When Do You Charge Sales Tax on Items Shipped Out of State?

If you're selling products across state lines, the sales tax question is a maze of different rules, rates, and requirements that can make your head spin. 

And let's be honest, the last thing you want is to get it wrong and have state tax authorities knocking on your door.

The good news? 

It's not as complicated as it seems once you break it down. 

The key is understanding something called "nexus" – fancy tax speak for "connection" – and knowing when it applies to your business.

So, let's cut through the noise and figure out exactly when you need to charge sales tax on those out-of-state sales, and more importantly, when you don't. 

No accountant-speak, no confusing jargon – just straight talk about what you actually need to know.

Quick History Lesson (I Promise It's Relevant)

Before 2018, online sellers had it easy. 

Thanks to an old Supreme Court decision, you only had to collect sales tax in states where you had Nexus (physical presence).

Then South Dakota got annoyed with losing tax revenue and took Wayfair (yes, that Wayfair) to court.

The result? The Supreme Court's South Dakota v. Wayfair decision in 2018 changed everything. 

Suddenly, states could require out-of-state sellers to collect sales tax based on economic activity alone – no physical presence needed. 

That's why we have all these thresholds now.

South Dakota's threshold ($100,000 or 200 transactions) became the model that many other states followed, which is why you'll see those numbers pop up a lot in the chart below.

The Two Types of Nexus You Need to Know About

Before you even think about charging sales tax to anyone, you need to figure out if you have "nexus" with their state. 

Think of nexus as a trigger – when you pull it, boom, you're on the hook for collecting sales tax in that state.

There are two main types of nexus, and yeah, you could have either one (or both) without even realizing it:

Physical Nexus: The Old-School Connection

This one's pretty straightforward. 

If you've got any kind of physical presence in a state, you've got physical nexus. 

We're talking about:

Physical presence isn't just about having a store anymore. Got a warehouse? An employee working remotely? Even a pop-up shop at a craft fair? 

Congratulations, you've probably got physical nexus in that state.

When you have physical nexus in a state, the rules are simple: you need to collect that state's sales tax on sales to customers in that state. Period. 

No minimum thresholds, no complicated calculations – you're in.

Economic Nexus: The New Kid on the Block

This is where things get interesting (and by interesting, I mean potentially complicated). 

Economic nexus is all about how much business you're doing in a state, even if you never set foot there. Every state has its own thresholds, but here's the general idea:

If you're making a certain amount of sales or hitting a certain number of transactions in a state, you might have economic nexus – even if your only presence there is through the internet.

The tricky part? These thresholds vary by state. 

Some kick in at $100,000 in sales, others at different amounts. 

Some states count the number of transactions, others just look at dollar amounts. And yeah, you need to keep track of all of them.

Do I Need to Collect Sales Tax for Out-of-State Sales?

Oh hey there, person who scrolled past all the detailed explanations above! I see you. 

You just want the TL;DR version, don't you? 

Fine, here's your cheat sheet, you beautiful impatient entrepreneur.

The "Just Tell Me Already" Answer

You need to collect sales tax if either of these is true (yes, it's that simple, you could've read this two minutes ago):

1. You have actual stuff in their state
   1. An office? Collect tax
   2. A warehouse? Collect tax
   3. Bob from accounting working remotely from his beach house? Yep, collect tax
   4. A houseplant? Okay, no. But you get the idea
2. You're making bank in their state (economic nexus)
   1. Usually kicks in around $100k in sales or 200 transactions
   2. Each state has their own numbers because OF COURSE THEY DO
   3. Hit their number? Congrats! Start collecting their tax

That's literally it. Don't overcomplicate it.

For Digital Products

Digital stuff gets one extra rule: You usually charge the rate where your customer lives, not where you are. So yeah, you need their actual address.

What About International?

• U.S. sales tax? Nope.
• But: Check VAT/GST requirements in their country
• Some places have their own thresholds
• When in doubt, talk to someone who knows that country's rules

Bottom Line

Track your sales by state. When you hit a threshold or open a physical location somewhere, start collecting that state's tax. Until then? Don't worry about it.

Keep it simple: No physical presence and below their sales threshold = no need to collect their sales tax.

Thresholds for Collecting Sales Tax When Selling out of State

Let's talk numbers – specifically, the magic numbers that determine whether you need to start collecting sales tax in different states. 

Because yes, each state decided to make their own rules. (Shocking, I know.)

Understanding Economic Nexus Thresholds

Before we dive into the chart below, here's what you need to know about these thresholds:

• They usually combine some mix of revenue AND/OR transaction counts
• Some states only care about the money (revenue)
• Others want to know how many transactions you're making
• A few overachieving states want to know both
• Most states look at the previous or current calendar year
• Some states look at the previous 12 months on a rolling basis

What These Numbers Actually Mean

Think of these thresholds as your "time to adult" markers. 

Once you hit them, it's time to register with that state and start collecting sales tax. But here's the thing – you need to watch these numbers like a hawk because:

1. Going over even by a dollar triggers the requirement
2. Some states want you to look back periodically
3. Once triggered, you generally need to collect for the whole next year

Pro tip: Set your monitoring thresholds about 10% below these limits. That way, you have time to get your systems in place before you're legally required to collect.

What's Not Included in These Numbers

Before you panic about your total sales, remember that some types of transactions might not count toward these thresholds. 

In many states, the following don't count:

• Non-taxable services
• Wholesale sales
• Sales for resale
• Some exempt sales

The exact exemptions vary by state (because of course they do), so check each state's rules when you're getting close to their threshold.

What if I Sell on Amazon?

When you sell through places like Amazon, Etsy, or eBay, those platforms are considered "marketplace facilitators." 

This means they handle the sales tax collection and remittance for you.

What This Actually Means For You

When a state says they "exclude sales made through a registered marketplace facilitator," they're basically saying:

“Don't count those Amazon/Etsy/eBay sales when calculating if you've hit our threshold. We're already getting that tax money from them."

But keep in mind some states include those transactions as well (ie Washington).

Real World Example

Let's say you sell in Minnesota, which has a $100,000 threshold:

• You made $80,000 in sales on Amazon
• You made $30,000 in sales from your own website

Even though your total sales are $110,000, you only count the $30,000 from your website when checking if you hit Minnesota's threshold. 

Those Amazon sales don't count because Amazon is handling the sales tax for those transactions.

Why This Matters

1. It means you might be making more total sales than you think without triggering nexus
2. You need to track your direct sales separately from your marketplace sales
3. You're only responsible for collecting sales tax on your direct sales (through your own website or other non-marketplace channels)

Pro tip: Keep separate records for your marketplace sales and direct sales. You'll thank yourself later when you're calculating thresholds.

Ready to Stop Worrying About Sales Tax?

Look, we get it. You started your business to create awesome products, not to become a tax expert. 

While this guide helps you understand the basics, keeping track of thresholds across 50 states isn't exactly how you want to spend your weekends.

Let Us Handle the Boring Stuff

Your time is better spent growing your business, not wrestling with sales tax calculations. 

Our team of ecommerce tax specialists can:

• Monitor your state-by-state thresholds automatically
• Set up proper tax collection in each required state
• Handle all your sales tax registrations and filings
• Keep you compliant without the headache

If this guide on sales tax helped you, you'll love our comprehensive DTC Financial Framework course. 

Because let's face it – sales tax is just one piece of your financial puzzle.

Why You Need This Resource 

✔️ Transform this sales tax knowledge into a complete financial framework 

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✔️ Master your numbers, manage cashflow, and maximize profit margins 

✔️ Learn from successful DTC founders who've navigated these same challenges