The Basic Logic of US Sales Tax
Unlike Europe's VAT system, the US federal government doesn't impose a national sales tax. Sales tax is entirely state-governed โ the rate, which goods are exempt, and when registration is required are all determined independently by each state.
Five states currently have no state-level sales tax: Delaware, Montana, New Hampshire, Oregon, and Wyoming. The remaining 45 states plus Washington D.C. all have sales tax, with rates ranging from roughly 4% to 10%. Many cities and counties layer additional local taxes on top of the state rate, pushing the combined rate higher.
Sales tax is typically displayed separately from the listed price โ consumers see the tax-added total at checkout, unlike European VAT which is built into the displayed price.
Understanding Nexus: Where You Have Filing Obligations
Nexus is the most fundamental concept in US sales tax. It refers to the connection or link between your business and a particular state that's sufficient to create a legal obligation to register and file sales tax there.
Physical Nexus is the traditional form: having a warehouse, office, employees, or showroom in a state creates Physical Nexus there. For sellers shipping from US domestic warehouses โ Amazon FBA, third-party 3PL โ the states where inventory physically sits are the first ones to address. Physical Nexus exists from the moment goods enter those states, regardless of sales volume.
Economic Nexus was established by the 2018 Supreme Court ruling in South Dakota v. Wayfair, which fundamentally changed how remote sellers handle sales tax. Before that decision, sellers with no physical presence in a state owed no sales tax there. After it, exceeding a state's sales threshold triggers registration and filing obligations even without any physical presence.
Most states set their Economic Nexus threshold at $100,000 in annual sales or 200 transactions โ whichever comes first. A few major states are exceptions: California and Texas both use a $500,000 threshold. This means a store doing heavy volume into California doesn't trigger registration there until hitting that larger number, while smaller states like South Dakota or Colorado can be reached at $100,000 relatively quickly.
A Critical Distinction: DTC Stores vs. Amazon
Sellers who operate on both Amazon and a DTC store commonly assume that since Amazon handles sales tax collection, their store must be covered too. It isn't.
Nearly every US state has passed a Marketplace Facilitator Law requiring platforms like Amazon, eBay, and Etsy to collect and remit sales tax on behalf of third-party sellers. For orders through Amazon, Amazon collects the tax from the buyer at checkout and remits it directly to each state โ that obligation sits with Amazon, not with you. You don't need to separately register for sales tax in those states for your Amazon sales. That said, Amazon sales still count toward Economic Nexus thresholds.
Your Shopify or WooCommerce store is not a marketplace platform and receives no Marketplace Facilitator Law protection. Every sale through your DTC store requires you to determine whether tax collection is required, and where it is, to file and remit that tax yourself. If you've sold over $100,000 (or 200 transactions) to customers in a state through your store and haven't registered for sales tax there, you're either collecting tax without authorization or failing to collect tax you owe โ both create compliance exposure.
Which States to Prioritize
Registering in all states at once isn't realistic when first addressing this. A sensible priority order:
First priority: states where you hold inventory. If your goods are sitting in Amazon FBA or a third-party warehouse in a state, Physical Nexus exists from day one โ no sales threshold applies. FBA inventory is typically spread across multiple states; the FBA inventory report in Seller Central shows the specific states where stock is held.
Second priority: states with the heaviest customer concentration. California, Texas, New York, Florida, and Illinois are where US consumer spending is most concentrated and typically where DTC store revenue is highest. California and Texas have the $500,000 threshold, but if volume is meaningful, monitoring these states proactively is worth doing.
Third priority: smaller states where sales are approaching the $100,000 threshold. Tax software like TaxJar or Avalara tracks per-state sales in real time and shows how close each state is to the threshold. Register before crossing the line rather than after.
What Registration and Filing Actually Involves
Sales tax registration happens separately in each state through each state's own tax authority website. Most states allow online registration and issue a Sales Tax Permit at no charge, though some charge a filing fee.
After registering, filing frequency is set by each state based on your sales volume in that state: quarterly is most common, monthly for higher-volume sellers, annual for very low volume. Zero-return filing (submitting a $0 return for periods with no sales in that state) is typically required even with no activity โ missing filings or filing late usually incurs penalties.
Filing deadlines vary by state โ and managing a multi-state deadline calendar is where manual compliance tends to break down. California and New York quarterly returns are due on the 20th of the month following the quarter's end; Texas requires monthly filing for many sellers, also due on the 20th. Tracking all of these across dozens of states is a significant administrative burden, which is why most sellers at scale use TaxJar or Avalara to automate the process.
Configuring Sales Tax in Shopify and WooCommerce
Shopify Tax (for US sellers) automatically identifies the buyer's location and applies the correct state, county, and city tax rate at checkout. In Settings โ Taxes and Duties, add the tax registration details for each state where you're registered, and the system handles collection automatically. Shopify Tax also generates nexus tracking reports showing sales by state so you can monitor whether you're approaching thresholds. One important clarification: Shopify collects the tax โ it doesn't file or remit it. Filing and payment remain your responsibility.
WooCommerce requires manual rate configuration in Settings โ Tax, or a third-party tax plugin. TaxJar offers an official WooCommerce integration that calculates rates automatically; Avalara's AvaTax plugin covers the same ground with more enterprise features at a higher price point. For any store selling across multiple states, maintaining tax rate tables by hand is impractical โ local rates change frequently โ and automated rate calculation is the more reliable approach.
TaxJar vs. Avalara: Which Fits DTC Stores Better
Both are the most commonly used US sales tax compliance tools among cross-border sellers. Core functions are similar: automated rate calculation, nexus status tracking across states, filing report generation, and for some plans, filing on your behalf.
TaxJar starts at around $19/month, has a more approachable interface, suits small to mid-size sellers well, and integrates with Shopify, WooCommerce, and Amazon to pull sales data across platforms. Its AutoFile feature can submit returns to each state on your behalf once you authorize it.
Avalara costs more but operates at enterprise scale, particularly suited for sellers handling complex exemption certificates, multi-country tax obligations beyond just the US, or large SKU catalogs with varied tax classifications. It integrates more extensively with ERP and warehouse management systems.
For most small to mid-size cross-border stores, TaxJar is the right starting point. Reassess whether Avalara's additional capabilities are needed as operational complexity grows.
If You Haven't Been Filing โ How to Address It
Discovering that sales tax hasn't been filed in states where it was required is a common situation. How to approach it depends on the scale and duration of the gap.
Many states have a Voluntary Disclosure Program that allows sellers with unfiled obligations to come forward proactively. The typical benefits include limiting the lookback period (paying only the last three years rather than the full history) and reduced or waived penalties. The cost of proactive disclosure is usually significantly lower than the cost of being identified through a state audit.
If the amount and time span of unfiled taxes is substantial, the right move is to work with a tax attorney or tax agent who specializes in multi-state US sales tax before submitting anything. How a voluntary disclosure is structured and how the negotiation is handled directly affects the final amount owed โ this isn't the place to improvise.