If you’ve ever sold anything online, you’ve probably heard the scare stories. The moment you make a single sale, you’re supposedly required to collect and remit online sales tax in all fifty states. Miss one filing, and the IRS will be knocking at your door. These horror stories are common, especially in ecommerce circles, and they’re usually designed to make you buy something you don’t actually need.
In the last several years, software companies have made a lot of money selling fear. They push expensive tax automation tools on small business owners who are just trying to get started. These tools are built for massive operations, but they’re being marketed to part-time home-based sellers. It’s time to stop the panic and get real about how online sales tax actually works.
Online Sales Tax Before 2018
Up until 2018, the concept of online sales tax was straightforward. If you didn’t have a physical presence in a state, you weren’t responsible for collecting online sales tax there. This was based on the legal concept of nexus, which refers to a business connection with a state.
Nexus typically meant you had employees, an office, a warehouse, or another physical tie to that state. If you didn’t, you didn’t owe them anything. You collected online sales tax in your home state and possibly a couple of others if you had operations there. That was it.
The Wayfair Decision Changed the Game
Then came the landmark Supreme Court case, South Dakota v. Wayfair, in 2018. This ruling changed everything about online sales tax by redefining nexus to include economic presence, not just physical.
Now, even if you’ve never set foot in a state, you may still be required to collect online sales tax there. If you hit certain thresholds in sales or transaction volume, that state can demand compliance. For example, South Dakota set the bar at $100,000 in sales or 200 separate transactions in a year. Dozens of other states followed with similar economic nexus rules.
Each state now has its own definition of what creates nexus. Some states dropped the transaction count requirement, some kept it, and a few made their thresholds stricter. But here’s the part that matters. Economic nexus is based on volume. A handful of online sales does not put you on the radar.
What This Means for Small Sellers
If you’re a home-based seller moving 30 products a month, these online sales tax laws probably don’t apply to you yet. You’d need to hit six figures in annual sales or reach hundreds of transactions in a single state to trigger a filing requirement.
The idea that you need to register in every state from day one is not just wrong, it’s dangerous advice. States are focused on big sellers. They’re looking for companies that are making real money and avoiding tax responsibility. If you’re just getting started, online sales tax compliance in dozens of states simply doesn’t apply to you.
The Fear Marketing Industry
The online sales tax panic is profitable. Some software companies have built entire marketing campaigns around the idea that small sellers are constantly one missed form away from disaster. You’ve probably seen the ads. “Stay compliant in all 50 states,” or “Avoid audits with our automatic tax solution.” These ads work because the rules are confusing, and most small business owners aren’t tax experts.
But let’s be honest. If you’re not earning hundreds of thousands of dollars across multiple states, you’re not required to file online sales tax returns in every jurisdiction. These platforms are not giving legal advice. They’re selling subscriptions.
And those subscriptions aren’t cheap. Many cost hundreds, sometimes thousands, of dollars a year. And they don’t just calculate online sales tax; they often force you to register in states where you don’t even meet the minimum threshold. Once you’re registered, you’re stuck filing returns whether your sales continue or not. That’s a long-term obligation created by a short-term fear.
Where to Actually Start
You don’t need to comply in every state. You need to start where you actually have nexus. First, focus on your home state. That’s where you have the strongest obligation. Make sure you understand how online sales tax works in your state, and follow their rules. Most state tax departments have free resources on their websites. If something is unclear, give them a call.
Second, track your sales by state. Most ecommerce platforms already have reporting tools that break this data down for you. If you start to see volume picking up in a particular state, and you’re nearing its threshold, that’s the time to dig deeper. Until then, there’s no need to preemptively register or pay for automation tools.
If your volume gets close to the threshold in another state, talk to an actual tax professional. Not a software vendor. Not a chatbot. Find a CPA or accountant who understands online sales tax for ecommerce. A one-hour consultation could save you months of confusion and hundreds of dollars in unnecessary software fees.
Online Sales Tax Isn’t Manual Work Anymore
Even if your business does grow large enough to require collecting online sales tax in multiple states, you’re not going to be stuck doing it by hand. Modern ecommerce platforms like Shopify, WooCommerce, and BigCommerce have built-in tax tools. They can automatically apply the correct tax rate at checkout based on where your customer lives. You can activate state-by-state collection without custom coding or expensive plugins.
If you reach the point where you need to register in several states, you’ll still have options. You can file manually for most states, or have an accountant do it for you. You don’t need to spend thousands on software just to stay compliant. Your store’s backend will already be doing most of the heavy lifting.
How to Keep Control of Your Online Sales Tax
- Know your home state’s requirements.
Start where you live and sell. Get your own state right first. - Track your sales by destination.
Use reports to monitor which states you’re selling into most frequently. - Ignore fear-based ads.
These tools are designed to make you nervous. Don’t believe everything you read on a sales page. - Don’t register too early.
Registering before you’re required to creates obligations you don’t need. - Get professional advice when needed.
If you hit real volume, speak with a qualified tax pro before making moves.
Focus on Business, Not Panic
Online sales tax laws are real, but they’re not a threat to your business unless your business is big enough to trigger them. States want compliance from high-volume sellers, not part-time home offices with occasional orders. If you’re just getting started, your job is to grow. When the time comes to deal with multi-state tax rules, your tools and platform will already be prepared to help.
Stay informed. Stay calm. And don’t let fear make decisions that your revenue doesn’t justify.