Do You Have to Collect Sales Tax in Other States?

If you sell online from one state to customers in many others, sales tax is one of the first legal questions that matters. For decades, the answer depended on whether you had a physical presence, like a store, warehouse, or employees, in the customer's state. That changed in 2018, and the change is the reason a small online shop now needs to watch where its sales go.

1. What changed in 2018

In South Dakota v. Wayfair, the U.S. Supreme Court reviewed a South Dakota law that required out-of-state sellers to collect and remit sales tax if, each year, they delivered more than $100,000 of goods or services into the state or engaged in 200 or more separate transactions for delivery into the state. The Court overruled the earlier physical presence rule from Quill, holding that a business need not have a physical presence in a state for the state to require it to collect tax, as long as there is a substantial connection, called nexus, with the state.

After the decision, states adopted their own "economic nexus" thresholds. A seller with no building or staff in a state can still be required to register and collect tax there once its sales into that state cross the line.

2. Thresholds vary by state: the California example

Each state writes its own rules, so you have to check state by state. California is a useful example because its threshold is high and clearly stated.

The California Department of Tax and Fee Administration explains that, under Assembly Bill 147, retailers located outside California, including sellers outside the United States, must register and collect California use tax if their total combined sales of tangible personal property into California, by the retailer and all related persons, exceeded $500,000 during the preceding or current calendar year. The requirement applies to sales on and after April 1, 2019 and is not retroactive.

The CDTFA also notes that retailers with a physical presence in California are still generally required to register, regardless of the dollar threshold.

3. Checking your own exposure

Here is a simple process to see where you stand:

1. Export sales by destination state. Most shop platforms can report revenue and order count by shipping address.
2. Total both dollars and transactions for the current calendar year and the prior one, since some states look at either year.
3. Compare each state against its own rule. Look up each state's threshold on its tax agency's website. Some use a dollar amount only; some, like the South Dakota law reviewed in Wayfair, also count transactions.
4. Note what counts. States differ on whether the threshold uses total sales or only taxable sales, and whether sales made through marketplaces are included.

A quick illustration: a shop with $80,000 in total yearly sales, $30,000 of it shipped to California, is well under California's $500,000 threshold. The same shop might cross a lower threshold elsewhere if many small orders go to one state, which is why transaction counts matter where they apply.

4. If you cross a threshold

Crossing a state's threshold generally means registering with that state's tax agency, collecting the correct tax on taxable sales there, filing returns on the state's schedule, and keeping records. Rates can vary within a state; California, for example, requires collection of district taxes for deliveries into districts that impose them once a retailer exceeds the threshold.

Because registration, rates, product taxability, and marketplace rules all differ, many small sellers use the state agency's guidance pages and, when they begin to cross thresholds in several states, talk to a tax professional.

5. Why it pays to monitor early

Several states, like California, look at the current calendar year as well as the prior one, so a strong season can put you over a threshold partway through the year. Watching your numbers by state each quarter lets you register when you cross a threshold instead of discovering it a year later.

6. Key takeaways

• South Dakota v. Wayfair (2018) let states require remote sellers to collect sales tax without a physical presence.
• The South Dakota law in the case used $100,000 in sales or 200 transactions into the state per year.
• Each state sets its own threshold; California's is more than $500,000 in sales into the state in the current or preceding calendar year.
• Track revenue and order counts by destination state for the current and prior year.
• Crossing a threshold generally means registering, collecting, filing, and keeping records in that state.