U.S sales tax: How to stay compliant and avoid costly mistakes today

 If you sell to the U.S. market through your e-commerce store (Shopify, Amazon, Etsy, WooCommerce), you may encounter the term "Sales tax." 

Many foreign entrepreneurs in the e-commerce business have overlooked the Sales tax and paid more than thousands of USD in taxes and fines.

As sales tax laws vary across states, understanding sales tax is crucial for ensuring compliance and avoiding penalties.

Our guide will explain key concepts, tax rates, compliance requirements, and tools for managing sales tax efficiently. 

1. Key takeaways

1. Sales tax in the U.S. is a tax on goods and services. It is determined based on physical nexus and economic nexus;
2. Businesses must collect sales tax if they have a connection (nexus) to a state, such as having an office, or warehouse, or reaching a certain sales threshold (for online sellers from overseas or from one state to another state);
3. Businesses must prepare, file tax returns, and pay the correct amount of tax to the state government;
4. Global Link Asia Consulting will help you stay compliant and avoid costly mistakes with sales tax laws.

2. Key concept of US sales tax

2.1. What is sales tax in the US?

Sales tax is a consumption tax imposed by state and local governments on the sale of goods and services based on the nexus.

Businesses must collect it at the point of sale and then remit the tax to the relevant state tax authority

The percentage of sales tax varies by state and locality. Businesses need to understand the rules that apply in their specific location.

For example, 45 states and the District of Columbia collect statewide sales taxes.  On one hand, the sales tax rate in Washington is 9.38%, on the other hand, the tax on goods and services in Alabama is 9,29%.

2.2. What is the difference between sales tax and excise tax?

In some states in the U.S., you will find another tax on goods and services, which is called excise tax,  besides sales tax.

Excise tax is a specific tax applied to particular goods like gasoline, tobacco, and alcohol, while sales tax applies broadly to most retail transactions.

Unlike sales tax, excise tax is often included in the price of the product rather than added at checkout.

For example, Delaware has no state or local sales tax, but it does impose federal excise taxes on certain goods such as alcoholic beverages and cigarettes. This means that while general retail purchases are tax-free, specific products are still subject to additional taxation.

2.3. What is Nexus in sales tax?

Nexus is the most important concept when understanding US sales tax. Nexus determines whether a business must collect and remit sales tax in a particular state.

For the majority of businesses, they need to establish nexus in 2 main ways:

2.4. Physical Nexus

If a business has a tangible presence in a state—such as a storefront, office, warehouse, physical address, or employees—it must collect sales tax in that state.

For example, A U.S.-based business must pay sales tax even without being physically present if:

1. It sells on Amazon FBA, where goods are stored in U.S. warehouses.
2. It operates a branch, or office, or has employees in the U.S.
3. It has a company in Delaware and sells goods to Arizona, where the state applies the sales tax regulations. 

2.5. Economic Nexus

Many states have adopted laws requiring remote sellers (Online sellers from other countries, or other US states) to collect sales tax if they exceed a certain threshold of sales or transactions within the state.

For example, a UK seller sells plushies to a US consumer in Texas. He must calculate the tax and report back to the Texas state authority as Texas imposes a 6.25 percent state sales tax rate.

Understanding nexus is crucial for businesses selling across state lines or from overseas countries, especially in e-commerce. Failure to comply with nexus laws can lead to audits and penalties.

That is why, regularly reviewing nexus rules and using automated tax software can help businesses remain compliant.

3. Is the sales tax different state-by-state?

3.1. Overview of state sales tax rates

Each state sets its own sales tax rate, which can range from 0% (as in states like Delaware and Oregon) to over 7%.

Additionally, many states allow local governments to impose additional sales taxes, which can significantly increase the total tax rate. (over 9%)

For example, in 2024, the state tax rate of Washington is 6,5%, and the local sales tax averages 2,8%, making the combined state tax goes up to 9,38%.

3.2. Notable state-specific exemptions

Certain products and services are exempt from sales tax depending on the state. For example, groceries, prescription medications, and clothing may be tax-exempt in some states but fully taxable in others.

Delaware is a key example of this state-specific exemption, the state does not impose any sales tax, but the neighboring state New Jersey has a sales tax policy of 6,25%.

To ensure compliance and avoid unexpected liabilities, it's crucial to understand how to manage sales tax effectively.

In the next section, we’ll explore strategies to handle sales tax properly and avoid costly mistakes.

4. How to manage sales tax to avoid costly mistakes and stay compliant online?

Managing sales tax is the most omitted part of any seller’s responsibilities when selling overseas, often resulting in costly penalties that can reach thousands of dollars.

After identifying the nexus and understanding the different sales tax rules across states, the next crucial step is ensuring proper tax management.

Your businesses risk non-compliance, audits, and financial penalties without an effective strategy, b

An effective strategy from our US tax expert in Global Link Asia Consulting consists of 5 simple steps: Identifying, Registration, Calculation, Filin,g and Keeping up with changes.

• 1

  Identify sales tax obligations

• 2

  Calculate sales tax

• 3

  Register for a sales tax permit

• 4

  Filing sales tax returns

• 5

  Keeping up with tax rate changes

5. How can Global Link Asia Consulting help you avoid hefty fines with U.S sales tax law?

With 10 years of expertise in supporting international entrepreneurs to thrive in the U.S. market, Global Link Asia Consulting provides professional services to help businesses establish and grow successfully while ensuring compliance with U.S. regulations, including sales tax

• Advise businesses on selecting the most suitable U.S. state for company formation;
• Provide comprehensive and professional U.S. company incorporation services;
• Assist sellers in registering for a Sales Tax ID in the U.S;
• Help sellers accurately calculate sales tax in each state where they have tax obligations;
• Prepare and file Sales Tax Returns with state authorities;
• Support the registration, setup, and verification of international payment accounts like Stripe, PayPal Business, PayPal Pro, and others;
• Assist in registering and setting up U.S. bank accounts;
• Offer tax, accounting, and financial reporting services for U.S. sellers and businesses.

6. FAQs about sales tax in the U.S

We offer a comprehensive range of accounting and tax services for US companies. Our services include:

• Tax Consulting for LLC companies.
• Monthly/Annual Tax Accounting services in accordance with US GAAP.
• QuickBooks Consulting and Licensing.
• Corporate Income Tax Return Preparation.
• Sales Tax Return Preparation.

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