Online Sales Tax, Explained: Why Every Cart Charges It Now

For two decades, "buy it online" quietly meant "skip the sales tax." That ended with the Supreme Court's 2018 Wayfair v. South Dakota decision, which let states tax remote sellers with no physical presence. Today, virtually every major retailer and marketplace collects sales tax on delivery to the 45 states (plus D.C.) that levy one.

The rate that applies is your doorstep's

Online sales tax is destination-based: the combined state + local rate of your delivery address, not the seller's location. Ship the same laptop to Portland, Oregon and pay zero; to Seattle and pay about 10.35%; to a Louisiana parish and pay north of 10%. That's also why your cart's tax estimate sometimes changes after you enter your ZIP — the checkout is resolving your exact district rates.

What small sellers need to know

States can only require collection from sellers above economic nexus thresholds — commonly $100,000 in annual sales into the state (many states have dropped the older 200-transaction test). Below the threshold, you don't collect for that state. Two big simplifiers: marketplace facilitator laws make Amazon, Etsy and eBay collect on sellers' behalf for marketplace orders, and automated services handle rate lookup and filing for direct sales. The trap is growth: crossing a state's threshold mid-year creates an obligation many sellers discover late — registering promptly is far cheaper than back-taxes.

The same $1,000 order, shipped to ten states

Destination sourcing means the buyer's address sets the bill. At each state's average combined rate:

Marketplaces vs. direct sellers

Every state with a sales tax now has a marketplace facilitator law: Amazon, eBay, Etsy, Walmart Marketplace and similar platforms collect and remit tax on behalf of third-party sellers, which is why a small seller's listing on a big marketplace is taxed identically to the platform's own goods. Sellers on their own websites are responsible for collection once they cross a state's economic nexus threshold, and most use a tax-automation service that resolves rates by address and files returns. From the buyer's side the experience is the same either way — tax at checkout, at your address's rate.

Digital goods, subscriptions and services

The frontier of online sales tax is non-physical purchases. Roughly half the states tax digital downloads and streaming subscriptions; fewer tax SaaS and cloud software; a small number tax broad categories of services. The rules change every year as legislatures catch up, which is why a Netflix or Spotify charge may show tax in one state and not another. For businesses selling digital products across state lines, this patchwork is the main reason to use automated tax software rather than a spreadsheet.

Before Wayfair: how the old rule worked

From 1992 (Quill v. North Dakota) until 2018, a state could only require a seller to collect its sales tax if the seller had a physical presence there — a store, warehouse or employees. Catalog and then online retailers used this to sell tax-free into most states, and the resulting gap was estimated in the tens of billions annually by the mid-2010s. South Dakota passed a law requiring collection based on sales volume alone, litigated it deliberately, and in June 2018 the Supreme Court overruled Quill in Wayfair v. South Dakota. Within about eighteen months, every sales-tax state had an economic nexus law.

What still isn't taxed

Purchases delivered to the five no-sales-tax states (Alaska outside local jurisdictions, Delaware, Montana, New Hampshire, Oregon). Exempt categories under each state's rules — most groceries, prescriptions, and clothing under thresholds in several states. Sales from small sellers below a state's nexus threshold who sell outside marketplaces. Most services, in most states. Business purchases for resale with a valid exemption certificate. And used goods sold by individuals (peer-to-peer marketplaces vary — some now collect on individual sellers above a volume). For everything else, the tax at checkout is the rule, not the exception.

The edge cases shoppers hit

Shipping charges are taxable in some states and exempt (when separately stated) in others. Digital goods and streaming are taxed in a growing list of states. Groceries and clothing exemptions apply online exactly as in-store (New York's under-$110 clothing exemption works in your cart too). And technically, buying untaxed and owing "use tax" to your home state has always been the law — Wayfair simply moved collection to the checkout so the honor system stopped being load-bearing.