If you are a non-US resident running an e-commerce business, you probably wonder whether sales tax in the United States applies to you. The rules can be confusing, and many entrepreneurs waste time worrying about states where they may not even have obligations. The truth is that you only need to pay attention to sales tax in states where your business has a clear connection, also known as nexus. Once you understand how nexus works and how sales tax is applied, compliance becomes much easier to handle.
Do Non-US Resident E-commerce Businesses Need to Pay Sales Tax?
If you are a non-US resident running an e-commerce business, one of your first questions will likely be whether you need to pay sales tax. The answer depends on your business activities and how your products reach your customers.
In the United States, sales tax obligations are tied to nexus. Nexus is the legal term for a connection between your business and a state that creates a tax duty. For e-commerce businesses, nexus usually comes from:
- Storing inventory in the country, or
- Reaching certain sales thresholds in a state.
If you are selling from abroad with no physical presence in the United States, you typically do not need to pay sales tax unless your sales exceed a state’s economic nexus threshold. However, the moment your products are stored in the United States, even in a third-party warehouse, you create physical nexus, and sales tax responsibilities begin immediately.
Physical Nexus vs. Economic Nexus
To understand sales tax in the United States, you need to know the two types of nexus: physical and economic. Nexus is simply the legal connection that creates the obligation to collect and remit sales tax in a state.
Physical nexus
Physical nexus is created when your business has a physical presence in a state. For e-commerce sellers, this can mean:
- Storing products in a warehouse, fulfillment center, or even at a relative’s house in that state
- Having employees, contractors, or an office there
- Operating your own warehouse or retail store
If you have a physical nexus in a state, you must collect sales tax on sales to customers in that state from your very first transaction, no matter how small.
Economic nexus
Economic nexus is created by the volume of your sales in a state, even if you have no physical presence there. After the 2018 Supreme Court decision in South Dakota v. Wayfair, Inc., states were allowed to set thresholds that require out-of-state sellers to collect sales tax.
Most states set this threshold at 100,000 dollars in annual revenue or 200 separate transactions with customers in that state. Some states, like California and Texas, use higher thresholds, usually around 500,000 dollars.
The difference in practice
- If you store products in New Jersey, you have physical nexus there and must collect sales tax from the very first sale to a New Jersey customer.
- If you sell 150,000 dollars worth of goods to customers in Washington without storing any inventory there, you have economic nexus and must register to collect sales tax in Washington.
Physical nexus creates obligations immediately, while economic nexus applies only once you cross the thresholds. For ecommerce founders, this distinction is key to knowing where and when to register for sales tax.
This is why ecommerce founders need to pay special attention to where their products are stored and how much revenue they generate in each state.
What is Sales Tax and Who Imposes It?
Sales tax is a consumption tax added at the point of purchase. Businesses collect the tax from customers and then remit it to the government.
Unlike many countries that have a national VAT system, the United States does not have a federal sales tax. Instead, sales tax is imposed at the state and local levels. This means that the IRS is not involved, and your responsibilities depend entirely on the rules in the states where your customers live. Not where your company is registered, but where your customers live.
Because both states and local jurisdictions (like counties and cities) can impose their own taxes, two customers buying the same product in different places may pay very different amounts of sales tax.
For example, if you sell to a customer in Austin, Texas, you must collect both state and city tax. But if your customer lives in Anchorage, Alaska, you do not collect any sales tax at all, because neither the state nor the city imposes it.
How Does Sales Tax Work?
Let’s look at an example.
A customer wants to buy a product listed at 80 dollars. In their location, the state sales tax is 5 percent and the city adds another 1 percent.
- The seller calculates 4 dollars for the state and 0.80 dollars for the city.
- The final purchase price becomes 84.80 dollars.
- The seller keeps 80 dollars as revenue and remits 4 dollars to the state and 0.80 dollars to the city.
If the seller forgets to add sales tax to the sale price and later gets audited, they will still have to pay the 4.80 dollars to the authorities out of their own 80 dollar revenue.
Do Non-US Resident Ecommerce LLCs and C-Corps Collect Sales Tax?
Yes, but only in the states where they have nexus. How a nexus is created depends on how you fulfill orders. Here are the most common situations for ecommerce sellers:
Amazon FBA
When you sell through Amazon’s Fulfillment by Amazon (FBA) program, your products are stored in Amazon warehouses across the United States. This creates physical nexus in every state where Amazon stores your inventory. That means you must collect and remit sales tax in those states, even if you never travel to the US.
The good news here is that Amazon collects, remits, and reports the sales tax as a merchant of record, so you don’t need to do anything.
Fulfillment from Third-Party Warehouse
If you use a fulfillment provider other than Amazon, the rule is the same. Your products being stored in their warehouse creates physical nexus in that state. You must collect sales tax from customers located there.
Fulfillment from Your Own Warehouse
If you own or lease your own warehouse in the United States, this creates clear physical nexus in that state. You must collect sales tax on sales to customers in that state and comply with local filing requirements.
Fulfillment from Relatives’ or Friends’ House
Some entrepreneurs ship products from a relative’s or friend’s home in the United States. This also creates nexus because your inventory is physically located on US soil. From a legal perspective, it does not matter whether you own the warehouse or simply store products in a garage – you have sales tax obligations in that state.
Dropshipping from a US Supplier
If your US supplier ships directly to customers under your company’s name, this often creates nexus in the supplier’s state. Some states treat the supplier as the seller, while others treat your company as responsible for sales tax. You need to check the rules carefully in each case.
Dropshipping from Outside the US
If your products are shipped directly from a country outside the United States, you typically do not have physical nexus in the US. In that case, you only need to worry about economic nexus. If your sales in a particular state stay below the thresholds (usually 100,000 dollars or 200 transactions), you do not need to collect sales tax. Once you cross them, you must register, collect, and remit.
Example of Nexus in Practice
Suppose your company is registered in Delaware but sells products online worldwide. You store inventory with a fulfillment partner in Illinois, and your sales numbers look like this:
- 220,000 dollars in Georgia
- 75,000 dollars in Florida
- 40,000 dollars in Illinois
- 120,000 dollars in Washington
Here’s how nexus applies:
- Your warehouse in Illinois creates physical nexus. You must collect and remit sales tax on all Illinois sales.
- Sales of $ 220,000 in Georgia exceed the $ 100,000 threshold, so you have economic nexus there.
- Florida sales of 75,000 dollars are below the 100,000 dollar threshold, so there is no nexus in Florida.
- Washington sales of 120,000 dollars are above the 100,000 dollar threshold, so you must register and collect sales tax there.
In this example, you must register, collect, and remit sales tax in Illinois, Georgia, and Washington, but not in Florida.
How to Pay Sales Tax
If your e-commerce business has nexus, the process of paying sales tax involves three steps:
- Register for sales tax in the state where you have nexus. You cannot collect tax legally until you are registered.
- Charge the correct rate at checkout. This rate depends on the customer’s delivery address and can include state, county, and city taxes.
- File returns and remit the tax according to the state’s schedule. Some states require monthly filings, while others may allow quarterly or annual submissions.
Because there are more than 13,000 tax jurisdictions in the United States, keeping track manually is nearly impossible. Fortunately, several tools can help:
- Numeral gives you a free tracker and only charges once you need to file, making it budget-friendly for smaller businesses.
- Kintsugi works in the same way, allowing you to monitor sales tax exposure at no cost until you actually have to register and file.
- TaxJar is widely used for automated sales tax calculations and filing across many states.
- Stripe can automatically calculate and collect sales tax at checkout, but it does not handle the filing process.
- Merchant of Record (MoR) services like Paddle and FastSpring take full responsibility for compliance. They become the legal seller of your products, handle payments, collect and remit sales tax, and even deal with audits. This is a popular option for international sellers who want to avoid the complexity of managing sales tax themselves.
Alternatively, your accountant can handle the sales tax on your behalf. But that’s going to be hell of a work and will cost you a lot.
Final Thoughts
For non-US resident ecommerce founders, sales tax may seem like an endless maze of rules, thresholds, and jurisdictions. The good news is that you are not responsible everywhere, but only in the states where you have nexus. By identifying where your inventory is stored and monitoring your sales levels, you can focus only on the states where obligations actually exist.
Tools and service providers can take most of the burden off your shoulders, and for many international founders, using a Merchant of Record is the simplest way to stay compliant.
If you are unsure where to start or want clarity about your specific situation, you are welcome to reach out for a free consultation. With the right guidance, sales tax compliance does not need to stand in the way of your ecommerce growth.
