US Sales Tax
A single-stage consumption tax levied by US states and local jurisdictions on the retail sale of tangible personal property and some services.
Definition
What it is
Unlike VAT or GST, US sales tax is imposed only at the point of final retail sale. There is no federal sales tax. Each state, plus thousands of counties and cities, sets its own rate, base, and rules. Combined rates can exceed 10% (parts of Louisiana, Tennessee, Alabama). Five states have no statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.
Economic nexus after Wayfair
The 2018 Supreme Court decision in South Dakota v. Wayfair removed the physical-presence requirement. States can now require remote sellers to collect sales tax once they cross an economic nexus threshold (commonly USD 100,000 in sales or 200 transactions per state per year). This made compliance dramatically harder for SaaS, e-commerce, and marketplace platforms.
Marketplace facilitator rules
Most states now treat platforms (Amazon, Etsy, eBay) as marketplace facilitators that must collect and remit sales tax on behalf of third-party sellers. Direct-sales channels (your own Shopify store) remain the seller's responsibility. Compliance tools (Avalara, TaxJar, Stripe Tax) are widely used because rates change at the city level and the taxability of digital goods varies by state.
When you'll encounter it
You will encounter US sales tax once you cross an economic-nexus threshold in any state where you sell, when launching a Shopify or direct-sales channel into the United States, when selling SaaS subscriptions to US customers (taxable in some states, exempt in others), and when registering for permits in states with physical presence.
Used in our guides
FAQ
Is there a US federal sales tax?
No. Sales tax in the US is imposed at the state and local level only, and rates and rules vary widely.
Do I have to charge sales tax on SaaS?
It depends on the state. New York, Texas, and Pennsylvania broadly tax SaaS, while California and Florida generally do not. The taxability of digital goods is jurisdiction-specific.
What is economic nexus?
A threshold (often USD 100,000 in sales or 200 transactions per state per year) that, once crossed, requires a remote seller to register, collect, and remit sales tax in that state.
References
- Streamlined Sales Tax Governing Board https://www.streamlinedsalestax.org/
- Tax Foundation - State and Local Sales Tax Rates https://taxfoundation.org/data/all/state/2024-sales-taxes/