everywhere.
Here's how to think about it.
Sales Tax Is Based on Connection, Not Just Sales
Every state has its own rules, but before it can require your business to collect sales tax, there generally needs to be a connection between your business and that state.
That connection is called nexus.
Nexus can be created in several ways, including:
- Having inventory stored in a state
- Having employees or contractors working there
- Operating a physical location
- Reaching certain sales thresholds
Not every sale creates nexus. That's why understanding your business activity is much more important than simply counting how many states you've shipped to.
Selling to a State Doesn't Always Mean Registering There
Let's say you receive one order from a customer in Florida.
Should you register there?
Probably not based on that information alone.
Now imagine you've made thousands of sales into a particular state over the last year. That's a different situation and may be worth looking into more closely.
The key takeaway is that making a sale and having a sales tax registration requirement are not always the same thing.
What About Amazon and Etsy?
This is where many business owners get confused.
If you sell on Amazon or Etsy, those marketplaces generally collect and remit sales tax on qualifying marketplace sales.
However, those sales may still be relevant when you're determining whether you should register in a state. The rules vary from state to state, so it's important not to assume that "marketplace collected" means there's nothing else to think about.
If you sell through both Shopify and marketplaces, it's a good idea to understand how each state treats those different types of sales.
Don't Register Everywhere "Just to Be Safe"
It might seem like registering in every state is the safest option, but it often creates more work than necessary.
Once you're registered, you'll typically be expected to file sales tax returns according to the schedule assigned by the state. In many cases, that means filing even if you had no taxable sales during that period.
Before registering, make sure you understand whether your business actually needs to.
A Better Approach
Instead of worrying about all 50 states, focus on understanding your own business.
Ask yourself:
- Where are most of my customers located?
- How much have I sold into each state?
- Do I sell only through Shopify, or do I also use marketplaces?
- Have I created nexus in any new states?
Reviewing this information regularly will help you stay organized as your business grows.
Final Thoughts
Sales tax doesn't have to be overwhelming.
The goal isn't to register in every state. The goal is to understand where your business has responsibilities and take action when it's appropriate.
As your business grows, keeping an eye on your sales by state and reviewing your nexus periodically can help you stay compliant without creating unnecessary work.
If you're just getting started, my Sales Tax Starter Guide walks through the basics of economic nexus, marketplace facilitators, registration, and common mistakes in plain English. It's a great place to start if you're trying to make sense of ecommerce sales tax without getting overwhelmed.