Do I need to collect sales tax?

Sales tax is one of the most-mistaken areas of small business. The short version: if you sell taxable goods or services and have “nexus” in a state, you must register, collect, and remit. Everything else is detail.

Step 1: Are you selling something taxable?

The default rule:

• Goods are usually taxable. Physical products — clothing, books, furniture, software on a disc — generally require sales tax.
• Services are usually exempt. Most states do not tax services like consulting, coaching, design, accounting, or tutoring.
• Some services are taxed in some states. This is where it gets complicated. Tax preparation is taxed in some states. Software-as-a-service is taxed in some states. Repair services are taxed in some states. There is no single national answer.

If your business is mostly services, you probably don’t need to worry about sales tax — but you still may owe income tax and self-employment tax on the income.

Step 2: Do you have nexus in the state?

Nexus is the legal term for “enough connection to the state that you must register there.” Triggers include:

• Physical presence. An office, store, warehouse, or even storing inventory in a warehouse in the state.
• Employees. Anyone working for you in the state — full-time, part-time, or even contractors in some states.
• Economic nexus. Many states have thresholds: if you sell more than a certain amount (often $100,000) or a certain number of transactions (often 200) into the state in a year, you must register there too — even with no physical presence.

The economic-nexus rules came out of the 2018 South Dakota v. Wayfair Supreme Court decision. Aftermarket platforms like Etsy, Amazon, and Shopify usually handle sales tax collection for you, but you still must register and file.

Step 3: Register, collect, file.

Once you determine you have nexus:

1. Register with the state’s department of revenue (sometimes called the franchise tax board or taxation department, depending on the state). Free, online, usually takes 15 minutes.
2. Collect sales tax on every taxable sale at the rate for the buyer’s location. Most platforms (Shopify, Square, Stripe Tax, etc.) will do this for you.
3. File a sales tax return monthly, quarterly, or annually — depending on your volume. You remit the collected tax to the state.

Common mistakes:

• Assuming you’re exempt because you’re a service. Check the specific state’s rules. Some services — like advertising, software, or pest control — are taxed in some states.
• Not collecting because you don’t know the rate. If your customer is in a state where you have nexus and the product is taxable, you owe the tax whether or not you collected it. If you don’t add it at checkout, you pay it out of pocket.
• Forgetting economic nexus. A small online seller with customers in 30 states can have nexus in all 30 states. This is the biggest source of surprise tax bills for ecommerce owners.

A safe starting checklist:

• Are you selling goods? → Sales tax almost certainly applies in your home state.
• Are you selling services? → Check your state’s specific service-tax list (the department of revenue publishes it).
• Selling across state lines? → Check each state’s economic-nexus threshold.

If your situation is more than that — multi-state ecommerce, marketplace sales, or anything with a substantial tax exposure — a 30-minute call with a CPA in your state is worth the $150–$300.