US Sales Tax: when a state turns you into its tax collector

Sales tax is the US tax European sellers run into most often, and the one they most often underestimate. There is no federal sales tax. Instead it exists in 45 states and the District of Columbia, each with its own rates, thresholds and forms, and it is the seller who has to collect it, not the buyer. This page walks you through the path of a European seller step by step: Do I owe tax in a state? What does the marketplace handle? How do I register? What do I have to do on an ongoing basis? The basics of the tax itself, from rates to exemption certificates, are covered in Sales tax in the USA; the thresholds for every state are in the table Sales tax by state.

1Why sales tax affects you even though you are based in Europe

Until 2018, a state could only require sales tax from sellers with a physical presence there. On June 21, 2018, the Supreme Court abandoned that rule in South Dakota v. Wayfair. Since then, states may also tie the obligation to the sales a seller ships into the state without any office, warehouse or staff there. Every state with a sales tax has done so.

The rule applies to sellers abroad just the same. The California tax authority states explicitly that remote sellers include sellers outside the United States. For you as a seller in Oslo, Stockholm or Amsterdam, that means: whether or not you have a US company makes no difference to whether you have to collect sales tax in California. What decides it is where you ship and how much.

There are two ways into the obligation, and you check them in this order: physical presence first, then the sales threshold.

2Question one: do you have a presence in the state?

You have a physical presence if you have an office, employees, a representative or inventory in the state. For sellers using warehouse logistics, that last point matters most. On its page for marketplace sellers, Washington explicitly lists inventory in the state as an activity that creates physical presence, even when a marketplace operator or another third party holds the goods for you. Connecticut requires out-of-state sellers whose goods are stored in a marketplace operator's facilities in the state to register even below the sales thresholds.

If you sell through a fulfillment service whose warehouse network spreads your goods across several states, you can end up with a presence in states you have never shipped to yourself. So check which states your inventory is in. Your fulfillment service's reports will show you.

No thresholds apply to presence. Ohio and Wisconsin state explicitly on their websites that the minimum thresholds do not apply to businesses with a presence in the state. If you have a presence, you check the obligation regardless of your sales.

3Question two: do you exceed the sales threshold?

If you have no presence in a state, the economic nexus threshold decides. In most states it is $100,000 in annual sales into that state, and in some states there is also, or alternatively, a threshold of 200 transactions. It is higher in California and Texas, among others, at $500,000, and in New York, where you need both more than $500,000 and more than 100 transactions. The table shows three large states; the full list is under Sales tax by state.

Two things make the math harder than the number suggests. First, every state counts differently: some include all gross sales, including exempt sales and sales to resellers, while others count only retail sales or only taxable sales. Second, states measure over different periods: the calendar year, the previous year or a rolling twelve months. So you need your sales broken down by destination state, not just by country.

Once you cross the threshold, the obligation doesn't start immediately, but it starts soon. Texas, for example, requires the permit and collection no later than the first day of the fourth month after the month in which you crossed the threshold. Other states give 30 or 60 days. If you only notice at year-end that you crossed the threshold in the spring, you may already be late.

4What the marketplace handles for you, and what it doesn't

States require marketplace operators to collect the tax on sales made through their platforms. Ohio treats such an operator as the seller of every sale it facilitates, and Wisconsin requires it to collect even when the individual seller stays below the threshold. For those sales, the tax is collected and remitted. But that does not mean you are done with sales tax.

4.1What stays with you

You remain responsible yourself for sales through your own online store, direct orders, wholesale and trade shows. This mix is exactly the most common setup for European sellers: some sales through platforms, some direct. For the direct part, everything on this page applies in full.

4.2Whether marketplace sales count toward your threshold

Each state decides for itself whether platform sales count toward your own threshold. California, Washington and New York include them; Massachusetts, Maine and Indiana count only your direct sales. A seller with $80,000 in platform sales and $30,000 in direct sales into a state can therefore owe tax in one state and not in another.

4.3Registering despite selling on a marketplace

Some states require you to register even if you sell only through marketplaces, and then allow an exemption from filing. New Jersey, for instance, requires sellers above the threshold who sell only through marketplaces to register, and lets them apply for an exemption from filing returns. Iowa and Michigan, on the other hand, do not require registration if the marketplace remits for you. How each state treats marketplace sellers in detail is covered in Registration of marketplace sellers.

5Registering

You register with the tax authority of every state where you owe tax. For 24 states there is a shared route: the registration system of the Streamlined Sales and Use Tax Agreement states. It is free, and through it you register in all member states or in the ones you choose. One point matters for sellers from Europe: according to the Governing Board's registration FAQ, foreign sellers without a Federal Employer Identification Number, without an ITIN and without a US address can register by selecting "Other" as the ID type. The system then assigns its own number.

The large states outside the system, including California, Texas, Florida and New York, you register with directly, each with its own application. If you have a US company, you register it with its EIN; how it gets that number is explained in Applying for an EIN without an SSN.

Only register where you actually owe tax. Every registration brings ongoing filing obligations in that state until you close the account again.

6Collecting, filing, remitting

Once you are registered, the ongoing work begins. On every taxable sale shipped into the state, you calculate the tax, show it on the invoice, collect it and remit it with your return. In many states, local taxes are added to the state rate; Texas, for example, requires sellers without a presence to collect the local tax that applies at the delivery address. But Texas also gives these sellers the option of using a single local rate for all deliveries instead of the local rates at each destination: the Single Local Use Tax Rate. If you want that, you notify the Comptroller using Form 01-799.

How often you file is up to the state. After issuing the permit, Texas tells you in writing whether you file monthly or quarterly; monthly returns there are due on the 20th of the following month. The money you collect belongs to the state. Keep it separate until the return is due.

For your bookkeeping, that means: record sales and tax by destination state, and keep the records that back up your returns. What the IRS and the states expect in terms of records is covered in Bookkeeping for your US LLC.

7Sales to resellers and businesses

Sales tax is only charged on sales to the end customer. If you sell to a retailer who resells the goods, you don't collect tax, but you must be able to show why. That proof is an exemption certificate from the buyer. The member states of the Streamlined Agreement use a single uniform certificate. According to the Governing Board, the buyer fills it out and gives it to the supplier, who keeps a copy; it is not sent to the states. If the buyer is registered in the state where it claims the exemption, it enters that state's number.

If the certificate is missing in an audit, you owe the tax you didn't collect. So get it before the first delivery, not after the state's first inquiry.

8Sales tax is not income tax

Sales tax taxes the sale, not your profit. Collecting sales tax in Texas says nothing about whether or where your profit is taxed. State income tax even has its own protection: under 15 U.S.C. § 381, a state may not tax net income from interstate commerce if the only activity in the state is soliciting orders for goods that are accepted outside the state and shipped from there. This protection does not apply to sales tax.

How your US company's profits are taxed at the federal level is explained in the guide Tax obligations of a US company; which withholding taxes apply to payments between the US and Europe, in the article US withholding tax by type of income. How your LLC is taxed at home is covered under Taxation of your US LLC.

9If you're already over the threshold

If you've crossed a state's threshold and haven't collected yet, the tax on those sales has still arisen, and you owe it. Several states have procedures that let you set this right on your own initiative. Wyoming, for example, has its own Voluntary Disclosure application. Among the Streamlined Agreement states, according to the Governing Board's website, only Tennessee offers an amnesty: if you meet the requirements, you won't be assessed uncollected tax, interest or penalties for the period before registration.

The sooner you act, the smaller the amount, and the sooner you can collect tax correctly on future sales. We work out with you which states you're liable in and register you there; the details are on our Sales Tax page.

In short

• Sales tax is a state tax on sales to end customers; the seller collects and remits it, even when based in Europe.
• You become liable if you have a physical presence in the state, such as an office, employees or inventory in a warehouse, or if you exceed the state's sales threshold.
• A marketplace remits the tax on its own sales; for your own shop and wholesale you remain responsible, and some states require registration anyway.
• Registration is state by state; for 24 states there's a free shared system that also accepts foreign sellers without a US number.
• Sales tax is not income tax; where your profit is taxed is a separate question.

How we help you

• Sales taxRegistration and returns in the states where you have nexus.
• Form an LLCThe US LLC with a permanent establishment, turnkey in six states.
• Form a CorporationThe US corporation (Inc) for growth, investors and your visa.
• Apply for an EINYour company's US tax ID, applied for by us.
• US Tax ConsultationYour US tax question, answered by people who know both sides.