Selling Online? What Shopify and Online Sellers Should Know About Sales Tax

If you run an online store, sales tax is likely your biggest compliance question. The short answer is that you may owe it in more than one state. The right answer depends on where you sell and how much.

What “nexus” means

Nexus is a connection to a state that creates a duty to register, collect, and pay sales tax there. There are two main types:

• Physical nexus: you have a location, inventory, employees, or other presence in the state.
• Economic nexus: you have no physical presence, but your sales into the state pass a threshold.

Since the Supreme Court’s 2018 decision in South Dakota v. Wayfair, states can require out-of-state sellers to collect tax based on sales alone. Each state sets its own threshold. For example, New York requires registration when a seller without a physical presence had more than $500,000 in taxable sales into New York in the previous four sales tax quarters and made more than 100 such sales. Other states use different numbers. See economic nexus explained.

Marketplaces vs. your own store

Marketplace facilitator laws in many states require large marketplaces to collect and remit sales tax on sales they facilitate. In New York, for example, a marketplace provider is responsible for collecting tax on the taxable sales of goods it facilitates, whether or not the seller must register. Sales through your own website are different. In New York, a registered seller still collects tax on its own direct sales. Check each state’s rules, and check what your selling platform does and does not do for you.

Steps to get set up

1. List where you sell. Look at sales by state each month.
2. Compare your sales to each state’s threshold, using the state’s revenue department website.
3. Register before you collect. Collecting tax without being registered is generally not allowed.
4. Set up tax collection in your store or platform for each state where you register.
5. File on time, even in months with no sales, when the state requires it.
6. Keep records of sales, exemption certificates, and returns. See what to scan and keep.

If you ship from New York

See New York sales tax for online sellers.

Need help sorting out your states? Book a call with FlowTex.

---

Sources

• New York State Tax Department: Do I need to register for sales tax?
• New York State Tax Department: Marketplace providers and sellers
• New York State Tax Department: Nexus

This article is general information, not tax or legal advice. Sales tax rules vary by state and change often. Check each state’s current rules.