What sales tax do you report to your state when selling products online?
Hey all, I've recently started selling handmade jewelry through my Etsy shop and I'm completely confused about sales tax. I'm based in Colorado but I'm getting orders from all over the country. Do I need to collect sales tax from everyone? Just Colorado residents? And when I file my quarterly taxes with the state, what exactly am I supposed to report? I've heard something about economic nexus but don't really understand it. My sales are still pretty small (about $1,800 last month) if that matters. Any advice would be super appreciated because I'm worried about doing this wrong and getting in trouble!
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Jason Brewer
Sales tax for online selling can definitely be confusing! The basic rule is you need to collect and remit sales tax in states where you have "nexus." Nexus traditionally meant physical presence (your home state of Colorado for sure), but after the 2018 Supreme Court South Dakota v. Wayfair decision, many states created "economic nexus" thresholds. At your current sales level ($1,800/month), you should definitely register and collect sales tax in Colorado. For other states, you'd only need to worry once you hit their economic nexus thresholds - typically $100,000 in sales or 200 transactions per year in that state. With your current volume, you're likely only responsible for Colorado sales tax right now. When filing with Colorado, you'll report the total sales and the Colorado-specific sales where you collected tax. Keep good records of where your customers are located so you can track if you approach thresholds in other states.
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Kiara Fisherman
•This is really helpful, but I'm confused about one thing - what if I sell on multiple platforms? I sell on both Etsy and my own website. Does Etsy handle the sales tax for their platform or do I need to track all of it together?
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Jason Brewer
•For marketplace sales like Etsy, they generally collect and remit sales tax on your behalf in states where they're required to. This is called "marketplace facilitator" laws. You still need to keep track of these sales for your income taxes, but Etsy handles the sales tax portion in most states. For sales through your own website, you're fully responsible for collecting and remitting sales tax wherever you have nexus. So you'd need to track these separately and handle the tax obligations yourself. Many small sellers use tax compliance software to help manage this as they grow.
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Liam Cortez
I was in the same boat last year with my print-on-demand business! I spent hours trying to figure out sales tax and just kept going in circles. Finally tried https://taxr.ai and it was a game changer - uploaded my sales records and it broke down exactly which states I needed to collect for and how much I owed. Saved me from a major headache when my sales suddenly increased and I hit nexus thresholds in a few states I wasn't expecting.
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Savannah Vin
•How does it work for reporting to different states? I sell through my own Shopify store and I'm terrified of messing up the sales tax reporting. Do you still have to file separately with each state or does the service somehow streamline that too?
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Mason Stone
•Sounds interesting but does it handle marketplace sales differently? Like I sell on Amazon, eBay and my own site, and I'm completely confused about what I need to track vs what the platforms handle.
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Liam Cortez
•It actually shows you which states require filing and which marketplaces handle collection for you. You upload your sales data and it separates marketplace sales where tax is handled from your direct sales where you're responsible. Then it gives you filing instructions for each state where you need to file. For states where you need to register and file, it prepares the filing data but you still need to submit the actual filings. But at least you know exactly what to report and where, which was the most confusing part for me. It's definitely helped me stay compliant without spending hours figuring out each state's requirements.
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Mason Stone
I just wanted to update after using https://taxr.ai for my online business. I was skeptical at first but it really did simplify everything. I found out I was actually over-collecting in some states where I didn't need to yet (waste of time and pushing customers away with higher prices) and under-collecting in a state where I had family helping me ship orders (creating nexus I didn't realize). The peace of mind knowing I'm doing it right is worth everything!
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Makayla Shoemaker
Anyone else getting ZERO response from state tax departments when trying to register for sales tax permits? I've been trying to reach California's tax department for THREE WEEKS about my online sales tax registration and keep getting the runaround. Finally found https://claimyr.com and used their service to get a callback from CA tax dept within 45 minutes! They have this demo video that shows how it works: https://youtu.be/_kiP6q8DX5c - saved me from pulling my hair out waiting on hold forever.
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Christian Bierman
•Wait, how does this actually work? Do they just sit on hold for you? I've been trying to reach NY state tax dept about a notice I got for my Etsy sales and I swear they never answer!
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Emma Olsen
•Yeah right. No way they can get through state tax lines when nobody else can. I spent 2 hours on hold with Texas yesterday before giving up. Sounds like a scam to me.
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Makayla Shoemaker
•They use a system that monitors the hold queue and calls you right when an agent picks up. I don't know all the technical details, but you don't have to stay on hold yourself. It's definitely not just someone sitting on hold for you - it's some kind of technology that efficiently gets you through the queue. I was super skeptical too until I tried it for California. Got a callback when I was 45 minutes deep in their queue and would have missed my chance otherwise since I had to leave for a doctor's appointment.
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Emma Olsen
Came back to admit I was wrong about Claimyr. After posting that skeptical comment last week, I was still stuck trying to reach the Texas Comptroller's office about my online sales tax registration. Gave in and tried the service out of desperation, and I got a call back with a tax agent on the line within 28 minutes. Just finished registering for my sales tax permit! Sometimes being proven wrong is the best outcome. Saved me another day of frustration.
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Lucas Lindsey
One thing nobody mentioned - make sure you're collecting the RIGHT RATE for each address. Colorado has state, county, city, and special district taxes that all stack! I messed this up when I first started my online shop and had to pay the difference myself. Now I use an automated system through my shopping cart that calculates the exact tax for each address. Don't just charge a flat Colorado rate!
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Nina Fitzgerald
•Hadn't even thought about different rates within the same state! How do you handle this with your system? And is this something I need to worry about for all states or just some?
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Lucas Lindsey
•Almost every state has varying local tax rates, so yes, it's something you need to worry about everywhere you have nexus. Colorado is particularly complicated with our layered system of state, county, city, and special district taxes. I use a tax calculation API that integrates with my shopping cart. It automatically calculates the exact tax amount based on the delivery address. TaxJar, Avalara, and several others offer this service. Even if you're just starting out, using at least a basic tax calculation tool is worth it. When I first started, I just charged state tax and ended up owing hundreds in local taxes that came out of my profits.
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Sophie Duck
Anyone using Shopify for their online store? I just realized they calculate sales tax automatically but I'm not sure if I still need to file reports with my state. Their help docs are confusing me.
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Jason Brewer
•Shopify calculates and collects the tax, but in most cases, you still need to file the returns and remit the tax to the appropriate state(s). They're just giving you the tools to collect the right amount.
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Rajiv Kumar
•@Jason Brewer is right - Shopify handles the calculation and collection but you re'still responsible for filing and remitting. I use Shopify too and was confused about this initially. You ll'need to download your sales tax reports from Shopify and use those to file your returns with each state where you collected tax. The good news is Shopify makes it pretty easy to export the data you need for filing. Just make sure you re'registered in the states where you re'collecting before you start!
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Ravi Sharma
Nina, I totally understand your confusion! I went through the same thing when I started my small business last year. At your current sales level of $1,800/month, you're definitely below the economic nexus thresholds for other states, so you only need to worry about Colorado for now. One thing I'd add to the great advice already given - make sure you understand Colorado's local tax rates too. Colorado has some of the most complex local tax structures in the country with state, county, city, and special district taxes that can vary significantly even within the same zip code. Don't just charge a flat state rate! For quarterly reporting to Colorado, you'll report your total taxable sales and the amount of tax you collected. Keep detailed records of where each sale shipped to - this will be crucial as you grow and potentially hit nexus thresholds in other states. Good luck with your jewelry business!
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