Sales Tax

State and local taxes on retail sales. Requirements vary by nexus in each state.

1 min readLast updated Apr 2026

Reviewed by Golden Digital·Operator-reviewed ecommerce reference

Quick Reference

CategoryLegal, Compliance & Privacy

Related Terms2

State and local taxes on retail sales. Requirements vary by nexus in each state.

Why It Matters

Collecting and remitting sales tax is legally required once you have nexus. Non-compliance leads to back-taxes, penalties, and interest.

Practical Example

Scenario

A candle brand hits $100K in California sales, triggering economic nexus.

Calculation

California threshold: $500K (as of 2024). Brand exceeds Texas threshold of $500K. Must register, collect, and remit.

Result

Registered for sales tax, automated collection with TaxJar, avoiding 25%+ penalties on uncollected tax

Pro Tips

1Use automated tax software (TaxJar, Avalara) as soon as you have nexus in multiple states
2Monitor your sales by state to know when you're approaching thresholds
3Consider marketplace facilitator laws—Amazon, Etsy handle tax for sales on their platforms

Common Mistakes to Avoid

Ignoring economic nexus until you get a notice—back taxes with penalties are expensive

Not collecting tax from day one in your home state where you have physical nexus

Forgetting that tax rates vary by product category and locality, not just state

Frequently asked questions

Immediately in your home state (physical nexus). In other states when you exceed their economic nexus threshold (typically $100K-$500K in sales or 100-200 transactions annually). Thresholds vary by state.

TaxJar (user-friendly, good for growing brands), Avalara (enterprise-grade, more states and complexity), Quaderno (good for digital products and international). All integrate directly with Shopify.

Put it to work

Related Terms

Economic Nexus

A sales tax obligation triggered by reaching revenue thresholds in a state.

VAT

Value Added Tax - consumption tax used in EU and many other countries.

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