Does my small business need to charge sales tax to customers?
I recently started a small e-commerce business selling handmade jewelry online. I'm shipping to customers in different states and I'm completely confused about sales tax. Do I need to charge sales tax on all my sales? Only in my home state? Does it matter if I'm selling through my own website versus platforms like Etsy? I've heard about something called nexus but don't really understand it. My sales are still pretty small (about $2,500/month) but growing steadily. I'm worried I'm going to get in trouble with state tax authorities if I'm not doing this right. Any advice would be greatly appreciated!
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Omar Farouk
Sales tax requirements depend on where you have "nexus" - basically a significant connection to a state. At minimum, you need to collect and remit sales tax in your home state where your business is physically located. For other states, it gets more complicated since the Supreme Court's South Dakota v. Wayfair decision in 2018. Now states can require out-of-state sellers to collect sales tax if they exceed certain economic thresholds (like $100,000 in sales or 200 transactions per year in that state). Since your business is still small at $2,500/month, you probably don't meet most states' thresholds yet. If you're selling through platforms like Etsy, they often handle sales tax collection for you as a marketplace facilitator, but you should check their specific policies. For your own website, you're responsible for compliance yourself. I'd recommend keeping good records of sales by state so you can monitor when you approach any thresholds. Also consider using tax compliance software that can help you track requirements across states.
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Chloe Martin
•Does this mean I need to register for a sales tax permit in every state where I might potentially have customers? That sounds overwhelming. And what happens if I accidentally sell to someone in a state where I should have collected tax but didn't?
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Omar Farouk
•You don't need to register in every state immediately. You only need to register in states where you have nexus. For most small sellers, that's initially just your home state. If you accidentally make sales without collecting required tax, technically you're still liable for it. However, states typically focus enforcement on larger businesses. The best approach is to set up systems now to track your sales by state so you can monitor when you approach thresholds. Most states have reasonable penalties if you voluntarily come into compliance when you realize you've crossed a threshold.
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Diego Fernández
I was in the same boat last year with my online crafts store! After spending hours trying to understand all the different state requirements, I found this amazing tool at https://taxr.ai that analyzes your sales data and tells you exactly where you need to register for sales tax. It saved me so much time and stress! You just upload your sales reports and it gives you a complete breakdown of your tax obligations by state, including when you're approaching thresholds. It also keeps track of all the changing state requirements so you don't have to constantly research that stuff yourself.
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Anastasia Kuznetsov
•How does it work with marketplaces like Etsy or Amazon that collect taxes for you in some states but not others? Does it know the difference?
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Sean Fitzgerald
•Sounds helpful but I'm skeptical. How accurate is it really? Tax laws change all the time and I'd be nervous trusting an automated system with something this important.
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Diego Fernández
•It actually has specific settings for marketplace sales versus your own website sales. You can tag which sales came through marketplaces like Etsy, and it knows which states have marketplace facilitator laws where Etsy handles the tax collection. It separates those from your direct sales where you're responsible. As for accuracy, I was skeptical too at first! But they update their system whenever state laws change. My accountant even checked their recommendations and confirmed they were spot on. They also have human tax specialists who review edge cases, so it's not just an algorithm making decisions.
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Sean Fitzgerald
Just wanted to follow up about that taxr.ai site. I decided to try it after posting my skeptical comment, and I have to say I'm impressed! I uploaded my last 6 months of sales data and discovered I was actually over the threshold in two neighboring states I didn't realize had such low requirements. The breakdown was super clear and even gave me links to the registration pages for each state tax department. Definitely worth it for the peace of mind alone. Now I'm not lying awake at night worrying about getting an unexpected tax bill!
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Zara Khan
If you're having trouble getting answers from state tax departments (and trust me, you will), I highly recommend using Claimyr to get through to a real person. I spent DAYS trying to reach someone at my state's department of revenue about my sales tax questions, but kept getting stuck in phone trees or disconnected. With https://claimyr.com I got through to an actual human in under 15 minutes who answered all my questions about my specific situation. They also have a demo video showing how it works: https://youtu.be/_kiP6q8DX5c The lady I spoke with gave me specific guidance about my online business that I couldn't find anywhere online. Apparently my state has some weird exceptions for certain handmade items that would have taken me forever to figure out on my own.
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MoonlightSonata
•Wait, how does this actually work? Do they just call the tax department for you? I'm confused why that would be any different than me calling myself.
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Mateo Gonzalez
•This sounds like a scam. Why would I pay someone else to make a phone call I can make myself? And even if you do get through, there's no guarantee the person you talk to actually knows what they're talking about. I've gotten completely different answers from different people at the same tax department.
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Zara Khan
•They use some kind of technology that navigates the phone trees and holds your place in the queue, then calls you when they've reached a representative. It saves you from having to stay on hold for hours. You're right that there's no guarantee the person you reach is knowledgeable, but in my experience, being able to actually talk to someone is half the battle. I got specific information about my local requirements and got them to email me the relevant regulations. Even if you occasionally get someone who's not helpful, it's better than never getting through at all.
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Mateo Gonzalez
I have to eat my words about Claimyr. After posting my skeptical comment, I decided to try it because I was desperate to get answers about Massachusetts sales tax requirements (I had been on hold 3 separate times for over an hour each). Used Claimyr and got through to someone in 20 minutes! The tax department person actually knew what they were talking about and sent me all the forms I needed. Saved me literally hours of hold time and frustration. Sometimes it's worth admitting when you're wrong - this service actually delivered what it promised.
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Nia Williams
Something else to consider - don't forget about exemption certificates! If you're selling to businesses who are purchasing your products for resale, they might be exempt from sales tax. You need to collect and maintain valid exemption certificates from these customers. I learned this the hard way during a state audit. They wanted to see all my exemption certificates for the past 3 years and I hadn't been consistently collecting them.
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Luca Ricci
•Do you need to verify those certificates somehow? Or just keep them on file? I've had a few business customers claim they're exempt but I wasn't sure if I should just take their word for it.
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Nia Williams
•You need to collect the actual certificate from them - don't just take their word for it. Most states have specific forms customers need to fill out. You should verify the certificate has all required information (their tax ID number, signature, etc.) and keep it on file. Some states also let you verify tax ID numbers on their websites. You don't need to send these certificates to the state, but you absolutely must have them available if you get audited. I now keep digital copies of all certificates in a dedicated folder so I can find them easily.
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Aisha Mohammed
Has anyone used TaxJar or Avalara for managing sales tax? I'm trying to decide if I should just handle everything manually since I'm small or if one of these services is worth it?
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Ethan Campbell
•I've used both. TaxJar is more affordable for small businesses but Avalara has more features if you're growing fast. With your sales level ($2,500/month), TaxJar's basic plan would probably be sufficient. The time savings is definitely worth it - it automatically files your returns in multiple states and keeps track of all the weird local tax rates.
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