Historically, a state could only tax sales by businesses with a physical nexus in the state. A nexus is simply a connection between things. But for sales tax purposes, a business was considered to have a nexus with a state if it had a physical presence, like a storefront, office, or warehouse.
A 2018 Supreme Court ruling in South Dakota v. Wayfair, Inc. changed this legislation pertaining to collecting sales tax. Now, states can require online retailers (even those without a physical presence) to collect sales tax. If you’re an online retailer, like an Etsy shop owner, it’s important to know the rules regarding sales tax, as it varies from state to state.
Which states require sales tax on online purchases?
Following this change in sales tax legislation, many states have created economic nexus standards to require certain e-commerce businesses to collect sales tax.
Each state has its own requirements, and most are intended to impose sales taxes on larger online retailers in an effort to protect small businesses. These requirements are determined by amounts set by the state, called thresholds, which are based on factors like gross sales and number of transactions.
You can see the requirements for charging online sales tax in each state here. Your state’s department of revenue website is always a reliable resource as well.
Which states have no online sales tax?
Delaware, Montana, New Hampshire, Oregon, and Alaska do not currently have a statewide sales tax or online sale sales tax. However, Alaskan localities can impose sales tax, and some are in the process of establishing online sales tax regulations.
Do I have to collect sales tax on out of country sales?
If you are an international seller with no physical presence or sales in the United States, you are not required to collect U.S. sales tax.
If you are an international seller with no physical presence in the U.S., but some of your sales are within the U.S., you may have to charge sales tax on your sales within the U.S. (depending on the requirements for the states in which you make sales).