You have been selling on Amazon for three years and never filed a sales tax return. Amazon collects and remits sales tax on your behalf through marketplace facilitator laws — so you thought you were covered. Then you launched a Shopify store, and suddenly you are personally responsible for collecting sales tax in every state where Amazon stores your FBA inventory. That is 15-20 states where you have sales tax nexus, zero registrations, and three years of potential exposure.
This is the most common and most dangerous compliance gap in e-commerce. The marketplace facilitator laws that protect you on Amazon and Etsy do not protect you on your own website. And the physical presence of your inventory in Amazon warehouses creates nexus obligations that follow you across every sales channel you operate.
This guide covers the complete landscape of ecommerce sales tax compliance: the Wayfair decision that changed everything, economic nexus thresholds by state, marketplace facilitator laws, when and where you need to register, product taxability rules, automation tools, and the filing process. For the broader e-commerce bookkeeping framework, see our complete e-commerce seller bookkeeping guide.
Before June 2018, states could only require sales tax collection from businesses with a physical presence (office, warehouse, employee) in the state. Online sellers without physical presence could legally sell to customers in all 50 states without collecting sales tax in most of them.
The South Dakota v. Wayfair Supreme Court decision (June 21, 2018) overturned that rule. The Court held that states can require sales tax collection from remote sellers who have economic nexus — a sufficient level of sales activity — in the state, even without physical presence.
The South Dakota law at issue established two thresholds:
Most states quickly adopted identical or similar thresholds. As of 2026, 46 states plus the District of Columbia and Puerto Rico impose sales tax, and all of them have economic nexus laws.
These five states do not impose a general sales tax and therefore have no economic nexus requirements:
Important: Alaska has no state sales tax, but over 100 local jurisdictions (cities and boroughs) impose local sales tax. If you ship to Juneau, Anchorage, or Fairbanks, you may have local tax obligations. The Alaska Remote Seller Sales Tax Commission administers this for remote sellers.
Key concept: Economic nexus is based on where your customers are located, not where your business is located. A seller based in Oregon (no sales tax) who sells $100,001 to customers in Texas must register for, collect, and remit Texas sales tax. Your home state’s tax status is irrelevant to your obligations in customer states.
Most states adopted the Wayfair thresholds ($100K or 200 transactions), but several have variations. Here are the key details as of 2026:
| State | Sales Threshold | Transaction Threshold | Measurement Period |
|---|---|---|---|
| Alabama | $250,000 | N/A | Prior calendar year |
| Arizona | $100,000 | N/A | Current or prior calendar year |
| California | $500,000 | N/A | Current or prior calendar year |
| Colorado | $100,000 | N/A | Current or prior calendar year |
| Connecticut | $100,000 | 200 | Prior 12-month period |
| Florida | $100,000 | N/A | Prior calendar year |
| Georgia | $100,000 | 200 | Current or prior calendar year |
| Illinois | $100,000 | 200 | Prior 12-month period |
| Indiana | $100,000 | 200 | Current or prior calendar year |
| Massachusetts | $100,000 | N/A | Prior calendar year |
| Michigan | $100,000 | 200 | Current or prior calendar year |
| Minnesota | $100,000 | 200 | Prior 12-month period |
| New Jersey | $100,000 | 200 | Current or prior calendar year |
| New York | $500,000 | 100 | Prior four quarterly periods |
| North Carolina | $100,000 | 200 | Current or prior calendar year |
| Ohio | $100,000 | 200 | Current or prior calendar year |
| Pennsylvania | $100,000 | N/A | Current or prior calendar year |
| South Carolina | $100,000 | N/A | Current or prior calendar year |
| Tennessee | $100,000 | N/A | Prior 12-month period |
| Texas | $500,000 | N/A | Prior 12-month period |
| Virginia | $100,000 | 200 | Current or prior calendar year |
| Washington | $100,000 | N/A | Current or prior calendar year |
| Wisconsin | $100,000 | N/A | Current or prior calendar year |
Note: This table shows selected major states. Most remaining states follow the standard $100,000 / 200 transaction threshold. Several states — including California ($500K), New York ($500K + 100 transactions), Texas ($500K), and Alabama ($250K) — have higher thresholds. The trend has been toward eliminating the transaction threshold and retaining only the dollar threshold.
Pro Tip: Many states have dropped the 200-transaction threshold, leaving only the dollar threshold. This is good news for high-volume, low-ticket sellers who might have triggered the transaction threshold without approaching $100K in sales. Check each state’s current rules annually — thresholds change, and states do not send you a courtesy notification.
Marketplace facilitator laws require the marketplace — not the individual seller — to collect and remit sales tax on sales made through the platform. As of 2026, all 46 sales tax states plus DC and Puerto Rico have marketplace facilitator laws in effect.
The following platforms collect and remit sales tax as marketplace facilitators in all applicable states:
Critical distinction for Shopify: Shopify is not a marketplace facilitator in the same way Amazon is. Shopify helps you calculate and collect sales tax at checkout, but you are responsible for registering, filing returns, and remitting the collected tax. Shopify does not file or remit for you (except in limited cases through Shopify Tax’s auto-filing feature in select states).
This is the gap that catches most multi-channel sellers. Amazon handles your tax obligations on Amazon. But the same FBA inventory placement that Amazon manages creates nexus in states where your Shopify DTC sales are now taxable — and you are responsible for those.
Amazon FBA moves your inventory across the country to optimize delivery times. You do not control where Amazon places your inventory. A seller who ships products to a single FBA warehouse in Kentucky may find their inventory redistributed to warehouses in California, Texas, Florida, Illinois, New Jersey, Pennsylvania, and a dozen other states.
Each of those states now has physical nexus over your business (inventory stored in the state), meaning you have sales tax collection obligations on direct sales to customers in those states — even if your Amazon sales are covered by marketplace facilitator laws.
How to check your FBA footprint: Amazon Seller Central > Reports > Fulfillment > Inventory Event Detail. This report shows which fulfillment centers have received, stored, or shipped your inventory. Cross-reference the fulfillment center codes with Amazon’s published list of FC locations by state.
Registration is required before you begin collecting sales tax in a state. Do not collect sales tax without a valid permit — in some states, collecting tax without a permit is actually illegal (even if failing to collect it is also illegal).
Cost: Most state sales tax permits are free. A few states charge a nominal registration fee ($10-$50). California requires a security deposit for out-of-state sellers in some cases.
If you have been selling in a state without collecting tax for months or years, you have back-tax liability. Before registering through the normal process, consider filing a Voluntary Disclosure Agreement with the state’s tax authority.
A VDA typically offers:
VDAs are handled through a third-party intermediary in most states (the Multistate Tax Commission offers a national VDA program) or directly with individual state tax authorities. For sellers with significant back-tax exposure, a VDA can save tens of thousands of dollars in penalties.
Important: Do not register in a state where you have back-tax liability without consulting a tax professional first. Normal registration can trigger a “why didn’t you register sooner?” audit that assesses back taxes with full penalties. A VDA filed before registration protects you from that scenario.
Most tangible personal property is taxable in most states. But exceptions, exemptions, and reduced rates create a complex matrix:
| Product Category | States With Exemptions or Reduced Rates |
|---|---|
| Clothing & Apparel | PA (exempt under $110), NJ (exempt), NY (exempt under $110), MN (exempt), CT (exempt under $100) |
| Grocery / Food Items | Most states exempt grocery staples; prepared food is usually taxable |
| Digital Products | Varies widely — some states tax digital goods, others do not. No consistency. |
| Dietary Supplements | Some states treat as food (exempt), others as tangible goods (taxable) |
| Baby Items (diapers, formula) | Several states have exempted baby necessities in recent years |
| Medical Devices / OTC Medicine | Many states exempt medical devices; OTC drug exemptions vary |
Why this matters for your bookkeeping: If you sell clothing and have nexus in New York, clothing items under $110 per unit are exempt from sales tax. Your tax collection system must know the product category and apply the correct tax rate (or exemption) by state. Misconfigured taxability settings mean you are either over-collecting (refund liability) or under-collecting (your liability to the state).
Both TaxJar and Avalara use standardized product tax codes to handle taxability:
Manual sales tax management is feasible for sellers with nexus in 1-3 states. Above that, automation is not optional.
TaxJar is the most popular sales tax automation platform for e-commerce sellers. It handles:
Pricing: Starts at $99/month for basic. AutoFile is $24.99/month per state on top of the base plan. For a seller filing in 15 states, expect $475-$600/month total.
Avalara is the enterprise-grade alternative. More complex setup, more granular control, better for sellers with complicated product taxability (digital goods, bundled products, services + tangible goods combos).
Pricing: Higher than TaxJar — typically $250+/month for base platform, with additional per-transaction or per-filing fees. Best for sellers doing $5M+ or with complex tax situations.
Shopify’s built-in tax engine handles collection at checkout for stores using Shopify. It calculates tax based on the customer’s shipping address and your nexus registrations. However, Shopify Tax’s auto-filing feature is limited — it covers a growing but incomplete list of states. For comprehensive filing, you still need TaxJar or Avalara.
States assign filing frequency based on your tax liability:
| Annual Tax Liability | Typical Filing Frequency |
|---|---|
| Under $100/year | Annual |
| $100 – $1,200/year | Quarterly |
| $1,200 – $4,800/year | Monthly |
| $4,800+/year | Monthly (some states require semi-monthly) |
Filing deadlines vary by state. Most monthly filers are due by the 20th of the following month. Quarterly filers are due by the end of the month following the quarter. Late filings incur penalties (typically 5-25% of the tax due) plus interest (5-12% annual rate).
The consequences of ignoring ecommerce sales tax compliance escalate quickly:
While the IRS does not enforce state sales tax, uncollected sales tax affects your federal tax return. If you are audited and the IRS discovers you failed to collect sales tax in nexus states, it can trigger referrals to state tax authorities and create a cascading audit situation.
For a seller doing $500K/year on Amazon + Shopify with nexus in 15 states and no registrations outside the marketplace facilitator coverage:
That is a $44,000 liability that grows every month you delay registration. A VDA filed today might reduce that to $31,500 + interest (penalty waived) — still painful, but $12,000 less painful.
Your bookkeeper’s monthly sales tax workflow should include:
Weekly:
Monthly:
Quarterly:
Annually:
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