Where Should You Charge Sales Tax?

Confused about taxes? Welcome to the club! Before we dig in, we want to make it very clear that…

Foxy provides this for informational purposes only. It is not intended to provide, and you should not rely on it for, tax, legal or accounting advice. As with all important things, you should consult your own professionals and advisors.

We'll focus primarily on US-based businesses, because the US sales tax landscape is a bit of a mess, and other countries have at least slightly more reasonable approaches.

Sales Taxes for US Ecommerce Businesses

"Nexus" is the word of the day.

"Nexus" is the most important concept to understand when you're thinking about where you need to collect sales taxes in the US. Avalara, one of our partners, defines nexus as:

Sales tax nexus is the connection between a seller and a state that requires the seller to register then collect and remit sales tax in the state. Certain business activities, including having a physical presence or reaching a certain sales threshold, may establish nexus with the state.

Basically, "do you have nexus?" means "do you have enough ties to a state to need to collect and remit sales taxes?" Let's say you're a taco shop in San Diego. You don't have nexus in Arizona or New York, so you don't even need to think about any other states.

But let's say you're a t-shirt seller, selling online. You have a physical print shop in San Diego, but you have a fulltime sales person in New York, and you have a major customer in South Dakota. Where's your nexus? Unfortunately, the answer is "It depends." Each state can determine what constitutes your nexus, and it can vary wildly from state to state.

Further complicating things is the Supreme Court's 2018 Wayfair ruling, which allowed states to apply a much broader "economic nexus" definition than previously. Prior to Wayfair, nexus (for sales tax purposes) was easier for merchants to understand. Didn't have anything (offices, warehouses, etc.) or anybody in a state? You didn't need to worry about it. But with the rise of Amazon, states realized they were missing out on huge amounts of sales tax revenue, and started creating "Amazon laws" to try to redefine nexus to include Amazon, even if Amazon had no presence in the state.

A quick note about Delaware corporations:

Sometimes people assume that their business registration is the only thing that matters, and they'll register in Delaware (or Nevada) and assume that's all that needs to be done. Without getting into it, if you (or anybody) is actually running the business in another state, you almost certainly have nexus in that state, where you'll need to register as a foreign corp. Just because you're a Delaware corporation doesn't mean you don't have nexus in the state(s) you actually operate in.Similarly, it doesn't matter if you're a fully virtual company with no physical presence. You'll generally have nexus where you have employees or active partners/owners. You yourself, as a business owner/manager, create nexus.

So… Where you legally required to collect and remit sales taxes?

So since Wayfair, nearly every state has redefined their nexus to have some sort of threshold based on the number and/or dollar-amount of transactions. For instance, if you sell more than $100,000 or 200 transactions to customers in Georgia, you now have economic nexus, and you should register with Georgia, and collect and remit taxes.

But every state is different. Avalara has a handy page listing all current economic nexus thresholds. For a small business to keep track of this, and register and collect and remit would be a nightmare.

Given all that, what do we recommend?

TL;DR:

If you're just getting started, you very likely only need to register with your own state. You can use Foxy's built-in automatic tax rates and handle it manually.

To be safe, take a look at the nexus thresholds if you know you're going to sell over $100k or $200k to any individual state, but most Foxy users aren't hitting these thresholds, and don't need to bother registering with any other states.