Do I have to charge sales tax on online sales?

The short version

• Sales tax is set by each state, and often by cities and counties too. There’s no single federal sales tax.
• You almost always need to think about your home state first.
• Since June 21, 2018, other states can require you to collect once your sales into them pass their threshold, even with no shop or staff there.
• Each state sets its own threshold and its own list of taxable items. We don’t quote them here, because they differ and change.
• Your store can calculate the tax. Registering, filing and paying are still your job unless you pay for a service that does it.

This isn’t tax advice. We build and look after online stores, and this page explains the moving parts so your talk with an accountant is shorter. The decisions belong to you and your tax professional.

What changed with Wayfair?

Before 2018, a state generally couldn’t make a seller collect its sales tax unless the seller had a physical presence there, such as a shop, warehouse or staff. In South Dakota v. Wayfair (Supreme Court docket 17-494), decided June 21, 2018, the Court overruled that physical-presence rule. As the Streamlined Sales Tax Governing Board puts it, states may now require sellers without a physical presence to collect and remit sales tax on products delivered into the state.

Since then, most states with a sales tax have set economic thresholds: once your sales into a state pass its figure, you’re expected to register and collect there. The figures, what counts toward them, and the time period differ by state.

How do I work out where I owe?

1. Start with your home state. If you have a physical location, stock or staff in a state, you likely need a sales tax permit there. The SBA’s tax page links to every state’s revenue department.
2. Export last year’s sales by state. In WooCommerce, the Analytics reports can be filtered and downloaded; our help article on exporting orders and customers shows how. In Shopify, use the sales reports.
3. Check each state you sell into on its own revenue department’s website for its remote-seller threshold. Note the figure and the date you checked.
4. Check what’s taxable. States treat clothing, food, digital downloads and shipping charges differently.
5. Take it to your accountant with the list. Ask where to register, how often to file, and whether to charge tax on shipping.
6. Register before you collect. Collecting a state’s tax without being registered there causes its own problems.
7. Then set up the store, as below.

Help that’s free in some states

The Streamlined Sales Tax project is a group of states that simplified and lined up their sales tax rules. Its website lists 23 full member states and one associate member, and points to certified service providers that calculate and file for sellers. Check its site to see whether you qualify for free services.

How do I set the store to charge it?

• WooCommerce: turn taxes on and enter rates under WooCommerce, Settings, Tax. Our help article on changing shipping rates or sales tax has the clicks. WooCommerce’s own tax guide says it isn’t a tax professional and recommends asking one. Automated tax tools can calculate rates by address, which beats typing in rate tables by hand.
• Shopify: Shopify’s US sales tax overview says it helps automate charging sales tax, but doesn’t file or remit it for you unless your sales tax is managed by Shopify or you’ve enrolled in its automated filing. It also advises consulting a tax professional.

Why does it matter?

Sales tax you should have collected doesn’t go away because you didn’t collect it. A state can come back later for tax you owed, and you can’t send the bill to last year’s customers. Getting it right early is far cheaper than fixing it after a letter arrives.

What are the common mistakes and edge cases?

• Assuming “online” means “no sales tax.” That was never quite true, and Wayfair ended the physical-presence shortcut.
• Using one flat rate for a whole state when local rates vary by address. Address-based calculation handles this.
• Ignoring shipping. Some states tax shipping charges and some don’t.
• Selling through a marketplace too. Sales on marketplaces such as Etsy or Amazon may be handled differently. Ask your accountant how they count toward your thresholds.
• Collecting but not filing. Tax you collected belongs to the state. Keep it separate from your takings.
• Relying on a blog’s threshold table. Check the state’s own site and note the date.

What if this didn’t work?

• Tax shows at checkout for the wrong place. Check the store’s “calculate tax based on” setting: shipping address, billing address or your shop address.
• A state sends you a letter. Don’t ignore it. Take it to your accountant straight away.
• You think you should have been collecting for a while. Ask a tax professional about your options before you change anything. That’s their call, not your web team’s.

How much does it cost, and how long does it take?

Working out your list with an accountant usually takes one meeting once you have sales-by-state numbers. Calculation tools range from built-in and free to paid subscriptions; filing services charge separately. Entering the decisions into the store is quick.

How does E-3 handle this?

“How do I change shipping rates or sales tax on my store?” comes up about 80 times in E-3’s support records since 2019. We never decide what you should charge. Send us your accountant’s instructions, and a person at E-3 sets up the rates or the automated tax tool, tests checkout with addresses in each state, and confirms the totals with you. On stores in our website care, tax and checkout are part of what we check after each tested update.

Related questions

• What’s the best way to charge for shipping?
• How do I change shipping rates or sales tax on my store?
• How do I create a coupon or discount code?
• How do I move my store to another platform?
• Back to the complete online store guide

Sources

1. South Dakota v. Wayfair, Inc., No. 17-494 (Supreme Court of the United States docket)
2. Streamlined Sales Tax Governing Board
3. Pay taxes: state tax authorities (U.S. Small Business Administration)
4. US sales tax overview (Shopify Help Center)
5. Setting up taxes in WooCommerce (WooCommerce documentation)