How to Set Up Sales Taxes for Online Businesses in 2024

Setting up Sales Taxes

Insight from Stripe

Because sales tax regulations change yearly, they are a pain to deal with.

At a high level, businesses should only register once they’ve identified where they have a physical connection or economic nexus.

If you are an out-of-state seller, economic nexus is generally the standard for determining when to register to collect sales tax. Economic nexus thresholds are based on sales revenue, transaction volume, or both.

For example, in California, you must register and collect sales tax once you exceed $500,000 in sales revenue from customers in California.

Once you determine where to collect tax, your next step is to register with the state or local tax authority. This is crucial since you must be registered to collect tax before calculating and collecting sales tax.

No matter which type of products you sell (e.g., digital goods, services, or physical products), your registration process remains the same.

In general, these are the steps to register with a state to collect sales tax:

1. Gather business and contact information.

2. Visit your state’s Department of Revenue website.

3. Click on the “Sales and Use Tax” section of the website to register your business.

Since each state has its own sales tax authority, you must individually register to collect sales tax in each state. To register for a sales tax permit, visit the state tax authority website.

You can find the link for each state here.