Sales Tax Nexus: Do Online Sellers With a US LLC Have to Collect Sales Tax?

Forming your LLC in one state doesn't relieve you of collecting sales tax in the states where your customers are. This is a separate issue, independent of where the LLC was formed, and a common source of trouble for online sellers.

What is sales tax?

Sales tax is a retail tax imposed by states (and some localities). The buyer pays it, and the seller collects it and remits it to the state. Most states have a sales tax; a few, such as Oregon, Montana, New Hampshire and Delaware, have no state-level sales tax. Rates, taxable goods and exemptions vary by state.

What is nexus?

"Nexus" is a sufficient connection that lets a state require you to register and collect sales tax. There are two kinds:

• Physical nexus: an office, warehouse, employees or inventory in the state — including stock held in a third-party fulfillment center.
• Economic nexus: your sales or number of transactions to customers in the state pass a set threshold, even with no physical presence there.

Economic nexus and thresholds

After the US Supreme Court's 2018 Wayfair decision, states may require remote sellers to collect tax once they pass a threshold. Many states use roughly $100,000 in sales or 200 transactions in a year, but the exact threshold and how it is measured vary by state and can change. Check the tax authority's website for each state where you sell a lot.

What if you sell through Amazon, Etsy or Shopify?

• Large marketplaces such as Amazon and Etsy generally collect and remit sales tax themselves on orders placed through their platform (marketplace facilitators) in most states with a sales tax, so you usually don't collect on those orders.
• Orders through your own website (Shopify, WooCommerce...) are your responsibility to collect and remit once you pass a threshold.
• If you use FBA, your inventory may sit in Amazon warehouses in several states and create physical nexus there, even though Amazon collects tax on marketplace orders.

Practical steps

1. Tally your sales and order counts by state each month or quarter.
2. Compare them with the economic-nexus threshold of each state where you sell a lot.
3. As you approach a threshold, register for a sales tax permit in that state (often possible online).
4. Use software to calculate and remit tax automatically (many e-commerce platforms integrate it) or have an accountant handle it.
5. File returns on schedule, even for periods with no tax due, as the state requires.

Sales tax is different from income tax. A foreign seller may still have to collect sales tax in states where there is nexus; living outside the US is not an exemption.

This article is general information, not legal or tax advice. Rules and fees change by state and over time — check the official state/IRS pages and consult a professional before you decide.