Published April 28, 2026
Three Questions Every Business Selling in the US Must Answer About Sales Tax
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Following the 2018 South Dakota v. Wayfair, Inc. Supreme Court decision, the sales tax landscape fundamentally changed how states collect revenue. Your tax responsibility is no longer tied to where your business operates. It is now tied to where your buyers are located. That shift has left many business owners uncertain about what they actually owe, where they owe it and whether they are the ones responsible for collecting it.
Every company doing business in the US needs to answer three questions on a state-by-state basis. Do I have nexus? Is what I sell taxable? Am I the responsible party for collecting tax? If you cannot confidently answer all three, you may be overcollecting, undercollecting or missing obligations entirely.
In this article, you will learn exactly what each of these questions means. We will explain why all three conditions must exist before you have a true compliance responsibility. You will also see how nuances like marketplace facilitators, software as a service and state-specific rules can create issues for diligent business owners. We will break down real scenarios where businesses made mistakes and show you how to simplify your compliance approach.
Before you worry about tax rates, taxability or filing deadlines, you must determine if a state has the legal right to demand you collect sales tax. This concept is called nexus. The definition of nexus expanded significantly after the 2018 South Dakota v. Wayfair, Inc. decision.
Historically, nexus required a physical presence. If you had an office, warehouse, employee or inventory in a state, you had nexus there. The Supreme Court ruling allowed states to establish economic nexus thresholds. You can now trigger nexus in a state simply by selling enough goods or services to buyers located there. This applies even if you have never visited that state.
Every state that imposes sales tax has established economic nexus laws. These thresholds vary by state but typically include:
These thresholds are not uniform across the country. Some states maintain higher thresholds while others keep them lower. States also change their rules over time. Illinois, for example, adjusted its thresholds effective January 1, 2020, removing the 200-transaction count and keeping only the $100,000 sales threshold.
Managing nexus requires tracking where your buyers are located rather than where your business operates.
You should evaluate your sales data state by state and compare it against current thresholds. Crossing a state threshold triggers nexus. This does not automatically create a tax responsibility, but it requires you to answer the next two questions.
Having nexus is only the first piece of the puzzle. The second question is whether what you sell is actually subject to sales tax in that specific state.
Historically, tangible products were taxable unless an exemption existed, and services were non-taxable unless specifically written into the law. That framework has evolved significantly. State-specific nuances often catch experienced business owners off guard.
You might assume selling a physical product means it is taxable everywhere. Exemptions exist in nearly every state and vary widely.
Take supplements, for example. In some states, supplements are fully taxable. In others, they are exempt. Some states tax supplements at a reduced rate. If you sell supplements across the country and assume your home state rules apply everywhere, you will likely calculate tax incorrectly.
Food and beverage products create similar complexity. Some states exempt grocery items but tax prepared food. Certain states have different rates for candy versus other food items. In specific locations, the classification depends on the percentage of sugar or protein in the product. A protein bar might be taxed differently than a candy bar based on its nutritional composition.
Many business owners assume services are not taxable. However, states increasingly expand their tax base to include services that were not historically taxed.
Software as a service (SaaS) is a prime example. Approximately 20 states currently tax SaaS, but many business owners do not realize their subscription software falls into a taxable category. They assume that delivering a service over the internet makes it non-taxable.
State classifications add further complexity. Texas does not specifically list SaaS as taxable on a standard taxability matrix, which is a state-provided chart showing what is and is not taxed. However, Texas taxes data processing services. The state considers SaaS a taxable data processing service. Texas taxes these services at 80% of the value rather than 100%. If you sell a $1,000 monthly subscription, you should collect tax on $800 of that charge.
In this scenario, you could make three different mistakes:
New York provides another example of surprising service classifications. New York taxes security services, like hiring a security guard. The state also considers IT services that manage network security, protect against malware or prevent data breaches to be taxable security services. If you provide managed IT services that include security monitoring, you might unknowingly fall under that taxable classification.
Determining taxability requires understanding how your specific products or services are classified in each state where you have nexus. You must stay current as states continue to expand what they tax.
You have nexus. What you sell is taxable. You must now determine if you are the party responsible for collecting and remitting that tax. If you sell products on platforms like Amazon, Etsy or Walmart Marketplace, the platform itself may collect and remit sales tax on your behalf.
Most states have enacted marketplace facilitator laws that shift the tax collection responsibility from the individual seller to the marketplace platform. When you sell through Amazon as a Fulfillment by Amazon (FBA) seller, Amazon collects the appropriate sales tax from your buyers and remits it to the states.
In this scenario, even though you have nexus and what you sell is taxable, you are not the responsible party for those marketplace sales. Amazon handles that obligation.
If you run a business selling across multiple channels, such as Amazon, your own website and other platforms, you must evaluate the responsibility for each channel separately.
If you sell directly to people through your own website, you are the responsible party for collecting tax on those transactions.
If Amazon collects all your tax, you must decide whether to register with the state.
In most cases, you do not need to register if a marketplace handles all your sales. Some states prefer that sellers register and file returns showing gross sales, taxable sales and proof that a marketplace facilitator remitted the taxes. If you have nexus, sell taxable items and only sell through a marketplace facilitator handling collection, you can typically skip registration unless you have other material concerns in that state.
Washington state operates differently. Washington imposes a Business and Occupation (B&O) tax. This is a business excise tax based on gross receipts rather than a tax added to the buyer's purchase. Even if Amazon collects sales tax on your behalf, you may owe occupation tax directly to Washington based on your sales into the state. Washington aggressively pursues penalties, imposing up to 39% in late payment penalties on the tax due. In Washington, you should register even if you do not collect sales tax yourself.
Certain states impose taxes due on the seller of the goods rather than taxes collected from the buyer. When that is the case, marketplace facilitator laws do not eliminate your responsibility.
You need all three conditions to exist before you have a true compliance responsibility in a state.
If any one of these conditions is missing, you likely do not have a registration and collection obligation.
Scenario A: You do not have nexus, but what you sell is taxable and you sell direct to buyers. You have no responsibility because you have not crossed the nexus threshold.
Scenario B: You have nexus, but what you sell is exempt in that state and you sell direct to buyers. You have no responsibility because there is nothing taxable to collect.
Scenario C: You have nexus, what you sell is taxable, but you only sell through a marketplace facilitator. You have no responsibility in most states because the marketplace handles collection.
This framework helps you prioritize. Instead of trying to register everywhere or assuming you have no obligations anywhere, you can systematically evaluate each state against these three questions.
Even with a clear framework, mistakes happen. We see several common patterns.
If you are based in a state where supplements are taxable, you might assume they are taxable everywhere and collect tax in every state. If you are in a state where SaaS is not taxable, you might assume the same applies nationally. Neither assumption is safe.
Some businesses collect tax everywhere at the highest possible rate to avoid complexity. This approach creates its own problems. Overcollecting tax from buyers can lead to class action lawsuits, state penalties and requirements to refund the excess tax you collected. Getting it right matters in both directions.
Sales tax automation tools calculate rates and apply taxability rules. They rely entirely on their initial setup. If you do not connect your products to the correct tax codes or if you add new products without updating the system, you will have gaps. The software needs human oversight to catch configuration errors, new product launches and changes in your business model.
Certain states have rules that do not fit neatly into standard categories. New York and New Jersey have clothing exemptions that apply at specific price thresholds. States treat accessories differently than clothing. Tax-free holidays create temporary changes to taxability. These details require attention beyond a standard taxability matrix (the state-provided chart of taxable items).
Most businesses focus on whether they collect tax correctly from their buyers. You must also evaluate whether you pay tax correctly on your purchases.
If you are a manufacturer, you may qualify for exemptions on equipment, repairs, power tools and electricity used directly in manufacturing. If you are a retailer with a cardboard baler that compresses boxes for sale to recyclers, that equipment might be exempt because you process tangible property for future sale. You must know these exemptions exist to claim them.
You can manage sales tax compliance by following specific steps.
Pull your sales data and evaluate it state by state against current economic nexus thresholds (the specific sales volume or transaction counts that trigger legal obligations). This gives you a clear picture of where you have triggered nexus. Update this analysis quarterly or whenever your sales patterns shift significantly.
Work with someone who understands the exact rules for your specific products or services. A basic chart might tell you SaaS is non-taxable in Texas, but it will not tell you about the data processing service classification. Get clarity on how states classify your offerings where you have nexus.
Document where your sales happen. Direct website sales, marketplace sales, wholesale and other channels each have different implications for who is responsible for collecting tax. Know your channel mix and understand the rules for each.
Sales tax requires ongoing attention. Thresholds change. Laws change. Your business changes. Build a regular review process, whether that is quarterly, semi-annually or annually, to reassess your nexus footprint (the total list of states where you have legal obligations) as your business grows.
There is a point where the complexity exceeds what you can reasonably manage on your own. If you sell across multiple states, deal with nuanced product classifications or navigate a potential audit, talking to a sales tax expert can save you significant time, money and stress.
A conversation can give you clarity on where you stand and what steps make sense for your specific situation. During a "What's Next" call, someone who understands the rules of sales tax can help you identify your current obligations so you can map your own path forward.
You now have the framework. Three questions. State by state. Do I have nexus? Is what I sell taxable? Am I the responsible party? When all three conditions exist, you have a compliance responsibility. When one is missing, you likely do not.
Knowing the framework and applying it to your specific business are two different things.
Your sales data points to specific obligations. Your product mix creates unique taxability questions. Your channel strategy determines who is responsible for what. The states you sell into each have their own rules, thresholds and quirks that do not fit neatly into a simple checklist.
Most companies are not starting from zero. You might collect tax in some states but not others. You might be registered somewhere you do not need to be. You might rely on assumptions that worked five years ago but do not hold up today.
Getting clarity does not require a massive project.
During a free "What's Next" consultation, a sales tax expert will assess your situation, answer your questions and help you understand your requirements. You will get the information you need to make accurate compliance choices.
Whether you are a SaaS company wondering about data processing classifications, an e-commerce seller trying to understand marketplace facilitator rules or a growing business crossing thresholds in new states, you can learn exactly what you need to do.
Schedule your free "What's Next" consultation and get the clarity you need to handle your sales tax compliance.
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