Sales tax for non-resident sellers: nexus, marketplaces, and when you actually register

Sales tax isn't income tax. The buyer pays it, the seller collects it at the rate of the buyer's state and often their city, and the seller pays it over to that state. Forty-five states and Washington, DC have a sales tax, and five states don't. A foreign-owned company selling to US customers needs to know when it has to collect, and since 2018 that has depended as much on how much it sells as on where it is.

A state can require you to collect its sales tax once you have nexus with it. There are two kinds:

• Physical nexus: an office, employees or inventory in the state. Stock in a fulfilment warehouse in Texas creates nexus in Texas from the day it arrives, whatever your sales there.
• Economic nexus: sales into the state above a threshold, even with no presence there. Since the Supreme Court's 2018 decision in South Dakota v. Wayfair, every state with a sales tax has one. Most set it at $100,000 of sales into the state a year. California and Texas use $500,000, New York needs both $500,000 and more than 100 sales, and a few states still count transactions as well.

If you're below every threshold and hold no stock in any state, you don't collect or register anywhere. That's where most foreign-owned stores are in their first year, and it's worth knowing before you pay for a sales tax subscription.

Every state with a sales tax has a marketplace facilitator law, which makes Amazon, Etsy, eBay, Walmart and similar marketplaces collect and pay the sales tax on their sellers' sales. If you sell only through marketplaces, you don't collect or file anything for those sales. In many states, marketplace sales still count toward your economic nexus threshold, which matters if you also sell through your own site.

Sales through Shopify, WooCommerce or a Stripe checkout aren't covered by marketplace laws. Once you pass a state's threshold, you register with that state, collect tax at checkout and file returns on the state's schedule. Shopify, Stripe Tax, TaxJar and Avalara work out the right rate, but none of them registers you.

Whether software, downloads and digital services are taxed depends on the state. New York, Texas, Pennsylvania and Washington tax them, among others, while California and Florida generally don't tax software delivered electronically. The thresholds and registration work the same way; what differs is whether your product is taxed at all, so check each state's rule for what you sell.

A retailer buying stock to resell doesn't pay sales tax on it, because the tax is collected from the final customer. To buy tax-free from a US wholesaler, you give them a resale certificate, which you can issue only once you're registered for sales tax in a state. Some sellers register for that reason alone, before they reach any threshold.

New Hampshire, Oregon, Montana, Delaware and Alaska have no state sales tax, though Alaska lets local governments charge one. Forming your company in Delaware doesn't exempt your sales, because sales tax follows the buyer's state, not yours. A Wyoming LLC selling to a buyer in Wyoming collects Wyoming's tax if it has nexus there, and one selling to a buyer in Oregon collects nothing.