Sales Tax and Resale Certificates
The two-part system every product business has to get right, and the audit risk if you don't.
If you sell physical products to customers in the United States, you need to collect sales tax. The only real questions are which states, when you have to start, and which platforms handle it for you.
Here’s the short answer. You owe sales tax in your home state from your first sale. You owe it in any other state once you cross that state’s economic nexus threshold, which is usually ~$100,000 in sales or 200 transactions in a year. If you sell on Amazon, Etsy, eBay, or Walmart, those platforms collect and remit for you. If you sell on Shopify, WooCommerce, or your own site, you are responsible for collecting and remitting yourself.
The reason this matters: the first sales tax notice most founders see arrives in the mail two years after they should have been collecting, from a state they’ve never set foot in, asking for back taxes plus penalties and interest. For a Shopify store doing $300,000 a year across all 50 states, an unregistered tax liability can run into five figures before the state charges interest.
At a Glance
| Term | What It Is |
|---|---|
| Sales tax | A consumption tax collected from the customer at checkout, remitted to the state |
| Economic nexus | A sales or transaction threshold that triggers tax obligations in a state where you have no physical presence |
| Marketplace facilitator | A platform legally required to collect and remit sales tax on behalf of its sellers |
| Seller’s permit | Your registration to collect sales tax in a state, also called a sales tax license |
| Resale certificate | A document given to a supplier so they don’t charge you sales tax on inventory you’ll resell |
| South Dakota v. Wayfair | The 2018 Supreme Court ruling that created economic nexus |
Sales Tax, the Short Version
Sales tax is collected from the customer at the point of sale and sent to the state. The seller is the collection agent, not the taxpayer. A customer in Los Angeles buying a $50 candle pays roughly $4.75 in combined state and local sales tax. The seller adds that to checkout, holds it in a separate account, and sends it to the California Department of Tax and Fee Administration on a monthly or quarterly schedule.
Forty-five states plus DC have a statewide sales tax. Alaska, Delaware, Montana, New Hampshire, and Oregon do not, although some Alaskan municipalities collect their own. Rates vary widely. Tennessee’s combined state and local rate averages 9.55%. Louisiana’s averages 9.56%. New York City sits at 8.875%. There are roughly 13,000 distinct sales tax jurisdictions in the country, and rates can change at the city, county, or district level.
The seller’s job is to charge the right rate for the customer’s shipping address, file returns on the state’s schedule, and remit what was collected. Get any of those three wrong and the state will come asking.
Economic Nexus and the Wayfair Decision
Before 2018, a state could only require sales tax collection from sellers with a physical presence inside its borders. An office, a warehouse, an employee, inventory in a 3PL. Without one of those, a Shopify store could ship into a state without collecting a dime of tax.
That changed with South Dakota v. Wayfair, Inc. in June 2018. The Supreme Court ruled that physical presence was no longer the only standard, and that a state could require remote sellers to collect sales tax once they crossed a “substantial economic” threshold. South Dakota’s law set the threshold at $100,000 in sales or 200 transactions per year. Within two years, nearly every other state had adopted similar rules.
The default in most states today is $100,000 in sales OR 200 separate transactions in a calendar year. Hit either one, and the next day you’re legally required to register, collect, and remit. The transaction count catches small-ticket sellers fast. A jewelry brand averaging $40 orders only needs 200 customers in a single state to trigger nexus, even if total sales there are $8,000.
A few of the biggest states moved their thresholds higher:
- California: $500,000 in sales (no transaction count)
- Texas: $500,000 in sales (no transaction count)
- New York: $500,000 AND 100 transactions
- Tennessee: $100,000 in sales (no transaction count)
- Massachusetts: $100,000 in sales (no transaction count)
States also count differently. Some include marketplace sales toward the threshold, some don’t. Some count gross receipts, others only taxable receipts. The legal calendar varies: most use the prior calendar year, several use a rolling 12 months. The thresholds also change. California’s was $100,000 until 2019. Kansas had no minimum threshold at all from 2019 to 2021.
Start With Your Home State
Before nexus is a question, the home state is the answer. The state where the business is registered (the state where the LLC was formed or where the founder lives and operates) is the first registration every product business needs. Most founders register there before their first sale.
Registration is done through the state’s department of revenue or equivalent agency. The process takes 15 to 45 minutes online and is typically free, although a few states (Connecticut at $100, West Virginia at $30) charge a small permit fee. The state issues a seller’s permit number, and from that point the business is legally allowed to collect sales tax from customers and obligated to file returns on the state’s schedule.
Filing frequency depends on volume. New permits usually start on a quarterly schedule. Higher-volume sellers get moved to monthly. A few low-volume sellers can file annually. Even a zero-tax-collected period requires a return. Missing a filing is the easiest way to attract a state audit, and the penalty is usually a flat fee plus a percentage of any unfiled tax.
Shopify Is Not a Marketplace Facilitator
This is the single most expensive misunderstanding in DTC. The 2018 Wayfair ruling spawned a second wave of legislation called marketplace facilitator laws. These laws require certain platforms to collect and remit sales tax on behalf of the sellers using them. The seller is off the hook in any state where the marketplace handles it.
Amazon, Etsy, eBay, Walmart Marketplace, Faire, and TikTok Shop all qualify as marketplace facilitators in every state that has a sales tax. If a brand sells exclusively through Amazon, Amazon collects and remits sales tax in all 45 states. The seller has no sales tax obligation from those orders, although she may still need to register in her home state and file zero returns.
Shopify does not qualify. A Shopify store is treated as a DTC operation owned by the seller, with the seller as the merchant of record. Shopify provides tools to calculate the right rate (Shopify Tax, which auto-applies rates by address), but it does not collect or remit. The seller files and pays the tax in every state where she has nexus.
The same applies to Shopify Plus, BigCommerce, WooCommerce, and most direct-to-consumer platforms. The cleanest test: if the customer is checking out on a domain the seller controls, the seller is the merchant of record and owes the tax.
A brand that sells through both Amazon and Shopify has to track sales tax obligations separately for each channel. Amazon handles its half. Shopify orders remain the seller’s responsibility, and Shopify sales count toward the nexus threshold in every state.
Resale Certificates
A resale certificate is a separate document and a separate concept. When a brand buys inventory from a manufacturer, distributor, or wholesaler, that supplier would normally charge sales tax on the purchase. The resale certificate tells the supplier the buyer is purchasing the goods for resale and the sales tax will be collected later, from the final customer.
Without one, a small beauty brand buying $20,000 of finished product from a contract manufacturer pays around $1,600 in sales tax on the purchase. With one, she pays $0 on the order and collects sales tax only when she sells the product at retail. That’s how the system is built: tax is collected once, at the final consumer sale.
A resale certificate is state-specific. There is no single national certificate. Most states issue a resale certificate (or accept the Multistate Tax Commission’s Uniform Sales and Use Tax Certificate) only after the business is registered for sales tax collection in that state. The number on the resale certificate is usually the same as the seller’s permit number.
Some states combine the resale certificate and the seller’s permit into a single document. Texas, for example, uses one form for both. Other states issue separate certificates that have to be requested individually. Suppliers keep these certificates on file as proof of the tax-exempt sale and can be liable if they accept an invalid one.
Using a resale certificate in a state where the buyer isn’t registered is tax fraud. States audit suppliers regularly, and any certificate that doesn’t match a valid registration triggers a back-tax bill on the supplier, who then bills it to the buyer.
Common Mistakes
Not registering in the home state at launch. Founders often wait until the first big order arrives, then realize they should have collected tax from sale one. The state expects collection from the moment the permit is active, and the home state is the easiest one to get right.
Assuming Shopify handles it like Amazon does. It does not. Shopify Tax calculates the right rate at checkout. The seller is still responsible for registration, collection, and remittance in every nexus state.
Ignoring nexus until an audit notice arrives. States now share data with marketplace platforms and payment processors. A Shopify store doing volume in California has a real and growing chance of getting flagged. Voluntary disclosure agreements (VDAs) let unregistered sellers settle back taxes for a limited lookback period (usually 3-4 years) without penalties, but only if the seller comes forward first.
Collecting tax but never remitting it. Some founders set up Shopify Tax, charge customers correctly, then never file because they never registered. The state treats that as theft, not negligence. Collected tax that’s never remitted is the fastest path to personal liability, criminal charges in extreme cases, and a pierced LLC veil.
Using a resale certificate in a state where the business isn’t registered. Manufacturers will sometimes accept any certificate handed to them, but the audit risk falls on the supplier first and the buyer second.
Penalties and Enforcement
States can audit sales tax obligations going back ~3 to 7 years depending on the jurisdiction, and longer if fraud is alleged. California, New York, Washington, and Texas are the most aggressive enforcers. Texas runs marketplace data through automated nexus screens. New York routinely sends inquiry letters to out-of-state Shopify stores that show up in shipping data. Washington publishes a monthly list of businesses that fail to remit.
Penalties usually run 10-25% of the unpaid tax, plus interest of 5-12% annualized. On $20,000 of uncollected back tax, the total bill after penalties and three years of interest can reach $30,000 to $35,000. The state collects on a payment plan or freezes business bank accounts to recover it.
Tools
TaxJar ($19-$99/month, owned by Stripe): tracks nexus thresholds in every state, files returns automatically in most, integrates with Shopify, Amazon, BigCommerce. The default option for most small DTC brands.
Avalara (custom pricing, typically $1,000+/year): enterprise-grade tax compliance. Built for larger sellers with complex multi-state operations, retail, and international.
Anrok (custom pricing): SaaS-focused tax compliance. Used by digital product and software businesses where rules around digital goods get complicated.
Shopify Tax (free up to $100K in US sales, then 0.35% per order, capped at $0.99): built into Shopify. Handles rate calculation accurately. Does not file returns. Pairs well with TaxJar or Avalara for filing.
Quaderno ($49-$149/month): a lighter alternative to TaxJar, popular with smaller sellers and international businesses.
The right tool depends on revenue and channel mix. A Shopify-only brand under $200,000 in revenue is fine with Shopify Tax plus TaxJar. A multi-channel operation hitting $1M starts to need Avalara.
This is general information, not tax advice. State sales tax rules change frequently, and the right registration plan depends on where the business operates, where it ships, and how much. A CPA or sales tax specialist can review the specific numbers and recommend a state-by-state strategy.
Sources
- Supreme Court of the United States, “South Dakota v. Wayfair, Inc.,” June 21, 2018. Original opinion establishing economic nexus and overturning the physical presence standard from Quill Corp. v. North Dakota (1992).
- Sales Tax Institute, “Economic Nexus State by State Chart,” 2024. Current economic nexus thresholds, effective dates, and measurement periods for all 45 sales tax states plus DC.
- TaxJar, “Marketplace Facilitator Laws Explained,” 2024. State-by-state breakdown of which platforms qualify as marketplace facilitators and which sales count toward seller nexus thresholds.
- Shopify, “US Sales Tax Reference,” 2024. Shopify’s documentation on its tax calculation tools and the seller’s responsibility for filing and remittance.
- Multistate Tax Commission, “Uniform Sales & Use Tax Resale Certificate,” 2024. The multi-state resale certificate form accepted by 38 states, plus the list of states that require their own form instead.
- California Department of Tax and Fee Administration, “Use Tax and Out-of-State Sellers,” 2024. California’s specific $500,000 threshold, marketplace rules, and audit procedures for out-of-state sellers.
- Avalara, “State-by-State Guide to Sales Tax Nexus Laws,” 2024. Detailed thresholds, registration requirements, and filing frequencies for all states with sales tax.