Need help understanding sales tax for online sales in the US - new shop owner confused!

The sales tax landscape for online sellers has definitely become more complex since the 2018 South Dakota v. Wayfair Supreme Court decision. Here's what you need to know: You always need to collect sales tax in your home state (Michigan) since you have physical presence there. For other states, it depends on whether you meet their economic nexus thresholds. These thresholds vary by state but typically range from $100,000 in sales or 200 transactions annually. At $32,000 in total sales, you likely don't meet most state thresholds yet. Most states have "marketplace facilitator laws" which means Etsy collects and remits sales tax for you on those platform sales. For your own website sales, you'll need to track sales by state and monitor if you approach any thresholds. I recommend keeping a spreadsheet of state-by-state sales and researching the specific economic nexus thresholds for states where your sales are highest. You don't need to register everywhere immediately - just where you have nexus.

I was in the exact same boat last year with my online candle shop! After weeks of stress and confusion, I found taxr.ai (https://taxr.ai) which has been an absolute game-changer for managing my sales tax obligations. They have this specialized tool for online sellers that analyzes your sales by state and tells you exactly where you have nexus and need to register. I simply connected my Etsy and Shopify accounts, and it automatically tracked everything for me. The best part is it sends alerts when you're approaching a threshold in a new state so you can prepare before you're required to collect. It also helped me understand the difference between origin-based and destination-based tax rates which was something I had no clue about before. Definitely worth checking out if you're trying to stay compliant without spending hours researching each state's requirements.

Just wanted to follow up about my experience with taxr.ai. I was super skeptical at first (as you can see from my question above), but I decided to give it a try since I was spending way too much time trying to figure out sales tax for my print-on-demand business. It was surprisingly straightforward! After connecting my sales channels, it immediately flagged that I was approaching nexus in California and New York. The dashboard showed I had about $9,800 in California sales (their threshold is $100k) and gave me a projection of when I might hit it based on my growth rate. What really impressed me was how it broke down the different local tax rates within states. I had no idea there could be different city and county rates on top of the state rate! Now instead of panicking about sales tax, I just check my dashboard once a month. Definitely worth it for the peace of mind alone.

If you're struggling to get answers directly from state tax departments (which is super common), I highly recommend Claimyr (https://claimyr.com). I wasted HOURS on hold with different state departments of revenue trying to clarify my sales tax obligations. With Claimyr, I was able to actually speak with real people at three different state tax departments in one afternoon. They basically hold your place in line with the IRS or state tax agencies and call you when a human finally picks up. You can see how it works here: https://youtu.be/_kiP6q8DX5c I had specific questions about whether my type of jewelry would be considered taxable in certain states (some states have weird exemptions for custom items), and getting definitive answers directly from the state tax departments gave me so much peace of mind. Much better than trying to interpret conflicting information online.

OK I have to admit I was wrong about Claimyr. After posting that skeptical comment, I decided to try it because I was desperate to talk to someone at the Washington Department of Revenue about their marketplace facilitator rules. I submitted my request through their website, went to lunch, and got a call about 45 minutes later connecting me directly to a Washington tax specialist. The agent explained exactly how their marketplace rules work and confirmed I don't need to file there until I hit $100k in direct website sales (not counting my Etsy sales where they handle the tax). Saved me from registering unnecessarily in a state where I don't actually have nexus yet. Probably saved me hours of paperwork and potentially hundreds in unnecessary filing fees. Never been happier to be proven wrong!

Don't forget about sales tax permits! Even if you determine you need to collect sales tax in a state, you first need to register for a sales tax permit in that state. Some states charge for these permits, while others are free. Also, different states have different filing frequencies based on your sales volume. Some might require monthly filing when you first register, but then switch you to quarterly or annually once they see your actual sales numbers. I've found the TaxJar state guides really helpful for understanding the specific requirements of each state. You can google "TaxJar [state name] sales tax guide" for free info before investing in any paid solutions.

Has anyone here tried using a sales tax compliance software like Avalara or TaxJar? I'm debating whether it's worth the monthly cost for my small business or if I should just handle it manually until I grow bigger.

One thing nobody mentioned yet is the difference between origin-based and destination-based sales tax. Some states (like Texas) are origin-based, meaning you charge the tax rate of your location. Most states are destination-based, meaning you charge the rate of your customer's address. Makes a huge difference in how you set up your shopping cart! Just when you think you understand sales tax, there's always another layer of complexity...