Sales tax for online store owners: when you have to collect it, economic nexus thresholds and shipping

Short answer: If you run an online store in the US, you usually collect sales tax in two situations: on taxable sales to customers in your own state, where you have a physical presence, and on sales into another state once your sales there pass that state's economic nexus threshold. Since the Supreme Court's 2018 South Dakota v. Wayfair decision, states can require out-of-state sellers to collect tax without any physical presence. Thresholds differ: California and Texas use $500,000 a year in sales into the state, Florida uses $100,000 in taxable remote sales. In states like Texas and Florida, local tax follows the delivery address, shipping may or may not be taxable, and the tax you collect belongs to the state, not to you. Start with your home state, track sales by state from day one, and run your shop on a store platform that shows the real profit on every order, so tax never gets mixed up with your margin.

How sales tax works for an online store

Sales tax is charged to the buyer at checkout, but the seller collects it and pays it to the state. You add it to the order, keep it separate, file a return on the schedule the state gives you, and send the money in.

Three things make it harder online than in a shop on Main Street:

• Several layers of tax. A state rate can come with local add-ons. Florida's general state rate is 6%, and counties can add a discretionary sales surtax that applies based on where the item is delivered.
• Delivery address decides the rate. For remote sellers into Texas, local use tax is due at the location where the order is shipped or delivered. Texas also lets remote sellers choose a single local use tax rate, currently 1.75%, instead of tracking every local rate.
• Different names. When you sell into a state from outside, the tax is often called "use tax." California, for example, requires qualifying remote sellers to register and collect California use tax. For the shopper and your checkout, it works the same way.

Step 1: Your home state

If you live and keep your inventory in a state with a sales tax, that's where your obligation starts. Texas, for example, treats you as engaged in business there if you have a location, employees or representatives in the state, or if your business was formed in Texas. California says retailers with a physical presence in the state still generally have to be registered with the CDTFA.

In practice, that means registering with your state tax agency before your first taxable sale and charging tax on taxable orders delivered inside the state. Which registration you need, what it's called and what it costs is covered in do i need a business license to sell online. This article picks up after that: what you do once you're registered.

Step 2: Other states and economic nexus

Before 2018, a state could generally only make you collect its tax if you had a physical presence there. The Texas Comptroller explains that in South Dakota v. Wayfair, the Supreme Court overruled that rule, so states can now impose collection duties based on economic presence alone. That economic presence is called economic nexus, and each state sets its own threshold.

• California — Threshold for remote sellers: Over $500,000; What counts: Sales of tangible goods for delivery in California, in the preceding or current calendar year, including related persons; Source: CDTFA
• Texas — Threshold for remote sellers: Over $500,000; What counts: Total Texas revenue in the preceding 12 calendar months, including nontaxable sales and separately stated shipping and handling fees; Source: Texas Comptroller
• Florida — Threshold for remote sellers: Over $100,000; What counts: Taxable remote sales into Florida in the previous calendar year; Source: Florida Department of Revenue

Notice how differently the three states measure: one counts the calendar year, one a rolling 12 months, one only taxable sales. That's why you need sales by state, not just total sales. Other states have their own thresholds, and some count the number of transactions; look up each state where you have meaningful sales on that state's revenue department website.

Timing matters too. In Texas, once you pass $500,000, you must get a permit and start collecting no later than the first day of the fourth month after the month you crossed the line.

Example (assumption): A store based outside Texas and Florida ships nationwide. Over the last 12 calendar months, its orders into Texas, including shipping fees, add up to $510,000, and the line was crossed in May. Under the Texas rule, it must hold a Texas permit and collect tax on Texas orders by September 1. In the same year, if its taxable sales into Florida go over $100,000, it should check the Florida Department of Revenue for when collection has to begin.

If you sell into many states, the Streamlined Sales Tax Governing Board is worth knowing. Its agreement offers a central electronic registration system for member states, and the board says 24 states have adopted its simplification measures.

Step 3: Is the product taxable, and is shipping?

Not everything is taxed the same way. Each state decides which goods are taxable, and California publishes a tax matrix for remote sellers to help with common items. Check your products before you set up checkout.

Shipping is the most common trap. In California, the CDTFA says shipping charges may not be taxable while handling charges are, so it asks you to label charges clearly on invoices: use "shipping," "delivery," "freight" or "postage" for transport, and "handling" only for handling. Keep records of the actual cost of each delivery. If you can't show them, tax applies to your entire delivery charge on a taxable sale. Rules differ by state, so check how each state where you collect treats shipping.

Step 4: Set up checkout and records

• Charge by delivery address. Your checkout should calculate tax from the ship-to address for every state where you're registered, and show it before payment so it doesn't surprise the buyer at the last step.
• Keep sales tax out of revenue. It's not your money. Our guide on how much does it cost to run an online store shows how to keep tax out of your margin numbers.
• Track sales by state every month. It tells you when you're getting close to a threshold, before you cross it.
• Keep the paperwork. Invoices, delivery records and returns. Texas, for example, requires sellers who sell through a marketplace to keep records of those sales for at least four years.
• File on the schedule your state assigns. Put each state's due dates in your calendar when you register.

Mistakes online sellers make

• Assuming "I'm small, so it doesn't apply." Economic nexus thresholds are for remote sellers. In your home state, physical presence alone can mean you have to register, whatever your sales.
• Counting only taxable sales everywhere. Texas counts nontaxable sales and shipping fees toward the $500,000.
• Lumping shipping and handling together. In California, it can make the whole charge taxable.
• Waiting after crossing a threshold. Texas, for example, gives you a fixed date by which you must hold a permit and start collecting.

How Favenda helps

Sales tax starts with clean numbers, and Favenda keeps them in one place. Each order shows real profit after shipping and payment costs, which makes year-end bookkeeping easier. You set shipping rates by weight or by size and add a free shipping threshold, so delivery charges are clear before checkout. Each sales region gets its own currency, payment methods and shipping rates, so buyers in each market see options that fit them. There are no transaction fees on your sales, and hosting, SSL, backups and updates are included. The Store plan is $69 a month excluding tax, with two months free when you pay annually.

See Favenda →

FAQ

Do I need to charge sales tax on shipping?
It depends on the state. In California, shipping charges may not be taxable but handling charges are, and without records of actual delivery costs, tax applies to the whole delivery charge on a taxable sale. Check each state where you collect.

Do I need to collect sales tax for out-of-state sales?
Only once you have nexus in that state, through physical presence or by passing its economic nexus threshold. California and Texas use $500,000 a year, Florida $100,000 in taxable remote sales. Below the threshold, and with no presence there, you generally don't collect that state's tax.

What if I should have been collecting and didn't?
Contact the state tax agency rather than waiting. California, for example, runs a Voluntary Disclosure Program and lets you request written advice, which protects you if their answer later turns out to be wrong. A tax professional can help you work out what you owe.

Sources: Texas Comptroller of Public Accounts, "Remote Sellers" and Publication 94-108; California Department of Tax and Fee Administration, "Use Tax Collection Requirements Based on Sales into California Due to the Wayfair Decision" and Publication 100, "Tax Guide for Delivery, Shipping, and Handling Charges"; Florida Department of Revenue, "Sales and Use Tax"; Streamlined Sales Tax Governing Board, "About SSTGB". All read on 29 October 2026. Examples are assumptions; this article is not tax or legal advice.