How To Charge Sales Tax: Guide for US Businesses (2026)

If you sell in the US, few things create more confusion—or urgency—than figuring out how to charge sales tax, especially when you sell across state lines. Each state has its own rules, and economic nexus laws are always changing. What works in one state may not apply in another.

Think of sales tax as a contribution toward a state’s trust fund, used to finance services like schools, roads, and public safety. When a customer pays sales tax, you’re holding those funds temporarily before remitting them to the proper tax authority. That’s why compliance matters. Miscalculations, late filings, or missed payments can lead to penalties, audits, and strained customer trust.

The good news? Staying compliant doesn’t have to be overwhelming.

With Shopify Tax, you can see where you have sales tax obligations, apply accurate product- and location-specific rates, and monitor your liability in real time. You can also automatically file and remit what you owe to the relevant authorities, so you’re not guessing at deadlines or totals.

Read on to learn how sales tax works for small businesses, including when you need to charge sales tax for your ecommerce store.

What is sales tax?

Sales tax is a consumption tax paid to the government on the purchase price of goods and services. It’s typically paid by the end customer at the point of sale and collected by the seller, who remits it to the government regularly.

Shopify has a helpful sales tax reference page for learning the sales tax rates, collection rules, and nexus conditions for each state. 

Washington, DC, and 45 states collect sales and use tax at the state level. In addition to state-level tax, many local jurisdictions, such as cities, counties, and special districts, also impose local sales taxes.

Five states do not collect state-level sales tax: 

• Alaska
• Delaware
• Montana
• New Hampshire
• Oregon

However, it’s worth noting that some local jurisdictions in Alaska do levy local sales taxes.

When to charge sales tax

You’re only required to collect sales tax if you meet the criteria for establishing a significant business presence in the state. This conditional obligation is referred to as the sales tax nexus.

Most products and services are subject to sales tax, but some are exempt from it or subject to a different rate, depending on the state. 

If you’re required to collect sales taxes, you’re also obligated to keep accurate sales tax records, including how much you’ve collected, and to file your sales tax return with state authorities.

To determine where your business has nexus and whether sales tax applies, follow the guidance below.

Sales tax obligations for ecommerce and online sellers

In the US, online sellers are obligated to collect sales tax if they have a nexus in a particular state. If the state (or states) where you sell determines that you meet the requirements, you must collect sales tax on eligible online orders. You can either incorporate sales tax into your product pricing or add it at checkout. 

Both approaches have their pros and cons. Extra costs at checkout are the biggest reason for online cart abandonment. Including sales tax in your product prices prevents customer sticker shock at checkout, but makes your products more expensive. This can be an issue if you’re mainly competing on price.

Business structure considerations (LLCs and corporations)

Your business structure can impact 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 businesses to register for a sales tax permit under their legal entity name, and you may need to file taxes separately for each entity if you operate in multiple states.

You’ll also want to consider liability. Sales tax errors, like failing to collect or remit, can lead to fines. As a corporation or LLC, you may have some legal protection, but you’re still responsible for keeping your tax records clean and up to date.

Before you register, it’s smart to consult a tax professional to make sure 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 might look different. While most states tax tangible goods, the taxation rules for services are less consistent and often more complex.

Your obligation to collect sales tax—or not—depends on what you offer and where your customers are located. Some states tax certain types of services, while others don’t tax any.

Service categories

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

• Professional services (like legal, accounting, or consulting). These are typically exempt from sales tax in most states.
• Personal services (like salon or cleaning services). These may be taxable services, depending on the state.
• Digital services (like streaming or software subscriptions). These are increasingly taxed, especially as digital commerce grows.
• Property services (like repairs and installations). Often taxed, particularly when tied to a physical product.

State-by-state service taxation

There’s no single federal standard for taxing services, which means 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 such as information processing and certain software-related services are subject to sales tax.

Because rules vary widely, always confirm the details with your state’s Department of Revenue (sometimes called the Department of Taxation or Comptroller’s Office). That’s the official source for current rates, exemptions, and definitions.

You can also use a sales tax automation tool like Shopify Tax to 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

Follow this step-by-step guide to figure out when to charge sales tax and how to do it properly:

1. Determine where you have nexus

Nexus is established when you meet the requirements for a business presence in a state. Before 2018, this meant a physical presence, such as having a warehouse.

With the precedent set in South Dakota v. Wayfair, where the Supreme Court ruled in favor of the state’s entitlement to sales tax from the out-of-state seller, many states have 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. All sellers who have generated enough sales to qualify in a given state must pay state sales taxes in all applicable situations.

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
• Temporary physical business in a state, such as a trade show or craft fair

Economic nexus

If you meet certain economic nexus thresholds in a state, you must register for sales tax—even if you don’t have a physical presence there.

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. Texas does not use a transaction threshold.

If you’re unsure whether you’ve created a physical or economic nexus in a state, check with that state’s Department of Revenue. In addition, you can use a sales tax tool like Shopify Tax, which tracks nexus thresholds and alerts you when you may need to start collecting tax.

Tax sourcing rules

States typically tax based on destination sourcing (the state where the customer receives the order), not origin sourcing (where the seller processes the order), but not always. 

Here’s the difference between origin and destination tax sourcing: 

Origin-sourced sales are taxed according to your location as the seller. Origin sourcing may apply when property is shipped wholly within a single state. For example, property withdrawn from a Texas warehouse and shipped to a Texas recipient may be taxed at the state rate based on the warehouse location.

Destination-sourced sales are taxed according to where the buyer takes possession of the item sold. For example, property shipped from outside of Texas into Texas may be taxed at the rate where the recipient of the goods is located.

Most states use destination sourcing, but some states and districts apply mixed sourcing. Always check the tax regulations in the states where you do business. 

2. Ensure your products are taxable

While most tangible personal property (like the physical goods you sell) is subject to sales tax, some items may be exempt or taxed at a different rate depending on the state.

Nontaxable property can include some or all of the following:

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

Whether these items are taxable depends on state tax laws. For example, certain clothing items are exempt from sales tax in states like Minnesota and New York, but taxed in many others.

Services and digital products can be especially complex. Some states don’t tax services, while others tax specific categories like data processing, telecommunications, or installation. 

Digital goods—such as downloads, streaming content, or software-as-a-service (SaaS)—may also be taxed differently depending on the state and how the product is delivered.

Shopify Tax helps simplify this by suggesting tax categories for each product you sell. Once approved, the correct product- and location-specific tax rates are applied automatically and kept 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 that your product is taxable, the next step is calculating the correct sales tax rate for the order.

To calculate sales tax, 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 total tax rate by the order subtotal for taxable products.

Example calculation: 

• Order subtotal: $100
• Combined sales tax rate: 5%

Sales tax calculation:

$100 x 0.05 = $5 in sales tax

Total order price: $105

Because tax rates vary widely across thousands of jurisdictions in the US, many merchants use automation tools to avoid manual calculations. Shopify Tax automatically applies the correct product- and location-specific rates at checkout so you collect the right amount every time.

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 allows them to purchase items tax-free because they’re planning to resell those goods to their own customers. 

Resale certificates typically include the buyer’s sales tax registration number, sometimes called a sales tax permit, seller’s permit, or sales tax license. This number confirms the buyer is registered to collect and remit sales tax.

As the seller, it’s your job to collect and store these certificates as part of your tax records.

Keep in mind:

• Resale certificates are issued at the state level, so you’ll need to ensure 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, it’s worth reviewing your buyers’ exemption status to be sure 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 collecting sales tax from customers. 

To register, visit your state’s Department of Revenue website and complete the application online. Most states also provide phone support if you need help with the process.

Sales tax permits are free in many states, while others charge a small fee, typically between $10 and $100. Searching for “apply for a sales tax permit” plus the state name will usually take you to the correct registration page.

Once registered, the state will tell you how often you must file sales tax returns. Filing schedules are usually monthly, quarterly, or annually, with many annual returns due in January.

Don’t skip this step, as it’s generally unlawful to collect sales tax without a permit. Here’s a sample sales tax permit application from the state of Florida to give you a sense of what the process looks like.

6. Set up sales tax collection in Shopify

Once you’ve registered in the states where you have a sales tax nexus, it’s time to enable tax collection for your online store and other sales channels. 

If you use Shopify, you can get started by going to Settings > Taxes and duties > United States. From there, choose your preferred tax service: Shopify Tax or Manual Tax. When you choose Shopify Tax, you’ll automatically collect sales tax at checkout using hyper-accurate product- and location-specific rates. 

“We no longer need to manually update sales tax information, saving us countless hours and reducing the risk of errors,” says Ailee Fei, who uses Shopify Tax for her business, Daily Charme. “It’s been a game-changer for our small business.”

Merchants choosing Manual Tax will need to take additional steps to configure their tax settings correctly. A complete overview of your options is available in the Shopify Help Center.

Once you’ve determined your preferred tax service, select the state where you’d like to activate tax collection and select Collecting taxes > Collect sales tax. Tax is now activated for that state and will be automatically collected from buyers in that state.

If you sell on multiple channels, you must enable them all to collect sales tax from buyers in states where they have a sales tax nexus. Again, this is fairly easy if you only have a sales tax nexus in one state. If you have a sales tax nexus in multiple states, check with every platform you sell on to make sure you’re collecting tax from the correct buyers.

7. Prepare your sales tax reports

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

The level of accounting detail required varies by state, but most states require reports that 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 in destination-based states where local tax rates apply.

If you file with Shopify Tax, your sales tax returns can be generated automatically according to each jurisdiction’s reporting requirements. Shopify also provides a sales tax report that shows net sales and taxable sales, broken down by state, county, and local jurisdictions, along with the correct reporting codes. 

You can filter and customize these reports to match the filing requirements for each state.

8. File your sales tax returns

Once you’ve collected sales tax from customers, the next step is reporting and remitting it to the states where you have sales tax nexus.

Each state’s Department of Revenue sets its own filing rules and deadlines. After you register for a sales tax permit, the state will assign 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 over time if your sales increase or decrease, so it’s important to monitor any notices from the state.

If you’re preparing your returns yourself, check each state’s filing instructions and mark your sales tax deadlines on your calendar to avoid late fees or penalties.

Zero return

Even if you didn’t collect any sales tax during a filing period, many states still require you to submit a zero return.

A zero return tells the state you’re still operating but had no taxable sales during that period. Failing to file a zero return can still trigger penalties or compliance notices, even if no tax is owed.

Filing on time can also save you money. Some states offer a sales tax discount for merchants who file and pay on time, allowing you to keep a small percentage of the tax collected as compensation for handling the reporting.

If you use Shopify Tax automated filing, Shopify can submit returns on your behalf and track filing deadlines across states. It also ensures that any applicable on-time filing discounts are included in your tax return so you receive the savings automatically.

Understanding sales tax rates by state

Sales tax rates in the US vary widely depending on where your customer is located. Each state sets its own base sales tax rate, and many also allow local governments, such as counties or cities, to add additional taxes on top.

Overview of state sales tax rates

The table below shows the state-level sales tax rates as of 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.

Note: The final sales tax rate often includes state, county, city, and special district taxes, so the amount charged at checkout may be higher than the state rate base listed here.

Variations in local sales taxes

You’ll also need to consider “local options” that allow certain cities and counties to add an additional tax rate onto the state sales tax. 

In Louisiana, for example, the state sales tax rate is 4.45%. The Orleans Parish charges an additional 5% in local taxes, making the total sales tax rate 9.45% if you have a nexus in the district. The Orleans Parish keeps the extra percentage, while the state sales tax is passed on to Louisiana state. 

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 the transaction takes place, certain products, buyers, or transactions may qualify for exemptions or special tax treatment. 

Understanding these exceptions helps ensure you charge the correct tax rate and stay compliant.

Common exemptions for nonprofits and charities

While specific rules vary by state, some online sellers are exempt from sales tax if they sell 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

The majority of products are taxed at the default sales tax rate, but online retailers selling the following products tend to be exempt from charging sales tax on those items:

• Non-prepared food
• Medical equipment and prescription medications
• Educational materials (e.g., college textbooks)

Shipping is less straightforward. In most states, shipping charges are not taxable if they’re separately stated on the invoice and not marked up. However, some states consider shipping charges part of the sale price and, therefore, taxable.

State-specific exemptions

Each state maintains a list of sales tax exemptions, which means an item could be taxable in one state and completely tax-free in another.

Common product-based exemptions

Many states exempt certain categories of goods, especially those considered essential. Examples include:

• Grocery stores. Often tax-exempt or taxed at a reduced rate (e.g., California and Texas exempt most unprepared food).
• Clothing. Some states, like Pennsylvania and New Jersey, exempt most clothing items, while others tax them fully or partially.
• Prescription medicine and medical devices. Usually exempt nationwide, though some over-the-counter items may be taxed.
• Digital goods. Tax rules vary widely. For example, ebooks may be taxed in one state but exempt in another.

Buyer-based exemptions

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

If you don’t know whether your products are taxable in a specific state, Shopify Tax can help you determine taxability by product category and location, so you charge the right rate every time.

How to apply for sales tax exemptions

If you’re eligible, you can apply for a sales tax exemption certification from the US Department of State online portal. 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 tricky to get right, especially when you’re selling across state lines or scaling quickly. Even experienced merchants run into challenges with sales tax. Mistakes can lead to penalties, interest charges, back taxes, or customer disputes.

This is especially common for newer businesses. Navigating government regulations and taxes is a common first-year challenge, particularly for businesses earning less $100,000 in revenue.** 

Here are some of the most common sales tax compliance 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 which states you might have economic or physical nexus in, 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 your sales tax filing deadline or forgetting to submit a return. When you register for a sales tax permit, states assign a filing frequency—usually monthly, quarterly, or annually—based on your expected sales volume. If you miss a deadline, you may face penalties, interest charges, or compliance notices, even if no tax is owed.

Fix: Keep track of filing schedules for every state where you’re registered. Many merchants set calendar reminders or use automation tools. Solutions like Shopify Tax automated filing help track deadlines and submit 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 based on 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 is applied for each customer’s location.

There are a few exceptions to this. Some origin-based states require businesses to charge tax based on the seller’s location for in-state shipments. In those cases, the tax rate is determined by where your business is located rather than where the buyer receives the order.

Because sourcing rules vary by state, using an automated tool like Shopify Tax helps ensure the correct location-based rates are applied at checkout.

7. Ignoring local sales tax layers

Mistake: Accounting only for the state sales tax rate and overlooking additional local taxes. In many states, the total sales tax rate includes state, county, city, and special district taxes, which can significantly increase the final rate customers pay.

Fix: Use tax software that calculates the combined sales tax 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 so you collect the right amount.

How to keep track of sales tax collected

Suppose you’re selling on Amazon, eBay, Etsy, or another marketplace platform. These companies are now obligated to collect and remit taxes on behalf of their sellers in states with marketplace facilitator laws. You should confirm the marketplace is collecting and remitting tax on your sales made through their platform.

Sat Gurumukh Khalsa, owner at Sukhmani Designs, uses Shopify to make it easy to track sales tax 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 can get notified when your tax returns are ready and automate submissions to avoid late penalties.

What happens if you don’t collect sales tax?

Skipping out on sales tax can have serious consequences for 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 typically fall into three categories:

Financial penalties

If you fail to collect or remit sales tax, states may require you to pay:

• The full amount of unpaid sales tax out-of-pocket
• Interest charges that accumulate over time
• Late filing or late payment penalties
• Audit-related penalties if the issue is discovered during a tax audit

Because sales tax is considered a trust fund tax—money you collect on behalf of the state—penalties can add up quickly.

Business consequences

States may also take administrative actions against your business, such as:

• Suspending or revoking your sales tax permit (seller’s permit or sales tax license)
• Flagging your business for audits or increased regulatory scrutiny
• Restricting your ability to legally collect sales tax in the future

These issues can disrupt operations and create compliance challenges as your business grows.

Extreme cases

In severe or repeated cases of noncompliance, states may take stronger enforcement actions, including:

• Placing liens on business or personal assets
• Seizing funds from bank accounts
• Pursuing civil fines or criminal charges for tax fraud or intentional tax evasion

Staying compliant from the start is far easier and less expensive than fixing problems later. 

Is sales tax complicated?

Yes. Are you alone? No.

Once you’ve run through these steps, you should have a basic handle on how to charge sales tax. Still feel overwhelmed? That’s why many business owners consult a tax professional to ensure they’re compliant with sales tax laws.

If your business is powered by Shopify, consider the benefits of using Shopify Tax. Built to help business owners manage their tax liability in the United States, Shopify Tax automates a lot of sales tax processes for you, and provides guidance on how to register and remit sales taxes with the relevant authorities.

**Disclaimer: Based on a 2025 survey of 500 Shopify merchants conducted in English across Australia, Canada, the United Kingdom, Ireland, New Zealand, and the United States. Respondents were established merchants with two or more years on the platform. Results reflect the experiences of this specific sample and may not be representative of all merchants.