How To Charge Sales Tax for Your US Business (2026)

Charging sales tax means collecting the right amount from a customer at checkout and sending it to the state that’s owed it. In the US, three factors determine what you owe: where your business has nexus, whether your product is taxable, and where the order ships. 

Ecommerce accounted for 17.1% of total US retail sales in the second quarter of 2026, up from 16.3% a year earlier. Every sale triggers a sales tax obligation determined by the seller’s nexus, the product, and where it shipped. This guide covers what sales tax is, when you’re required to collect it, how to calculate and charge it correctly, and what to do once you’ve collected it.

What is sales tax?

Sales tax is a consumption tax charged on the sale of goods and services. The end customer pays it at checkout, and the seller collects it and remits it to the state on a regular schedule.

Use tax is a tax the buyer owes directly to the state if sales tax wasn’t collected at the time of purchase. It’s the counterpart to sales tax, and the two work together to make sure each purchase is properly taxed.

Washington, DC, and 45 states collect sales and use tax at the state level. Many local jurisdictions, including cities, counties, and special districts, add their own sales taxes on top.

Five states don’t collect a state-level sales tax:

• Alaska
• Delaware
• Montana
• New Hampshire
• Oregon

Some local jurisdictions in Alaska still levy their own local sales taxes, even though the state itself doesn’t.

When to charge sales tax

You’re required to collect sales tax only if your business meets the criteria for a significant presence in a state. That conditional obligation is called sales tax nexus, and you can establish it either physically (via an office, warehouse, or employee) or economically (by exceeding a state’s sales or transaction threshold).

Most products and services are subject to sales tax, but some are exempt or taxed at a different rate, depending on the state. If you’re required to collect sales tax, you’re also responsible for keeping accurate tax records and for filing a sales tax return with the state.

The sections below explain how to determine where you have nexus and whether sales tax applies to what you sell.

Note: This article is for informational purposes only and isn’t tax or legal advice. Consult a qualified tax professional before making decisions about your sales tax obligations.

Sales tax obligations for ecommerce and online sellers

Online sellers in the US must collect sales tax once they have nexus in a particular state. If a state determines you meet its requirements, you must collect sales tax on eligible orders shipped there. 

You can either build sales tax into your product pricing or add it at checkout.

Each approach has its pros and cons: According to the Baymard Institute, 40% of US online shoppers named extra costs at checkout (like shipping, taxes, and fees) as their most common reason for abandoning a cart. Building sales tax into your product prices can reduce that sticker shock at checkout. However, it also raises your listed price, which can matter if price is your primary differentiator.

Business structure considerations (LLCs and corporations)

Your business structure can also affect how you handle sales tax. Limited liability companies (LLCs) and corporations often have different sales tax registration and reporting responsibilities than sole proprietors do.

Some states require you to register for a sales tax permit under your legal entity name. You may need to file taxes separately for each entity if you operate in multiple states. Sales tax errors, like failing to collect or remit, can trigger fines regardless of your business structure. Forming an LLC or corporation may offer some personal liability protection, but you’re still responsible for keeping accurate sales tax records.

Consult a tax professional before you register to confirm your business structure aligns with your sales tax responsibilities.

Sales tax for services

If you sell services instead of (or alongside) physical products, your sales tax obligations can look different. Most states tax tangible goods fairly consistently, but service-tax rules vary widely and can be harder to pin down.

Whether you need to collect sales tax on a service depends on what you offer and where your customer is located. Some states tax certain services, while other states don’t tax any.

Service categories

Most services fall into one of four buckets, and each is treated differently for tax purposes:

• Professional services (legal, accounting, or consulting). Exempt from sales tax in most states.
• Personal services (salon or cleaning services). May be taxable, depending on the state.
• Digital services (streaming, software subscriptions). Increasingly taxed as digital commerce grows.
• Property services (repairs, installations). Often taxed, especially when tied to a physical product.

State-by-state service taxation

There’s no federal standard for taxing services, so each state sets its own rules. What’s taxable in one state may be exempt in another.

For example:

• Texas: Many services are taxable, including telecommunications, data processing, and amusement services.
• California: Most services aren’t taxable unless they involve physical goods or fall into a specific taxable category.
• New York: Services like information processing and certain software-related services are subject to sales tax.

Because the rules vary so widely, confirm the details with your state’s Department of Revenue (sometimes called the Department of Taxation or Comptroller’s Office). A sales tax automation tool like Shopify Tax can also help determine whether the services you sell are taxable and apply the correct rates automatically.

How to charge sales tax

1. Determine where you have nexus
2. Ensure your products are taxable
3. Calculate the sales tax rate
4. Understand resale certificates and B2B exemptions
5. Register for a sales tax permit
6. Set up sales tax collection in Shopify
7. Prepare your sales tax reports
8. File your sales tax returns

Charging sales tax correctly comes down to five key steps: confirm where you have nexus, confirm your product is taxable, calculate the right rate, register for a permit in each state you owe tax, and set up automatic collection at checkout.

The formula behind the calculation itself is straightforward:

Sales tax = Selling price x Sales tax rate

For example, a $100 order taxed at a 5% combined rate collects $5 in sales tax, for a total customer charge of $105. The steps below walk through each part of that process with a few additional considerations.

Note: This article is for informational purposes only and isn’t tax or legal advice. Consult a qualified tax professional before making decisions about your sales tax obligations.

1. Determine where you have nexus

Nexus is established when your business meets the requirements for a presence in a state. Before 2018, this meant having a physical presence, like a warehouse. With the precedent set in South Dakota v. Wayfair, where the Supreme Court ruled in favor of the state’s right to collect sales tax from the out-of-state seller, many states updated their definition of nexus to include remote sellers with no physical presence. 

As a result, nexus can now exist based on either a physical or an economic presence in a state. Any seller who generates enough sales to qualify in a given state must collect and remit state sales tax there.

Physical nexus

Depending on the state, a physical nexus can be anything from:

• An office
• An employee residing in or traveling to the state
• A warehouse
• A distribution center
• A third-party affiliate
• Stored inventory
• A temporary physical business in a state, such as a trade show or craft fair

Economic nexus

If you meet a state’s economic nexus threshold, you must register for sales tax, even without a physical presence.

For example:

• Illinois: Remote sellers must register once they exceed $100,000 in sales to customers in Illinois during a 12-month period.
• Texas: Economic nexus is triggered when a business exceeds $500,000 in total revenue shipped to Texas customers in the previous 12 months.

Some states may also use transaction counts to determine nexus, for example, requiring you to pay tax once you’ve reached 200 transactions in that state. If you’re unsure whether you’ve created a physical or economic nexus in a state, check with that state’s Department of Revenue. Or use a sales tax tool like Shopify Tax, which can track nexus thresholds and alert you when you’re approaching one.

Tax sourcing rules

Most states tax sales based on destination sourcing (the state where the customer receives the order), rather than origin sourcing (where the seller processes the order), though a handful of states and districts apply mixed rules. 

Origin-sourced sales are taxed according to your location as the seller. This can apply when the product ships wholly within a single state. For example, an item shipped from a Texas warehouse to a Texas customer may be taxed at the rate based on the warehouse location.

Destination-sourced sales are taxed according to where the buyer takes possession of the item. For example, an item shipped from outside of Texas into Texas is taxed at the rate based on the recipient’s location.

Always confirm the sourcing rule for the states where you do business.

2. Ensure your products are taxable

Most tangible personal property is subject to sales tax, but some items are exempt or taxed at a different rate depending on the state. Nontaxable property can include some or all of the following:

• Services, like legal services or home renovation
• Digital products, like music downloads, video games, or software
• Food and groceries
• Prescription and non-prescription drugs

Whether an item is taxable depends on state law. For example, certain clothing items are exempt from sales tax in Minnesota and New York, but taxed in many others.

Digital products and software-as-a-service (SaaS) fall into another, less consistent category. Some states tax downloads, streaming content, and SaaS the same way they tax physical goods; others exempt them from taxes, and a few tax the product depending on how it’s delivered or accessed. If you sell digital products or software, confirm how each state manages taxation.

Shopify Tax helps simplify this by suggesting tax categories for each product you sell. Once you approve a category, it automatically applies the correct product- and location-specific tax rates and keeps them up to date.

If you sell products that may be exempt, especially services or digital products, check with your state’s Department of Revenue or consult a tax professional to confirm how they’re treated.

3. Calculate the sales tax rate

Once you know you need to collect sales tax and your product is taxable, the next step is to calculate the correct sales tax rate for the order. Follow these steps:

• Identify the customer’s location. Use the shipping address to determine the state, county, and city where the order will be delivered.
• Find the combined tax rate. Add together the applicable state, county, city, and local district taxes for that location.
• Apply the rate to the taxable amount. Multiply the combined rate by the order subtotal for taxable products.

Here’s an example calculation:

• Order subtotal: $100
• Combined sales tax rate: 5%
• $100 x 0.05 = $5 in sales tax
• Total order price: $105

Tax rates vary across thousands of jurisdictions in the US, so many store owners use automation tools instead of calculating rates manually. Shopify Tax handles this for you, automatically applying the correct rates at checkout.

4. Understand resale certificates and B2B exemptions

Not every transaction is subject to sales tax, especially when you’re selling to other businesses. If you sell goods to a reseller or wholesaler, they may give you a resale certificate. This document lets them purchase items tax-free because they plan to resell those goods to their own customers.

Resale certificates include the buyer’s sales tax registration number, sometimes called a sales tax permit, seller’s permit, or sales tax license, which confirms the buyer is registered to collect and remit sales tax. As the seller, you’re responsible for collecting and storing these certificates as part of your tax records.

Keep in mind:

• Resale certificates are issued at the state level, so confirm the certificate is valid in the state where the sale takes place.
• If you don’t collect a resale certificate when required, you could be held liable for the sales tax.

Beyond resale, some business-to-business (B2B) sales are exempt from sales tax for other reasons, like sales to government agencies or nonprofits, or transactions involving exempt goods. If you run a wholesale business or sell to other businesses, review your buyers’ exemption status to confirm you’re compliant.

5. Register for a sales tax permit

If you have nexus in a state, you must register for a sales tax permit, sometimes called a seller’s permit or sales tax license, before you start collecting sales tax from customers there.

To register, visit your state’s Department of Revenue website and complete the application online. Sales tax permits are free in many states, while others charge a small fee, typically under $100. Searching “apply for a sales tax permit” plus the state name will usually take you to the correct registration page.

Once registered, the state tells you how often you must file returns: monthly, quarterly, or annually, with many annual returns due in January. Here’s a sample sales tax permit application from Florida to give you a sense of what the process looks like.

If you sell in many states at once, the Streamlined Sales Tax Registration System lets you register once for the 24 states that have adopted the Streamlined Sales and Use Tax Agreement, rather than filing a separate application with each state.

If your only obligation in a state is economic nexus, with no fixed place of business there, you may qualify as a “CSP-compensated seller” and use a Certified Service Provider to handle calculation and filing at no cost to you in that state, since member states pay the provider directly.

6. Set up sales tax collection in Shopify

Once you’ve registered in the states where you have nexus, enable tax collection for your online store and any other sales channels you use.

If you use Shopify, go to Settings > Taxes and duties > United States, then choose your preferred tax service: Shopify Tax or Manual Tax. 

Choosing Shopify Tax collects sales tax automatically at checkout using product- and location-specific rates. Store owners who choose Manual Tax need to take extra steps to configure their tax settings correctly. A complete overview of your options is available in the Shopify Help Center.

Store owners can also run a third-party tax app, like Avalara or Vertex, on Shopify’s tax platform instead of one of the above options.

Once you’ve picked a tax service, select the state where you’d like to activate tax collection, then choose Collecting taxes > Collect sales tax. Tax is now active for that state and is automatically collected from buyers there.

If you sell on multiple channels, enable tax collection on each one for states where you have nexus. It’s simple when you only have nexus in one state. If you have nexus in multiple states, check every platform to confirm you’re collecting tax from the right buyers.

7. Prepare your sales tax reports

If you prepare your own sales tax reports, set aside time before your filing deadline to calculate how much sales tax you’ve collected in every state where you have nexus.

The level of detail required varies by state, but most reports include:

• Total gross sales during the reporting period
• Taxable sales
• Nontaxable or exempt sales
• Sales tax collected
• Sales broken down by jurisdiction, such as state, county, city, or special tax district
• Adjustments or deductions, such as returns or exempt transactions

Many states also require sellers to report sales by location, especially destination-based states where local tax rates apply. 

If you file with Shopify Tax, your sales tax returns are generated automatically according to each jurisdiction’s reporting requirements. Shopify’s sales tax report shows net sales and taxable sales broken down by state, county, and local jurisdiction, along with the correct reporting codes. You can filter and customize these reports to match each state’s filing requirements.

8. File your sales tax returns

Once you’ve collected sales tax from customers, the next step is to report and remit it to the states where you have nexus. Each state’s Department of Revenue sets its own filing rules and deadlines. After you register for a permit, the state assigns your filing frequency.

Common filing schedules include:

• Monthly: Often required for businesses with higher sales tax volume.
• Quarterly: Common for small to mid-size businesses.
• Annually: Sometimes assigned to businesses with lower sales activity.

Your filing frequency can change as your sales rise or fall, so watch for notices from the state. If you’re preparing your own returns, check each state’s filing instructions and mark your sales tax deadlines on your calendar to avoid late fees or penalties.

Shopify Tax can file returns in every US state that collects sales tax, on monthly, quarterly, semi-annual, and annual schedules.

Zero return

A zero return is a sales tax filing you submit even when you collected no tax during the reporting period. It tells the state you’re still operating there, but had no taxable sales. Many states, like Alabama, Colorado, and Louisiana, require one. Skipping a zero return can trigger penalties or compliance notices, even though no tax is owed.

Filing on time can also save you money. Some states offer a discount to sellers who file and pay on time, letting them keep a small percentage of the tax collected as compensation for handling the reporting. New York, for example, gives eligible sellers a vendor collection credit equal to 5% of the tax reported, capped at $200 per reporting period, but only for quarterly and annual filers.

If you use Shopify Tax automated filing, Shopify submits returns on your behalf, tracks filing deadlines across states, and applies any on-time filing discount your state offers.

Understanding sales tax rates by state

Sales tax rates in the US vary depending on where your customer is located. Each state sets its own base sales tax rate, and many also let local governments, such as counties or cities, add taxes on top. Nationwide, the population-weighted average combined state and local sales tax rate is 7.53%, and Louisiana has the highest combined rate at 10.11%.

Overview of state sales tax rates

The table below shows the state-level sales tax rates as of January 1, 2026. The final rate a customer pays is often higher, since local taxes may apply depending on the delivery location.

*Alaska has no state sales tax but many local jurisdictions impose their own.

Variations in local sales taxes

You’ll also need to account for “local options” that let certain cities and counties add their own tax rate on top of the state sales tax rate. 

In Louisiana, for example, the state sales tax rate is 5%. Orleans Parish charges an additional 5% in local taxes, bringing the combined rate to 10% for a business with nexus in the area. Orleans Parish keeps its share and remits the state portion to Louisiana.

Exemptions and exceptions to sales tax

Not every sale is subject to sales tax. Depending on what you sell, who you sell to, and where you sell, certain products, buyers, or transactions may qualify for an exemption or special tax treatment. Understanding these exceptions helps you stay compliant.

Common exemptions for nonprofits and charities

Rules vary by state, but some online sellers are exempt from sales tax when selling to nonprofits and charities. 

These exemptions can include:

• Donations to nonprofits
• Purchases made for charitable purposes
• Products bought for official use by government or educational institutions

Exemptions for certain types of products

Most products are taxed at the default sales tax rate, but retailers selling the following tend to be exempt in many states:

• Non-prepared food
• Medical equipment and prescription medications
• Educational materials like college textbooks

Shipping is less straightforward. In most states, shipping charges aren’t taxable if they’re separately stated on the invoice and not marked up. However, some states treat shipping as part of the sale price and tax it accordingly.

State-specific exemptions

Each state maintains its own list of sales tax exemptions, so an item can be taxable in one state and tax-free in another.

Common product-based exemptions

Many states exempt categories of goods considered essential. Examples include:

• Groceries. Often tax-exempt or taxed at a reduced rate. California and Texas, for example, exempt most unprepared food.
• Clothing. States like Pennsylvania and New Jersey exempt most clothing, while others tax it fully or partially.
• Prescription medicine and medical devices. Exempt in nearly every state, though some over-the-counter items may be taxed.
• Digital goods. Rules vary. For example, one state may tax an ebook while another exempts it.

Buyer-based exemptions

Certain types of buyers, like nonprofits, government entities, or resellers, may also be exempt from sales tax. In these cases, collect the correct exemption documentation, such as a resale certificate or tax exemption form, and keep it on file.

If you’re unsure whether your products are taxable in a specific state, Shopify Tax can help you determine taxability by product category and location.

How to apply for sales tax exemptions

To apply for a sales tax exemption or resale certification, go through the relevant state’s Department of Revenue, which issues the certificate for your qualifying purchases. You’ll need to provide this certificate to remove the sales tax on exempt purchases when buying items from a business that charges sales tax. 

Common sales tax compliance mistakes

Sales tax can be complicated, especially when you’re selling across state lines or scaling quickly. Even experienced store owners run into trouble, and mistakes can lead to penalties, interest charges, back taxes, or customer disputes.

Here are some common mistakes and how to avoid them:

1. Not registering in states where you have nexus

Mistake: Overlooking states where you’re required to collect sales tax.

Fix: Use tools like Shopify Tax to monitor where you might have economic or physical nexus, and register as soon as you cross the threshold.

2. Charging sales tax on non-taxable items

Mistake: Collecting tax on products that are exempt in certain states, like groceries or clothing.

Fix: Review state-specific tax rules and categorize your products accurately in Shopify to apply the correct rate.

3. Failing to collect resale or exemption certificates

Mistake: Not requesting documentation from wholesale or tax-exempt buyers.

Fix: Always collect and store valid resale or exemption certificates before making tax-free sales.

4. Using outdated tax rates

Mistake: Manually entering rates and forgetting to update them when laws change.

Fix: Automate your tax calculations with a tool that pulls current, location-specific rates. Shopify Tax does this for you.

5. Missing filing deadlines

Mistake: Missing a sales tax filing deadline or forgetting to submit a return. States assign a filing frequency (e.g., monthly, quarterly, or annually) when you register for a permit. Missing a deadline can mean penalties, interest, or a compliance notice, even if no tax is owed.

Fix: Track filing schedules for every state where you’re registered. Many store owners set calendar reminders or rely on automation. Shopify Tax automates filing, tracks deadlines, and submits returns on time across jurisdictions.

6. Applying tax based on your location instead of the buyer’s

Mistake: Charging your local tax rate instead of the correct destination-based rate. In most states, sales tax is calculated from the buyer’s shipping address, which determines the combined state, county, city, and district taxes that apply.

Fix: Use destination-based tax settings so the correct rate applies for each customer’s location. A handful of origin-based states are the exception, requiring tax based on the seller’s location for in-state shipments.

7. Ignoring local sales tax layers

Mistake: Accounting only for the state rate and missing local taxes added to it. In many states, the total sales tax rate includes state, county, city, and special district taxes, which can significantly increase the final rate a customer pays.

Fix: Use tax software that calculates the combined rate automatically based on the buyer’s ZIP code and the product being sold. Tools like Shopify Tax apply the correct state, county, city, and district taxes at checkout.

How to keep track of sales tax collected

If you sell on Amazon, eBay, Etsy, or another marketplace, those companies are obligated to collect and remit taxes on your behalf in states with marketplace facilitator laws. Confirm the marketplace is collecting and remitting tax on the sales you make through their platform, since the requirement to hold your own permit and file your own returns for those sales still depends on the state.

Sat Gurumukh Khalsa, owner at Sukhmani Designs, says Shopify makes it easy to track the sales tax he’s collected. “Shopify automatically understands which location you are in and charges the appropriate tax. Then it’s just easily reported for state tax filing,” he says.

With Shopify Tax, there’s no need to complete manual state tax returns, either. Shopify Tax supports automated filing enrollment, so you get notified when your tax returns are ready and can automate submissions to avoid late penalties.

What happens if you don’t collect sales tax?

Skipping sales tax collection can seriously affect your business. Even if you didn’t collect it from customers, you’re still responsible for paying the uncollected tax to the state.

The consequences can include:

• Financial penalties. You may be required to pay the full amount of unpaid sales tax out of pocket, plus interest charges, late filing or late payment penalties, or audit-related penalties.
• Business consequences. States may take administrative actions against your business, like suspending or revoking your sales tax permit or flagging you for audits or increased regulatory scrutiny.
• Extreme cases. In severe or repeated cases, states may take stronger enforcement actions, such as putting liens on business or personal assets, seizing funds from bank accounts, charging civil fines, or even filing criminal charges for tax fraud or intentional evasion.

Staying compliant from the start is far easier and less costly than fixing problems after the fact. 

Note: This article is for informational purposes only and isn’t tax or legal advice. Consult a qualified tax professional before making decisions about your sales tax obligations.