As e-commerce continues its meteoric rise, online sellers are tapping into larger and more geographically diverse customer bases. But with growth comes complexity—particularly when it comes to sales tax compliance across multiple states.
For many e-commerce businesses, keeping up with the ever-changing web of sales tax laws is not only confusing but also a serious operational burden. In the United States, where each state can set its own tax laws and rates, sales tax compliance is no longer a back-office task—it’s a critical function with legal, financial, and reputational risks.
At MyUSAService, we understand the challenges international and domestic e-commerce sellers face when navigating U.S. compliance. In this article, we break down the most common struggles online sellers face with multistate sales tax—and how to begin addressing them effectively.
Understanding Economic Nexus and Its Impact
One of the most fundamental challenges for e-commerce sellers is understanding the concept of economic nexus. Since the landmark 2018 South Dakota v. Wayfair, Inc. decision, states can now require remote sellers to collect and remit sales tax—even if they have no physical presence in that state.
Each state sets its own thresholds for triggering nexus. Some require registration and tax collection if a seller makes over $100,000 in sales or completes 200 or more transactions annually within the state. Others may set higher or lower benchmarks—or even remove the transaction count entirely.
Keeping track of where your business has crossed a nexus threshold requires constant monitoring. For growing e-commerce brands, this quickly becomes overwhelming. And failing to register and collect sales tax when required can result in penalties, interest, and retroactive tax obligations.
Inconsistent Tax Laws Across States
Sales tax rules are anything but uniform. Rates and regulations not only vary from state to state, but also from one city or county to another. On top of that, states classify and tax products differently.
For instance, a granola bar might be taxed as candy in one state and considered non-taxable food in another. Clothing, digital goods, shipping charges, and bundled products all face varying treatment. Even sales tax holidays and temporary exemptions add another layer of confusion.
For e-commerce sellers, these inconsistencies create a huge challenge in determining what to tax and how much to charge. Errors in classification or under-collection of tax can lead to liability and potential audits—making compliance a moving target.
Registering for Sales Tax Permits
Once you determine your e-commerce business has an economic nexus in a state, the next step is registering for a sales tax permit. However, this process is far from standardized across jurisdictions.
Each state has its own tax department portal, procedures, timelines, and documentation requirements. Some states charge fees to register, while others do not. Certain states may even require periodic renewals or updates when your business changes.
For international e-commerce sellers, the challenge is even steeper. You may need a U.S. business entity, a federal EIN (Employer Identification Number), and possibly a registered agent or address in the U.S. Delays in registration can prevent legal tax collection and lead to non-compliance issues from the outset.
Collecting the Correct Amount of Tax
Once you’re registered, you’re legally responsible for collecting the correct amount of sales tax at the time of sale. This is not as simple as applying a flat percentage—sales tax must typically be calculated based on the customer’s shipping address, which includes state, county, and sometimes city-level rates.
This means sellers must implement tax rate tools that update in real-time and account for jurisdiction-specific rules. Manual calculation is not viable for high-volume sellers, and relying on outdated rates can lead to under-collection.
Even with automated tools, sellers must ensure proper integration with their sales platforms (like Shopify, WooCommerce, or Amazon). A small misconfiguration can mean thousands of incorrect tax calculations before the issue is caught.
Filing and Remitting Sales Tax Returns
After collecting tax, your e-commerce business is required to file and remit it to the appropriate tax authorities—usually monthly, quarterly, or annually, depending on the state and your sales volume.
Filing sales tax returns isn’t as simple as submitting a total amount. Many states require a detailed breakdown of tax collected by individual city, county, or district, which significantly increases the administrative workload. On top of that, deadlines vary from state to state, and missing a due date can trigger fines or interest charges.
If your e-commerce brand is selling into 10, 15, or more states, filing taxes becomes a full-scale operation—one that’s easy to mismanage without the right systems in place.
Keeping Up with Rule Changes
Sales tax regulations are constantly evolving. States frequently adjust their taxability rules, update nexus thresholds, change filing frequencies, or amend exemption categories.
For example, during the pandemic, several states made temporary changes to tax requirements for PPE or remote services. More recently, some states are revisiting digital goods classifications or economic nexus thresholds due to budget pressures.
If your business isn’t tracking legislative and regulatory updates across all states where you have nexus, you could be caught off guard by changes—resulting in non-compliance, under-collection, or overpayment.
Navigating Marketplace Facilitator Laws
Selling on Amazon, eBay, Walmart, or Etsy? These platforms are often classified as marketplace facilitators, meaning they’re responsible for collecting and remitting sales tax on behalf of their third-party sellers in most states.
But there’s a catch: while platforms handle tax collection in some states, you may still need to register, file, or report in those states, depending on the law. In some cases, you must file a $0 return or report exempt sales separately.
Assuming that marketplaces cover everything can leave you vulnerable to non-filing penalties or gaps in compliance. It’s crucial to know where facilitator laws apply and what your obligations are in each state—even if your platform is collecting the tax.
Conclusion
Sales tax compliance in the U.S. is complex and constantly shifting—especially for e-commerce sellers operating across multiple states. From understanding the economic nexus and registering in the right states, to correctly charging, filing, and remitting sales tax, the stakes are high and the room for error is large. What You Need to Know to Avoid Penalties and Stay Compliant is crucial to keeping your business running smoothly without facing unexpected fines or audits.
For international sellers and growing online brands, trying to manage this internally can lead to costly mistakes and stress. That’s why proactive compliance isn’t just about checking a box—it’s about protecting your business and ensuring scalable, sustainable growth.
At MyUSAService, we specialize in helping e-commerce sellers—especially those based outside the U.S.—simplify their tax and compliance obligations. From entity setup and EIN assistance to multistate sales tax registration and filing support, we make U.S. business expansion easier and more compliant.
