Sales Tax Archives - Ecommerce Theory

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.

Sales tax exemptions can help businesses reduce costs by avoiding double taxation—paying sales tax on items purchased for resale, then collecting it again when selling to customers.

To make a tax-exempt purchase, a business typically needs an exemption certificate from the state where it operates, which it presents to suppliers. “Exemption certificate” is a broad term and may refer to documents like a Resale Certificate, Exempt Use Certificate, or Exemption Certificate for Promotional Materials. Specific rules vary by state and business type.

Which Business Purchases Qualify for Sales Tax Exemption?

If you’re a retailer or manufacturer buying items for resale, you’re likely eligible for sales tax exemption. Eligibility depends on business operations and state regulations. Commonly exempt business operations include retail, manufacturing, charity, and government.

Retailers buying goods for resale pass the sales tax burden to the end consumer. Similarly, manufacturers can often purchase machinery, materials, and services used directly in production tax-free. However, items like office or cleaning supplies used internally don’t qualify. As the Sales Tax Institute notes,

“A business cannot use a resale certificate to purchase merchandise that they will use and consume in the conduct of business.”

Can You Buy Manufacturing Equipment Tax-Free?

Yes. In many states, machinery and equipment used directly and predominantly in the manufacturing process are tax-exempt if they produce tangible goods for sale. This includes items that cause physical or chemical changes in a product, along with related essential equipment.

Support tools not directly tied to production—such as HVAC systems for employee comfort or general office equipment—are generally not exempt. For guidance, see item eligibility lists from states like Texas and Washington.

Businesses involved in both manufacturing and retail may benefit from holding multiple certificates. For instance, a New York business might use ST-120 for resale and ST-121 for manufacturing.

Do All States Allow Tax-Exempt Business Purchases?

Yes, but processes and qualifications vary widely. States like New Hampshire, Oregon, Montana, and Delaware don’t impose sales tax, so no further steps are needed.

In most other states, businesses must present a valid exemption certificate (e.g., ST-120 in New York, CDTFA-230 in California) to suppliers. Generally, a sales tax permit is required to use a resale certificate.

Furthermore, some businesses that have physical presence across different states may need to obtain a tax exemption certificate from each of state where their purchases are delivered, as some states do not accept out-of-state certificates. For example, New York explicitly states,

“Exemption certificates of other states or countries are not valid to claim exemption from New York State and local sales and use tax.”

Similarly, Maryland requires an in-state sales and use tax license for resale purchases. Therefore, businesses often need seller’s permits in states where they want to make tax-exempt purchases.

What Is a Multijurisdictional Sales Tax Exemption Certificate?

To streamline exemptions across states, intergovernmental organizations have developed standardized multijurisdictional certificates:

Multistate Tax Commission’s Uniform Sales & Use Tax Certificate (MTC Certificate)

Accepted in 35 states
Used for resale and component purchases

Streamlined Sales Tax Exemption Certificate (SST Certificate)

Accepted by 24 member states
Covers resale and industrial production

These certificates reduce administrative burdens by replacing multiple forms with a single document. However, they’re not universally accepted. Some states require the purchaser to be registered in-state to validate exemption claims. Always read the certificate’s notes section and consult state regulations.

How to Use Blanket Certificates for Recurring Tax-Free Purchases?

Instead of submitting an exemption certificate for every purchase, buyers can use a blanket certificate for ongoing, similar transactions.

A blanket certificate stays valid as long as the buyer-seller relationship remains active and the information remains accurate. Some states require updates periodically (e.g., every three years) or whenever business details change.

Most state revenue departments provide blanket certificate forms. For example, Ohio offers the “Blanket Exemption Certificate” (STEC B), and New York allows ST-120 to be used as a blanket certificate when the appropriate box is checked.

Are Sellers Required to Accept My Resale Certificate?

No, acceptance is up to the seller. If a seller doubts the certificate’s validity or completeness, they may charge the buyer’s seller permit records.

To verify a certificate, sellers may use tools like New York’s Registered Sales Tax Vendor Lookup. According to Tax Valet, even in states that accept out-of-state certificates, suppliers may reject them due to unfamiliarity. Providing supporting documentation can help resolve these issues.

If a seller refuses your certificate, you must pay sales tax but may be eligible for a refund or deduction later. For instance, in California, you can file a CDTFA-101 Claim for Refund with supporting invoices and records.

How to Make Tax-Free Purchases on Marketplaces Like Amazon and eBay?

Amazon offers the Amazon Tax Exemption Program, which enables eligible customers to make tax-exempt purchases. To enroll, businesses must complete a valid exemption certificate online by using the Tax Exemption Wizard. Once submitted, the exemption is typically activated within 15 minutes.

Other major platforms also offer tax exemption programs, such as eBay’s Buyer Exemption program for sales tax, Lowe’s Tax-Exempt Management System, and Alibaba US Sales Tax Exemption Program. Approval times vary by platform—from about 5 days for eBay to up to 30 days for Lowe’s. Smaller marketplaces may not support tax exemptions directly, in which case you’ll need to coordinate with individual sellers to provide the necessary documentation.

Final Thoughts: Boosting Profit Margins with Tax-Exempt Purchasing

Tax-exempt purchases can improve a business’s profit margin by a few percentage points—an advantage that can be significant in competitive industries like consumer goods.

However, navigating sales tax rules can be complex, as regulations vary greatly by state. A company’s ability to make tax-exempt purchases often depends on the location of the purchase and whether the business holds a valid seller’s permit in that state, which may affect eligibility.

Still, businesses can reduce costs by obtaining sales tax exemption certificates in states where they are already registered. Additionally, using a multijurisdictional sales tax exemption certificate can streamline compliance for larger organizations.

Sales Tax