What is Multi-State Sales Tax Compliance? A Complete Guide for E-commerce Businesses
You’ve built an awesome online store, uploaded those product photos you spent all weekend perfecting, and now orders are rolling in from California to New York. What started as a side hustle from your spare bedroom has turned into a growing business with customers across multiple states. Each notification ping brings both excitement and a new challenge you might not have anticipated: multi-state sales tax compliance. Unlike a local shop that deals with one set of tax rules, your online business potentially faces different e-commerce sales tax requirements in every state where you make sales. One day you’re celebrating a surge of orders from a new region, and the next you’re wondering if you’ve just created tax obligations in another state. Keeping track of when, where, and how much to collect can quickly become overwhelming, especially when you’d rather focus on perfecting your products or marketing strategy. Don’t worry—this guide will break down everything you need to know to stay compliant without losing your mind. Table of Contents Economic Nexus: The Foundation of Multi-State Sales Tax Compliance Let’s start with the million-dollar question: When exactly do you need to collect sales tax in a state? This is where “nexus sales tax rules” come into play. Understanding these rules is critical for every e-commerce seller. Nexus means having a connection to a state that’s significant enough to trigger tax obligations there. Traditionally, this meant physical presence—having an office, employees, or inventory in a state. But the e-commerce revolution has completely changed the game. The Evolution of Economic Nexus With the Supreme Court’s monumental Wayfair decision in 2018 removing the physical presence requirement, states can now require you to collect sales tax based solely on your economic activity there—even if you’ve never set foot in the state. This created what tax professionals call “economic nexus.” Here’s an example: Imagine you run an online boutique from your home in Florida. You have zero physical presence in California—no warehouse, no employees, nothing. But your products are a hit with California customers, and last year you sold more than $500,000 worth of merchandise to California residents. Having surpassed California’s economic nexus threshold of $500,000 in annual sales, you now have a sales tax obligation in the Golden State. You’ll need to register for a California sales tax permit, start collecting the appropriate sales tax on all future California sales, and send those taxes to California’s tax authorities on their schedule. U.S. State Sales Tax Rates & Economic Nexus Thresholds (As of Jan 2025) As of January 2025, economic nexus laws are in place across nearly all U.S. states, but the rules vary widely. The table below summarizes each state’s: Did you know? In most states, exceeding either the sales or transaction threshold is enough to establish nexus. But in Connecticut and New York, you must exceed both thresholds before you’re required to collect and remit sales tax. State Sales Tax Rate Sales Threshold Transaction Threshold Measurement Period Marketplace Sales Included? Alabama 4% $250,000 None Previous calendar year Yes Arizona 5.6% $100,000 None Current or previous calendar year Yes Arkansas 6.5% $100,000 200 Current or previous calendar year Yes California 7.25% $500,000 None Current or previous calendar year Yes Colorado 2.9% $100,000 None Current or previous calendar year Yes Connecticut 6.35% $100,000 200 12-month period ending Sep 30 Yes Florida 6% $100,000 None Previous calendar year No Georgia 4% $100,000 200 Previous or current calendar year No Hawaii 4% $100,000 200 Current or previous calendar year Yes Illinois 6.25% $100,000 200 Prior 12 months No Indiana 7% $100,000 None Current or previous calendar year No Iowa 6% $100,000 None Current or previous calendar year Yes Kansas 6.5% $100,000 None Current or previous calendar year Yes Kentucky 6% $100,000 200 Previous or current calendar year Yes Louisiana 5% $100,000 None Previous or current calendar year No Maine 5.5% $100,000 None Previous or current calendar year No Maryland 6% $100,000 200 Previous or current calendar year Yes Massachusetts 6.25% $100,000 None Previous or current calendar year No Michigan 6% $100,000 200 Previous calendar year Yes Minnesota 6.88% $100,000 200 Rolling 12 months Yes Mississippi 7% $250,000 None Prior 12 months No Missouri 4.23% $100,000 None Reviewed quarterly Yes Nebraska 5.5% $100,000 200 Current or previous calendar year Yes Nevada 4.6% $100,000 200 Current or previous calendar year Yes New Jersey 6.63% $100,000 200 Current or previous calendar year Yes New Mexico 5.13% $100,000 None Previous calendar year No New York 4% $500,000 100 Previous 4 quarters Yes North Carolina 4.75% $100,000 None Current or previous calendar year Yes North Dakota 5% $100,000 None Current or previous calendar year No Ohio 5.75% $100,000 200 Current or previous calendar year Yes Oklahoma 4.5% $100,000 None Current or previous calendar year No Pennsylvania 6% $100,000 None Prior calendar year Yes Rhode Island 7% $100,000 200 Prior calendar year Yes South Carolina 6% $100,000 None Current or previous calendar year Yes South Dakota 4.5% $100,000 None Current or previous calendar year Yes Tennessee 7% $100,000 None Previous 12 months No Texas 6.25% $500,000 None Preceding 12 months Yes Utah 4.7% $100,000 None Current or previous calendar year No Vermont 6% $100,000 200 Prior 4 quarters Yes Virginia 4.3% $100,000 200 Current or previous calendar year No Washington 6.5% $100,000 None Current or previous calendar year Yes West Virginia 6% $100,000 200 Current or previous calendar year Yes Wisconsin 5% $100,000 None Current or previous calendar year Yes Wyoming 4% $100,000 None (as of July 1, 2024) Current or previous calendar year No Important notes: Further Aspects of State E-commerce Tax While understanding economic nexus is crucial, several other factors complicate multi-state compliance. Consider this section your mini state-by-state e-commerce tax guide to these additional complexities: Product Taxability Variations What’s taxable varies dramatically across states. For instance, clothing is totally exempt in Minnesota but taxable almost everywhere else, while New York only exempts clothing below certain price thresholds. Consider these important distinctions: Marketplace Facilitator Laws If you sell through platforms like Amazon, Etsy, or Walmart
