10 Sales Tax Best Practices for E-Commerce Businesses

Managing e-commerce tax responsibilities is no easy feat. With constantly evolving sales tax laws, varying tax rates across jurisdictions, and increasing sales channels, online sellers must stay proactive to ensure sales tax compliance. Whether you’re just starting your e-commerce business or scaling across multiple jurisdictions, adopting the right strategies can help you collect and remit tax accurately and avoid costly penalties.

Here are 10 best practices every e-commerce seller should follow to streamline their sales tax obligations.

Key takeaways

• Understand and track nexus rules: Monitor both physical and economic nexus across states to ensure you're registering and collecting tax where required.
• Automate tax compliance: Use e-commerce tax software to handle real-time rate calculations, track thresholds, and file returns accurately and on time.
• Stay compliant as you grow: As your sales expand across jurisdictions or channels, scalable tax software can help you meet local, national, and international tax obligations.

1. Understand your sales tax nexus

Your sales tax obligations begin when your business creates a connection—known as nexus—with a state. Nexus can be:

• Physical, such as having an office, employee, warehouse, or inventory in a state.
• Economic, which occurs when you exceed a state’s sales threshold (usually based on sales volume or transaction count over the past or current calendar year).

Each state defines sales tax nexus differently, so it’s important to monitor both your physical presence and sales activity to ensure full compliance.

2. Register for a sales tax permit before collecting tax

It’s illegal to collect sales tax without a valid sales tax permit. Once nexus is established, your next step is to register with the state’s tax authority.

Registration requirements vary by state and sometimes by local jurisdictions. Be sure to complete the correct paperwork for each location.

3. Automate sales tax calculations

Sales tax rates can differ dramatically based on your customer’s shipping address, including differences in statewide sales tax rate and local tax. Trying to handle sales tax calculations manually is time-consuming and prone to errors.

To avoid these problems, use sales tax software for e-commerce that provides:

• Real-time rate calculations
• Support for local tax rates
• Built-in sales tax exemptions logic
• Integration with your checkout system

Leading sales and use tax software can dramatically reduce filing errors and ensure accurate sales tax collection.

4. Monitor economic nexus thresholds

Every e-commerce seller must stay vigilant about economic nexus thresholds. Many states enforce a $100,000 or 200-transaction rule, but this can vary.

Use tax automation tools that alert you when your annual sales approach a threshold in any state. Being proactive lets you register and collect tax before you're out of compliance.

5. File sales tax returns accurately and on time

Once registered, you’re responsible for filing sales tax returns and remitting taxes according to the frequency assigned by each state—typically monthly, quarterly, or annually.

Keep in mind:

• Filing frequencies may change based on your sales volume.
• Even if you made no sales in a period, you may still need to submit a "zero return."
• Late filings can result in fines, interest, and the revocation of your sales tax permit.

Using sales tax filing software ensures you meet deadlines and file in the correct format.

6. Account for local sales taxes

Beyond statewide rates, many areas impose local sales taxes at the city, county, or district level. These local jurisdictions often have different sales tax rules, making compliance even more complicated.

For example, some home rule cities in Colorado administer their own tax separately from the state. That means separate registration, collection, and filing.

Use e-commerce tax software that handles granular local tax rates and adjusts automatically based on your customer’s ZIP code.

7. Know what’s taxable—and what’s not

Not all products and services are taxed equally. Sales tax exemptions vary by state and product category—some states don’t tax clothing or groceries, while others tax digital downloads or SaaS (Software-as-a-Service).

Always research whether your offerings are taxable in the states where you sell. If in doubt, consult a tax professional with experience in e-commerce sales tax.

8. Understand marketplace facilitator laws

Selling on Amazon, eBay, Etsy, or Walmart? Many states have marketplace facilitator laws requiring the platform to collect and remit sales tax on your behalf.

However, you may still need to:

• Register for a sales tax permit
• Report marketplace sales
• File informational sales tax returns

Ignoring these laws can leave gaps in your sales tax compliance strategy.

9. Plan for international and cross-border sales

Cross-border sales introduce even more complexity. If you sell to international customers, you may face VAT, customs duties, or other tax obligations.

For example:

• Selling into the EU may require VAT registration.
• Shipping into Canada might trigger GST/HST obligations.
• Selling digital goods globally may require you to collect tax in multiple countries.

Using tax software that supports international selling is vital to keeping your global operations compliant.

10. Invest in scalable sales tax software

If you're managing sales in multiple states, working across sales channels, or scaling rapidly, manual tax tracking is unsustainable.

Features to look for in the best sales tax software include: 

• Automated sales tax calculations and rate updates
• Nexus tracking by tax jurisdiction
• Seamless integration with e-commerce platforms
• Filing and remittance automation
• Dashboards and reporting tools
• Support for e-commerce business models and marketplace sales

Whether you’re a startup or an enterprise, the best sales tax software for business will help you scale while staying compliant.

Summary

Sales tax responsibilities are an unavoidable part of running an e-commerce business. But with the right tools and processes, you can streamline your tax collection, stay ahead of sales tax rules, and ensure full sales tax compliance across the board.

Whether you sell in one state or across the U.S., embracing these best practices—and the right sales tax software—will help you scale confidently and reduce risk.

Need help managing your e-commerce tax?

LumaTax, Taxually’s e-commerce sales tax software, is designed for growing businesses selling across multiple jurisdictions. Our automated solution helps you stay compliant, accurate, and audit-ready—while saving your business up to 80% in time and costs compared to manual processes or traditional tax services. 

Book a free call with our tax experts and discover how we can simplify your sales tax compliance today.

Frequently Asked Questions

What is sales tax nexus, and why does it matter?

Nexus is a link between your business and a state that requires you to collect sales tax. It can be physical (like a warehouse) or economic (based on sales volume). Knowing where you have nexus is key to compliance.

Do I need a sales tax permit to collect tax?

Yes. You must register and get a valid permit from the state before collecting any sales tax from customers.

How can I simplify sales tax calculations and filing?

Use e-commerce tax software to automate rate calculations, track thresholds, and file returns on time with fewer errors.

What are marketplace facilitator laws?

These laws require platforms like Amazon or Etsy to collect sales tax for you—but you may still need to register or file informational returns.

Do I need to collect tax on international sales?

Often, yes. Selling internationally may trigger VAT or other tax obligations. Use software that supports global compliance to stay on track.