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If you sell products online, chances are you need a sales tax permit to report and remit sales taxes—even if you only sell through marketplaces like Amazon or Etsy. However, your requirement to obtain a permit depends on where you sell and how much revenue you generate in each state. This article aims to clarify how sales tax works and who is responsible for collecting and reporting it to the government.
How Does Nexus Determine Your Sales Tax Obligations?
To understand your sales tax obligations, you need to understand the concept of “nexus.” Nexus is a legal connection between your business and a state that requires you to collect and remit sales tax on transactions made with customers in that state. If your business has nexus in one or more states, you are typically required to file sales taxes in each of them.
Nexus can be triggered in several ways, the most traditional being physical presence. This includes having a physical location, employees, inventory, or other tangible assets in a state. If you meet any of these conditions, you’ve established physical nexus and are responsible for collecting sales tax on taxable sales made there.
More recently, economic nexus has expanded the definition of tax responsibility. After the 2018 Supreme Court ruling in South Dakota v. Wayfair, states were granted the authority to require businesses to collect sales tax based on sales volume or transaction count—even if the business has no physical presence in that state.
Most states now enforce economic nexus thresholds. For example, in New York, the threshold is $500,000 in sales and more than 100 transactions in a year. In Florida, the threshold is $100,000 in annual sales. For details on each state’s requirements, see the aggregated chart provided by the Sales Tax Institute.
Do You Need to File Sales Tax If Your Marketplace Collects It for You?
Even if marketplaces like Amazon, Etsy, eBay, Walmart and Target collect and remit sales tax on your behalf, most states still require you to file periodic sales tax returns. In many cases, these are “zero-dollar” filings when no additional tax is due.
For example, the New York Department of Taxation and Finance states:
“If you are a marketplace seller and meet any of the sales tax registration requirements for vendors selling taxable goods and services, you must register and file periodic sales tax returns even if a marketplace provider will remit the sales tax due on sales they facilitate for you.”
Not all states require marketplace-only sellers to register. For instance, the Arizona Department of Revenue notes:
“Regardless of its physical presence in Arizona, a marketplace seller is not required to obtain a TPT license if it only sells its products through marketplace facilitators.”
Similarly, the Idaho State Tax Commission states:
“The only time you don’t need an Idaho seller’s permit is if you sell only on third-party websites or social media sites that register with the Tax Commission as marketplace facilitators.”
Some states that exempt sellers from obtaining a permit may require a verification form from the marketplace. In Arizona, sellers must obtain Form 5020. However, not all marketplaces issue these forms. Some provide public agreements stating they are responsible for collecting and remitting sales tax. For example, New York’s ST-150 form includes language exempting sellers from needing a verification form if a public agreement exists.
Amazon clarifies that it does not provide such forms:
“Other state forms (such as AZ Form 5020, CO Form DR1290, CT Form DRS-055, IL Form CRT-63, MA Form ST-16, NY Form ST-150) are not provided by Amazon. The Amazon Business Solutions Agreement and relevant help pages fulfill the state requirement for publishing explicit information on Amazon’s tax responsibilities.”
Do Marketplaces Cover All Sales Taxes, Including Local Jurisdictions?
While states like Connecticut and Kentucky only have statewide sales tax, most others include both state and local taxes. For example, a sale in New York City may include a 4.5% state tax, 4.0% city tax, and a 0.375% MCTD surcharge—totaling 8.875%. Generally, marketplaces collect and remit taxes across all applicable jurisdictions.
However, there are exceptions. Amazon notes:
“In certain states, local taxes are not included within Marketplace Facilitator Legislation; Amazon is not responsible for those taxes.”
This can happen in states like Colorado and Alaska, where local jurisdictions handle taxes independently or haven’t adopted the marketplace facilitator rules. For instance, Amazon explains that in Colorado:
“Legislation does not include home rule city sales and use tax on third-party sales when the city has not adopted an applicable marketplace facilitator ordinance.”
As a result, sellers may need to register with local jurisdictions in such states and manage tax collection themselves.
Do You Need a Sales Tax Permit If Your Business Is in a NOMAD State?
If your business is based in a NOMAD state (New Hampshire, Oregon, Montana, Alaska, Delaware), you generally do not need a sales tax permit within your home state because these states do not impose statewide sales taxes.
However, local jurisdictions—especially in Alaska—may impose taxes. You may be required to register with the Alaska Remote Seller Sales Tax Commission if you sell into such areas. Additionally, economic nexus rules in other states still apply. For example, if you sell into California or Texas and meet their economic thresholds, you will need to register and comply with their sales tax requirements.
Do You Need a Sales Tax Permit to Sell Digital Products and Services Online?
Sales tax permits are generally required if you sell taxable tangible goods or services. However, sales tax treatment of services varies by state. Many professional services are exempt from sales tax—for instance, in New York, professional services, educational services and capital improvements to real property are generally not taxable.
When it comes to digital goods, taxability depends on state law. Some states, like Pennsylvania and Tennessee, treat digital goods like e-books, software downloads, or streaming subscriptions as taxable, often applying the same rules as physical products. Conversely, states like California and New York exempt most digitally delivered content.
What Challenges Do E-Commerce Sellers Face—and What Are the Solutions?
E-commerce sellers that meet sales thresholds across multiple states may need to obtain sales tax permits in each one and file returns regularly. This leads to increased compliance costs. The post-Wayfair era has brought greater power to individual states—but it has also increased the burden on smaller businesses without in-house tax expertise.
According to the Tax Foundation:
“These provisions are often unduly burdensome, resulting in high compliance costs, particularly for smaller sellers. These burdens, and a lack of clarity surrounding these post-Wayfair requirements, also yield relatively low levels of compliance, with some businesses bearing extraordinary burdens to comply with remote seller laws in many states, while others take few if any steps to comply.”
To address these challenges, recent industry efforts reflect a growing focus on streamlining compliance through technology and policy adjustments. For example, TaxJar and Avalara are pushing for automated solutions to reduce manual compliance burdens. These tools integrate with ERP systems to handle real-time tax calculations and nexus tracking.
Additionally, some states are adopting centralized filing portals (e.g., SST for Streamlined Sales Tax states) to reduce administrative overhead. However, participation remains voluntary, and compliance challenges persist in non-SST states.
Important: This article is intended to provide helpful information. However, it is not legal or professional advice, and should not be relied upon as such. Always consult a qualified expert for guidance tailored to your situation.
