Insights
Sales Tax in Other States
When online stores have to collect sales tax in other states—and the thresholds that trigger it.
If you operate an online storefront, there is a common tax myth that can put your business at serious financial risk: “We only need to worry about sales tax where our business is located.” That logic made sense a decade ago. Today it is wrong—and following it can lead to heavy penalties, back taxes, and painful audits when you sell into other states.
So when do online stores have to collect sales tax in other states? For out-of-state orders, the answer depends on economic nexus: where your customers receive shipments and whether you have crossed sales or transaction thresholds in that state—not simply where your warehouse is located.
Economic nexus
Tax follows the customer, not the warehouse
In 2018, a landmark Supreme Court case (South Dakota v. Wayfair, Inc.) rewrote the rules for online retail. Before that ruling, a state generally could not force you to collect sales tax unless you had a physical presence there—a storefront, warehouse, or employee. Today, states are allowed to tax you based on your economic presence inside their borders.
If a customer in Florida buys your product, Florida laws apply. If a customer in Ohio buys it, Ohio laws apply. The sales tax rate is determined by where the buyer receives the package—not where you shipped it from.
Your warehouse state only taxes orders delivered there. Ship from Texas to Florida—you follow Florida rules once you have Florida nexus, not Texas tax on that sale.
No nexus, no collection on deliveries to that state. Remote sellers hit the economic thresholds below; physical presence is different.
Physical presence skips those thresholds. A shop, warehouse (storefront not required), office, or stored inventory—including 3PL or FBA—creates nexus there from day one. Collect on in-state deliveries from your first sale. It does not spread: a California warehouse obligates you for California deliveries only, not Texas.
Every state where you have inventory or cross a threshold can require its own registration, collection, and filing.
Thresholds
What triggers the obligation
No tax on your first sale in a new state unless you have physical nexus there (warehouse, inventory). Otherwise remote sellers get a buffer—nexus triggers on sales volume, order count, or both.
Chart below = economic nexus only. Have a shop or warehouse there? First row applies—no buffer.
| Applies to | Nexus triggers when you hit… |
|---|---|
| Shop, warehouse, office, or inventory in state | Immediate nexus — collect on in-state deliveries from sale one. Warehouse-only counts. |
| ~40 states + DC | $100,000 in gross sales or 200 separate transactions — either one, not both |
| Connecticut | $100,000 in gross sales and 200 separate transactions — both required |
| Alabama, Mississippi | $250,000 in gross sales |
| California, Texas | $500,000 in gross sales |
| New York | $500,000 in gross sales and 100 separate transactions — both required |
| Delaware, Montana, New Hampshire, Oregon | No statewide sales tax — no state-level nexus threshold |
| Alaska | No state sales tax; local jurisdictions may require collection (generally at $100,000 in local sales) |
The 200-transaction rule is easy to miss. In the ~40 “or” states, order count is a separate tripwire from revenue. Two hundred orders at $10 each is only $2,000 in sales—nowhere near $100,000—but it is still 200 separate transactions, and that alone can trigger nexus. Stores with low average order values hit this before they ever approach the dollar threshold.
Five states set a higher revenue bar than $100,000 (Alabama, Mississippi, California, Texas, and New York). New York is the only one of those five that also counts transactions—and there the test is stricter: you need both $500,000 in sales and 100 orders, not either one.
Once you cross the applicable threshold for a state, you must register for a sales tax permit, calculate and collect their local rates at checkout, and remit tax to their revenue department. Automated tax software tracks sales and transaction counts by state so you are not piecing this together by hand.
Timing
The mid-year trap
A common mistake is thinking you can wait until tax season at the end of the year to check your numbers. States measure thresholds using the current or previous calendar year—and in some states, a rolling 12-month period.
If you did $110,000 in sales to Georgia last year, you must collect tax on every order from Georgia this year. If you start the year below the threshold but a strong summer pushes your Georgia total past $100,000 on August 15th, you trigger nexus immediately mid-year. You typically have only 30 to 60 days to register and turn tax collection on at checkout.
Compliance risks
Why guessing or flat-rating fails
Trying to charge one flat tax rate everywhere—or ignoring out-of-state rules—creates two serious liabilities:
Over-charging customers. If you apply a high home-state rate to a buyer in a state with a lower rate, you are over-collecting. That can drive away customers and create consumer-protection problems.
Audit liability. If you hit nexus in a state and fail to collect tax, that state does not forget. During an audit, they will demand back taxes plus interest and penalties—and because you did not collect from buyers at checkout, that money comes directly out of your profits.
What to do
How to protect your business
Tracking dozens of state boundaries, local county districts, and shifting economic thresholds manually is not realistic. Modern online stores rely on automated tax compliance—software integrated directly into checkout that monitors your sales volumes in real time, alerts you when you approach a state’s threshold, and calculates the exact compliant rate for each customer’s address.
When we build your store, we can wire in this kind of integration so checkout stays accurate as your sales spread across the country. You focus on products and customers; the system handles the complexity behind the scenes.