Selling online opens exciting growth opportunities. But it also opens a major compliance trap: sales tax.
The mechanics of ecommerce mean you can sell to anyone, anywhere, but every extra state you ship into could mean an additional tax obligation. With remote sales triggering what’s known as economic nexus, you may be required to collect ecommerce sales tax in states where you’ve never physically operated.
In this comprehensive guide, we’ll walk you through when you need to charge tax, how to calculate it, and how to build scalable compliance built on ecommerce sales tax automation and the right tax technology. Whether you’re selling mugs, electronics, or subscription services, this is your roadmap to stay compliant and avoid costly mistakes.
Step 1: Determine Nexus (When You Must Collect Tax)
Before anything else: you must know where you have to collect tax. This starts with nexus—the link between your business and a state that forces you to collect and remit sales tax.
- Physical nexus: Having a store, warehouse, inventory, employee, or other in-state presence.
- Economic nexus: Even without a physical presence, many states require collection once a seller crosses a revenue threshold or transaction count.
For example:
- In North Dakota, you trigger economic nexus at $100,000 in sales.
- In Texas, the threshold is $500,000.
- Providers of ecommerce sales tax automation monitor these thresholds to alert you when you cross them—so you can register, collect, and remit in time.
Key Actions:
- Map the current states you ship to and your sales volumes in each.
- Use a sales tax calculator or nexus-monitoring tool to highlight states where you’re close or have already triggered nexus.
- Register for tax permits before you start collecting to avoid penalties.
Step 2: Register for Sales Tax Permits
Once nexus is triggered in a state, you must legally register for a sales tax permit in that state. Without a permit, you cannot lawfully collect tax, and worse, your sales may be treated as untaxed or you may owe use tax instead.
Key Actions:
- Apply for a permit via the state’s Department of Revenue or equivalent.
- Update your checkout, financial system, and sales tax software to reflect the new state registration.
- Link your registration to your online store tax compliance workflows.
Step 3: Categorize Inventory & Products
Tax rules vary widely by state, and even by county or city. Some items are taxable, others are exempt, and some have reduced rates. To calculate correctly, you must categorize the inventory you sell.
Example scenarios:
- Diapers: may be exempt in one state (e.g., New York) but fully taxable in another.
- Agricultural seeds: may be exempt in Alabama, but taxable elsewhere.
- Taxes on services vs. goods: Many states still tax tangible personal property differently from digital or service offerings.
Key Actions:
- Build (or buy) a tax-classification matrix that covers each state where you sell.
- Integrate your product catalog with a sales tax automation engine so the right tax category applies at checkout.
- Update classifications when states change rules.
Step 4: Determine the Correct Sales Tax Rate
In the U.S., you must often charge tax based on the destination address of the buyer. With 13,000+ tax jurisdictions, manual lookup is high-risk.
Key Actions:
- Use a sales tax calculator or built-in tax engine to determine the correct rate for each transaction, including state + county + city + special district rates.
- Ensure your checkout platform integrates with your tax engine for real-time rate lookup.
- For marketplaces, review the marketplace facilitator tax rules—marketplace sales may be handled differently.
Step 5: Collect & Invoice Correctly
When you’ve determined the rate and product category, you must charge the tax. But the way you invoice matters.
Best practices:
- Show tax separately on invoices to maintain transparency (good for audit-readiness).
- For marketplaces, confirm whether the platform is collecting tax on your behalf or if you still need to do so.
- Check whether shipping charges should be taxable, it depends on the product and jurisdiction rules.
A well-set-up checkout system with online store tax compliance built in ensures every checkout captures the correct rate, taxable base, and ties back to registration data.
Step 6: Remit & File on the Right Schedule
Once you’ve collected tax, you must file returns and remit—monthly, quarterly, or annually, depending on the state and your volume.
Key actions:
- Maintain a calendar of filing deadlines for all registered states.
- Track whether you have to remit use tax (if you sold without collecting).
- Use sales tax filing automation to generate returns, pre-populate data, and submit electronically.
- Maintain audit-ready records: invoices, certificate copies, registration permits, nexus documentation.
Step 7: Monitor & Maintain Compliance
Tax rules change constantly. Product taxability, nexus thresholds, rate changes, and marketplace facilitator laws—all evolve. This is where manual systems fail.
Why look to automation:
- A tax engine software auto-uploads rate changes and rule updates, reducing risk.
- Compliance services help you track marketplace facilitator obligations (e.g., Amazon, Shopify).
- An automated system provides real-time logging, reporting, and audit trails.
Summary Checklist
✅ Do you know which states you’ve triggered nexus in?
✅ Are you registered in those states and set up to collect ecommerce sales tax?
✅ Is your inventory and product categorization up to date for every jurisdiction?
✅ Does your checkout automation apply the correct rate and tax base?
✅ Are you invoicing and collecting tax correctly, including shipping if required?
✅ Are you filing and remitting on time?
✅ Is your tax engine staying ahead of rule changes and marketplace facilitator updates?
Calculating sales tax across thousands of jurisdictions doesn’t have to slow your business down. With CereTax, you get a modern tax engine built for ecommerce — precise, automated, and always up to date with state rule changes.
👉 Book Your 30-Minute Strategy Session to see how CereTax handles nexus, exemptions, and multi-state filings — so you can focus on growth, not compliance.
