Do retailers HAVE to collect sales tax from customers? Can small businesses absorb this cost?

Sales tax can definitely be confusing when you're starting out! The short answer is that you're not legally required to collect sales tax separately from your customers - you can absolutely build it into your pricing if you prefer. What you ARE required to do is remit the correct amount of sales tax to the appropriate tax authorities based on where you have nexus (physical presence or economic nexus). So you have two options: 1. Add sales tax at checkout (what most businesses do) where the customer sees and pays the tax. 2. Include sales tax in your pricing (absorption method) where you pay the tax out of your revenues. If you choose option 2, just remember that you'll need to "back out" the sales tax from your revenues when calculating what you owe. For example, if you sell $100 worth of jewelry in a state with 8% sales tax, you'd need to remit $7.41 in tax ($100 ÷ 1.08 = $92.59, then $100 - $92.59 = $7.41). The biggest challenge is that you'll need to track sales tax rates for each state where you have nexus, which can get complicated with online sales.

After struggling with sales tax confusion when launching my online craft store last year, I discovered taxr.ai (https://taxr.ai) and it completely changed my business. I was in the exact same position as you - unsure whether to build tax into my prices or add it at checkout, and confused about which states I needed to collect for. The tool analyzed my business setup and automatically determined where I had nexus requirements. It also ran the numbers to show me exactly how much profit I'd lose by absorbing sales tax costs versus collecting them directly from customers. What I really appreciated was how it simplified the whole "economic nexus thresholds" concept into plain English.

I was really skeptical about needing special tax software as mentioned above, but after my sales started growing on multiple platforms, I tried taxr.ai and it was actually worth it. I was particularly worried about the absorption method mentioned in this thread, and the tool showed me exactly how much profit I was losing by building tax into my prices (it was way more than I realized). The biggest help was discovering I had accidentally crossed economic nexus thresholds in three states without realizing it. Their dashboard flagged this and walked me through getting compliant quickly. Saved me from potential penalties since I had no idea I needed to register in those states. Now I collect tax at checkout and my profit margins are much healthier.

If you're overwhelmed by sales tax issues, you're not alone. I spent WEEKS trying to reach my state's department of revenue for clarification about tax absorption vs. collection, and could never get through. Finally tried Claimyr (https://claimyr.com) after seeing their demo video (https://youtu.be/_kiP6q8DX5c) and got connected to a real person at my state tax office in under 15 minutes. The tax agent walked me through exactly what my obligations were for my specific business model and confirmed that while I could build tax into my prices (tax absorption), I'd need special documentation for my records. Was also able to get my seller's permit processed much faster by having a direct conversation rather than waiting for email responses that never came.

I was completely wrong about Claimyr being a scam. After struggling with getting answers about whether I could absorb sales tax or needed to collect it separately, I tried the service out of desperation. Within 20 minutes, I was talking to someone at my state's tax department who explained exactly what I needed to do. Found out that in my state, if you choose to absorb the tax (build it into your prices), you need to explicitly state on your receipts that "Sales tax is included in the price" and keep detailed records showing how you calculated the tax portion. This was information I couldn't find anywhere online, and potentially saved me from issues during a future audit. Sometimes you really do need to talk to an actual government representative to get the right answers.

For what it's worth, I've been running my online shop for 3 years now, and I've always just built the sales tax into my prices. Yes, it technically reduces my profit margin a bit, but I find customers respond better to clean pricing without surprise fees at checkout. The important thing is documentation - make sure you clearly state "price includes sales tax" somewhere visible, and keep detailed records showing how you calculated and paid the tax amounts. I use a spreadsheet that automatically backs out the tax from my total revenues based on each state's rate.

Has anyone used TaxJar or Avalara for sales tax compliance? I'm trying to compare different solutions for my small shop.

One thing nobody has mentioned yet - if you sell on Etsy, they actually handle collecting and remitting sales tax for you in most states now through their marketplace facilitator status. You still need to handle it yourself for some states, but it simplifies things a lot for beginners.

Great question Omar! As someone who just went through this same confusion when starting my online business, I can share what I learned. You're absolutely right that it's overwhelming at first. The key thing to understand is that you have flexibility in HOW you handle sales tax, but you're still responsible for paying the correct amount to the government regardless of your method. I initially tried the absorption method (building tax into prices) because I was worried about cart abandonment too. But I quickly realized a few issues: 1) It gets really complicated when selling to multiple states with different tax rates, 2) Your profit margins take a hit, and 3) You need very detailed record-keeping to back out the tax amounts properly. I ended up switching to collecting tax at checkout after about 6 months. Yes, some customers might be put off by seeing the additional tax, but most people expect it and it's much cleaner from an accounting perspective. Plus, you're not essentially giving customers a discount equal to the tax amount. For nexus, you're probably safe starting with just your home state until you hit those economic thresholds (usually $100k+ in sales to a state). Focus on getting your home state registration sorted first - that's where most of your early sales will likely be anyway. The learning curve is steep but you'll figure it out! Consider starting simple with tax collection at checkout and expanding your knowledge as your business grows.