Online Sales Tax Explained: Internet Purchases, Marketplaces and Use Tax

This guide is the map of the subject, not a deep dive into one corner of it. It answers the shopper's question first — why was I charged, why is the number different from last time, what do I owe when the tax line is blank — then turns to the seller's question of when an obligation to collect actually starts. Where a topic has its own mechanics, this page explains the shape and hands you to the guide that does the arithmetic.

It is not a state-by-state rate list and not a nexus threshold table. Those live in the state rate directory and the address rate lookup, which are the two pages you actually need open when you are checking a number rather than learning the system.

There is no such thing as an internet sales tax

Nothing about the tax on your online order is special. The state where the parcel lands taxes retail sales of goods; your order is one; the tax applies. California's tax authority states it without hedging: there is no general tax exemption for sales of tangible personal property made over the internet⁴. The internet is a channel, not a tax status.

It feels new because for two decades most online sellers were not required to collect it, so the line was blank and shoppers read a blank line as an exemption. It never was one: the liability sat on the buyer the whole time, unenforced, as use tax. What changed in 2018 was not the tax but who has to hand it over.

Underneath every checkout, three separate questions are being answered in order, and almost every argument about an online tax line is really an argument about one of them. Is this seller required to collect in the state the parcel is going to? Is this particular item taxable in that state? And what is the combined rate at that exact address? A "no" at any of the three produces a zero, and the three are decided by different bodies of law.

Census Bureau, Q2 2026³; South Dakota v. Wayfair¹

What the Internet Tax Freedom Act actually says

The most durable myth here is that Congress banned taxes on internet commerce. It did not. The Act bars two things: taxes on internet access, and multiple or discriminatory taxes on electronic commerce². The second phrase is where people go wrong. A tax is discriminatory under the Act only if the state does not generally impose it, and legally collect it, on transactions involving similar goods accomplished through other means.

Read backwards, the rule is obvious. A state cannot invent a 3% surcharge that applies only to web orders, and it cannot tax your broadband connection. It can charge the same 6% on a web order that it charges in every shop on the high street, because that is the definition of a tax that is not discriminatory. The moratorium was originally temporary and renewed repeatedly; it was made permanent by a 2016 amendment². The Act protects the internet from being singled out. It never protected it from being treated the same.

The scale of what was being left untaxed is what finally forced the change. Online retail was a rounding error when the governing rule was written and is now roughly a sixth of everything Americans buy. The Court noted e-commerce growing from 0.8% of total US retail sales in 2000 to 8.9% by the time it heard the case¹, and the Census Bureau put it at 17.1% for the second quarter of 2026, on $340.2 billion of online sales in that quarter alone³.

E-commerce as a share of total US retail sales¹³

How online orders came to be taxed

Two Supreme Court cases built a shelter for remote sellers, a third demolished it, and the states filled the gap in about eighteen months. Everything that looks arbitrary about online sales tax — dollar thresholds, transaction counts, platforms collecting on behalf of strangers — dates from that demolition, and none of it makes sense without the history.

Dates, holdings and thresholds per the opinion¹

The mail-order shelter, 1967 to 2018

The original rule came out of catalogue selling. A company printing catalogues in one state and posting parcels into another was held, in 1967, to be beyond the reach of the destination state's use tax collection machinery, and that holding was reaffirmed in 1992¹. The reasoning of its era was practical: a seller with no people, no buildings and no property in a state should not have to learn that state's rate schedule and file its returns.

The consequence was a structural price advantage. An out-of-state website quoted a total with no tax line; the shop on the corner quoted one with. The buyer still owed the use tax in both cases, but only one of the two transactions had anyone collecting it, and almost nobody paid it voluntarily. That gap is what the states spent twenty-five years trying to close, and it is the reason the eventual reversal was so abrupt.

What South Dakota did, and why it worked

South Dakota wrote a statute designed to be challenged. It required collection from sellers that, on an annual basis, deliver more than $100,000 of goods or services into the state or engage in 200 or more separate transactions for delivery into the state¹ — the two numbers that became the ancestors of every economic nexus threshold in the country, which is why so many states landed on exactly the same pair rather than inventing their own.

The Court sided with the state on June 21, 2018, calling the physical-presence requirement unsound and incorrect¹. Its arithmetic was blunt: the old rule was costing the states somewhere between $8 and $33 billion a year, and South Dakota alone put its own loss at $48 to $58 million annually¹. A rule that had once protected small catalogue firms was, by then, sheltering some of the largest retailers in the world.

The opinion flagged three features of the South Dakota law that appeared designed to prevent undue burdens on interstate commerce: a safe harbour for sellers transacting only limited business in the state, a bar on applying the obligation retroactively, and South Dakota's membership of the Streamlined Sales and Use Tax Agreement, which the Court noted more than 20 states had adopted¹.

Those three features are worth reading as instructions rather than observations, because the states did. The safe harbour is why every threshold is a threshold and not a rule that bites on the first dollar. The bar on retroactivity is why a seller who registers on discovering an obligation is generally dealing with the future rather than a reconstructed past. And the third point is why the simplification project matters commercially and not just administratively — it is covered in the Streamlined Sales Tax guide.

It is equally important to be clear about what the decision did not do. It did not create a federal standard that every state must follow, so the thresholds differ. It did not hold that any threshold is automatically constitutional, only that South Dakota's arrangement did not appear to burden interstate commerce unduly. And it did not abolish physical presence as a basis for nexus — it removed physical presence as the only basis.

Why the tax differs from one order to the next

The single most useful fact about online sales tax is that the delivery address decides it — not where the company is registered, not where its warehouse sits, not where the servers are, and not the address on your card. The money goes to the state the parcel goes to, at the combined rate for that point on the map.

Washington states the rule in one line: sales tax collection is based on the location where the customer receives the merchandise or service⁵. Texas puts it from the buyer's side — the use tax due is based on where you first receive, store or use the item⁷. That is destination-based sourcing, and it is the default for goods shipped to a customer. The exceptions, mostly in-state sales by in-state sellers in a handful of origin-sourcing states, are set out in origin versus destination.

The rate at an address is a stack, not a number

A combined rate sums every taxing layer covering a point: the state, the county, the city and any special district drawn around it. Districts follow ballot boundaries, not postal ones, so two houses in one ZIP code can genuinely owe different amounts. California publishes Los Angeles at 9.750%, San Jose at 10.000% and San Francisco at 8.625%, all effective July 1, 2026¹¹ — three different answers inside one state that the same website has to get right on the same afternoon.

A cart that resolves your address only to the ZIP code will sometimes land on the wrong side of a district line, and it will do so silently. That failure has its own guide: why ZIP-code rates are wrong, with the boundary mechanics in special taxing districts. The rate lookup itemises the layers at an address and the rate map shows how sharply they vary between neighbouring states.

Six reasons two sites charge different tax on the same item

Shoppers notice this constantly and assume one of the sites is cheating. Usually neither is. Here is the diagnostic list, with the check that settles each.

Two of those deserve their own reading. Whether delivery is part of the taxable base varies by state and sometimes by how the invoice is written, which is set out in is shipping taxable by state. Whether the product is taxable at all is a separate question again — clothing and groceries are the famous carve-outs, covered in grocery and clothing exemptions, while downloads, streaming and software follow rules of their own in digital products sales tax.

Rounding, and why the last cent rarely means anything

Tax is computed on the taxable base and then rounded to the cent, and the direction of that rounding is not uniform. Some jurisdictions historically published bracket tables that assign a tax amount to each price band rather than multiplying at all, which is why an old till receipt sometimes differs by a penny from a calculator. Cart software almost always multiplies and rounds half up. If your recomputation lands within a cent or two of the tax line, the difference is arithmetic rather than error — the background is in sales tax tables.

A related trap is the multi-item order. Some systems apply the rate to each line and then add, others apply it to the taxable subtotal in one go, and on a large basket the two methods can differ by a few cents. Neither is wrong; they simply round at different points.

Billing address, shipping address, or the shop's address?

For physical goods the shipping address wins. Your billing address is used for fraud screening and almost never for the rate. Three practical consequences follow.

• Gifts are taxed where they arrive. Sending a present from Texas to a cousin in Oregon is an Oregon delivery, and Oregon has no general sales or use tax⁸. Sending one the other way means Texas tax at the recipient's address, not yours.
• Buy online, pick up in store means the store's rate, because the counter is where you receive the goods, and that is the location the sourcing rule points at.
• Digital goods have no parcel to follow. States fall back on the customer address on file, so a download can be taxed against a billing address when a T-shirt would not be, and a subscription's tax line can change when you move house.

Who collects the tax: the marketplace, the seller, or nobody

Every online order lands in one of three buckets, and the bucket decides who is legally on the hook. On a marketplace the platform collects; on a seller's own site the seller collects if it is registered in your state; if neither applies, nobody collects at checkout and the liability lands on you as use tax.

What makes a platform a marketplace facilitator

The statutory test is functional, not about size. Washington defines a facilitator as a business that contracts with sellers to facilitate sales through a marketplace, transmits the offer or acceptance between buyer and seller, and does things like processing payment, providing fulfilment or storage, listing products, setting prices or handling customer service⁶. That describes Amazon, eBay, Etsy and Walmart Marketplace, and it deliberately excludes a site that merely runs advertisements pointing elsewhere.

The registration trigger is the same kind of threshold remote sellers face — in Washington, more than $100,000 in combined gross receipts sourced to the state⁶. Because a platform aggregates thousands of sellers it clears that immediately, and every sale it facilitates comes with it. One registration replaces tens of thousands, which is the whole policy design and the reason these laws spread so fast after 2018. The state-by-state detail is in marketplace facilitator laws.

Facilitators also get limited protection, because they are collecting on information other people gave them. Washington provides relief where a facilitator collected the wrong amount because a seller supplied incorrect information, and a second, capped form of relief for failures to collect — limited to 10% of the tax due for 2018 and 5% for 2019, with no relief available after 2020⁶. The taper is deliberate: platforms were given time to build the systems, and then the grace ran out.

The same law that shifts the obligation also creates the seller's paperwork. Washington has required facilitators since July 1, 2019 to give each marketplace seller monthly access to the gross Washington sales made on its behalf⁶. That report is the number a seller needs at filing time, because marketplace-facilitated sales still have to be shown on the seller's own return in many states even though the tax on them was somebody else's job.

Worked example: the same $89 order shipped to three cities

One product, one seller, one day, three delivery addresses. The item is an $89 pair of headphones, taxable in all three states, with free shipping so there is no delivery charge to argue about. Nothing changes except the address.

Pennsylvania 6% + 2% Philadelphia⁹; Seattle from the Washington DOR address lookup, location code 1726⁵; Oregon has none⁸

The spread between the cheapest and the dearest delivery is $9.39 on an $89 order — more than 10% of the price, decided entirely by where the courier stops. None of it is the seller's money. It is collected as a trustee and paid over to three different authorities, on three different returns, on three different due dates, which is why a seller shipping nationally is running a filing calendar rather than a single tax bill.

Change one variable and the picture moves again. If the Portland customer drives to a store in Vancouver, Washington and buys the same headphones over the counter, Washington tax applies at the store's rate, because that is where the goods change hands — the shopper's home state is irrelevant. That is the everyday version of the sourcing rule and the subject of border shopping and sales tax.

To take a taxed total back apart, use the reverse sales tax calculator; to build one up from a net price, the sales tax calculator runs the same arithmetic forwards, and how to calculate sales tax writes out the method by hand. The state pages behind these three numbers are Oregon, Pennsylvania and Washington.

When you owe the tax yourself: consumer use tax

Use tax is the mirror image of sales tax: the same rate, on the same goods, in the same state, but owed by the buyer instead of the seller. It exists precisely to catch purchases where no seller collected, and every state with a sales tax has one. The full comparison is in use tax versus sales tax.

After Wayfair the blank tax line is rarer but not gone. Small overseas sellers, hobby sellers below every threshold, platforms that fall outside a state's definition of a marketplace, purchases made on a supplier's own trade portal, and anything bought from a business that simply has not registered yet all still arrive untaxed. So does almost anything you carry home across a state line yourself.

Los Angeles rate from 1 July 2026¹¹; route per CDTFA¹⁰

The mechanics vary but the shape does not. California asks individuals to report it on the state income tax return, or to pay the tax authority directly, and publishes a lookup table that estimates the amount from income for people with no records¹⁰. Texas takes it on Form 01-156, an occasional use tax return for purchasers who do not hold a sales tax permit⁷. Pennsylvania applies its 6% state rate plus 1% in Allegheny County or 2% in Philadelphia⁹.

How seriously states take it

Enforcement against individuals has always been thin, which is why so many people have never heard of use tax. Thin is not the same as optional. Pennsylvania states that where it learns of an unpaid liability it will assess the purchaser not only for the tax but for penalty and interest on the late payment⁹, and frames the whole rule as a fairness measure: a Pennsylvania shop that charges 6% is at a 6% disadvantage against a competitor that charges nothing⁹.

For businesses it is a different story entirely, because a business has books. California requires a qualified purchaser — broadly, a business making more than $10,000 a year of purchases subject to use tax on which no tax was paid to a retailer — to register and file for the previous calendar year by April 15¹⁰. In an audit, the purchase ledger is one of the first things reconciled, and unaccrued use tax on equipment, software and supplies is a far more common finding than under-collection on sales.

Returns, refunds and cancelled orders

When the price comes back, the tax comes back with it — on a stricter condition than most shoppers realise. California's regulation lets a retailer take a returned sale out of its taxable total only if the full sale price, including the part designated as sales tax, is refunded in cash or credit, and only if the customer is not required to buy other property at a higher price in order to get the refund¹². A refund that quietly keeps the tax is not a refund the state will recognise.

That second condition is the one shoppers meet in the wild. Store credit that forces another purchase is treated differently from cash, which is part of why gift-card and credit balances have their own rules — see gift cards and store credit.

• Restocking fees are capped by cost, not by policy. A retailer may withhold the cost of rehandling and restocking, but that amount may not exceed the actual cost of doing so — or a percentage of the sales price based on the average cost over the previous accounting cycle — and it cannot include increased overheads, refinishing property the customer used, or any expense incurred before the sale¹².
• Partial refunds refund partial tax, calculated at the rate originally charged. Return two items out of three and the tax that comes back is the tax on those two.
• Shipping refunds follow the shipping tax. If the delivery charge was taxed and it is refunded, the tax on it comes back too; if the retailer keeps the charge, it keeps the tax on it as well.
• A rate change between purchase and return does not move the refund. The tax you get back is the tax you paid. Local rates change on fixed quarterly dates, as rate change effective dates explains, so a return that crosses one is not evidence of an error.
• A cancelled order is not a sale. An authorisation hold that includes tax is not a charge; check the settled amount on the statement rather than the pending one before disputing anything.

If you think you were overcharged, go to the seller before the state. The seller filed the return that included your tax and holds the credit for correcting it, and states generally expect a buyer to seek the refund from the retailer first, accepting direct claims only where that route has failed. Exchanges are simplest of all: the tax follows the new item at the new price, and any difference is settled either way.

International orders: duty, import VAT and the end of de minimis

Cross a border and a second system switches on. A domestic order carries one charge; an imported one can carry three — customs duty on the goods, import VAT or GST on the value including that duty, and a handling or clearance fee the carrier charges for doing the paperwork. The third surprises people most, because it is not a tax at all and no authority sets it.

The rules moved sharply between 2021 and 2026, and all four major destinations moved the same way: low-value parcels that used to pass free now do not.

Positions as of August 2026; import rules move fast.

Into the United States: de minimis suspended

For years, shipments valued at $800 or less entered the United States free of duty under the de minimis provision, and that allowance is what made cheap direct-from-overseas retail work at all. Executive Order 14324, signed July 30, 2025, suspended that treatment for all countries from 12:01 a.m. eastern daylight time on August 29, 2025, relying on emergency economic powers¹³. The exemption was switched off rather than reduced: there is no value floor left underneath it.

For international postal shipments the order set out two collection methods — an ad valorem duty at the effective tariff rate applicable to the country of origin, or a specific per-item duty of $80, $160 or $200 depending on whether that country's rate is under 16%, between 16% and 25%, or above 25%. The per-item option was available for six months, after which only the ad valorem method applies¹³.

What a buyer actually sees is a message from the carrier before delivery, asking for duty plus its own brokerage or handling charge. State sales or use tax is an entirely separate question and still turns on the delivery address, so an imported parcel can carry both a federal duty and a state tax without either being a mistake.

Into the European Union: VAT from the first euro

The EU removed its low-value VAT exemption on 1 July 2021. Consignments worth up to €22 used to arrive VAT-free; that relief is gone, and VAT is now due on imported goods whatever they cost¹⁶. The same package replaced the old patchwork of national distance-selling thresholds with a single EU-wide threshold of €10,000 for sellers inside the union¹⁶.

Customs duty is a separate charge and historically was not due where the goods were worth €150 or less, excluding transport and insurance costs¹⁴. That relief is being withdrawn as well: the Council agreed in November 2025 to remove it and impose a temporary customs duty of €3 per item from 1 July 2026 until 1 July 2028, with the Parliament and Council reaching political agreement on the wider customs reform on 26 March 2026¹⁵.

The Import One Stop Shop is the mechanism that keeps the experience civilised. A seller registered for IOSS charges the destination country's VAT at the moment of purchase on consignments not exceeding €150 and remits it through a single return, so the VAT is already in the price you paid and nothing is collected at the door¹⁶. Without it, the postal operator or courier clears the goods and bills you the VAT plus a clearance fee that varies from company to company¹⁴. That single difference explains why one overseas order arrives with nothing to pay and an identical one arrives with a demand attached.

Alcohol, tobacco and perfume sit outside the relief entirely and carry their own duty limits¹⁴. How the scheme works from the seller's side is in the EU OSS and IOSS guide, and the rate you should expect per country is in European VAT rates by country.

Into the United Kingdom: the £135 line

The UK draws its line at £135. VAT is charged on all goods sent from abroad except gifts worth £39 or less. At or below £135 the seller includes UK VAT in the total you pay at checkout; above £135 you pay it to the delivery company either before delivery or when you collect. Customs duty follows a similar shape — none on non-excise goods worth £135 or less, and duty above that depending on the goods and their origin¹⁷. Alcohol and tobacco carry duty at any value.

Thresholds per GOV.UK¹⁷; 20% standard rate¹⁸

The £135 test looks at the consignment rather than the individual item, so two £80 items shipped together behave differently from the same two shipped separately. To work either direction of a VAT-inclusive price, the UK VAT calculator and the reverse VAT calculator do the arithmetic, and sales tax versus VAT explains why an American reading this finds the whole thing inside out.

Into Canada: C$20, C$40 and C$150

Canada runs three thresholds rather than one, and which applies depends on the carrier and the origin. Under the Courier Imports Remission Order, goods carried by courier with a value for duty of C$20 or less have their duties and taxes remitted. For shipments from the United States and Mexico the CUSMA figures apply instead: customs duties are remitted up to a value for duty of C$150, and sales and excise taxes up to C$40¹⁹.

Goods arriving by mail follow the postal stream instead. Duty and taxes apply to international mail above the C$20 exemption, the amount owing arrives on Form E14 attached to the item, and Canada Post charges a handling fee to process anything that carries duty or tax — with no fee where the item is duty-free and tax-exempt²⁰.

The tax collected at the border is GST or HST plus provincial tax where it applies, at the rate for the destination province, which is why an identical parcel costs more to receive in Halifax than in Calgary. Those rates are laid out in sales tax by province, with the arithmetic in the GST/HST calculator and the interaction between the federal and provincial layers in PST versus GST/HST. Non-resident sellers of digital products register under their own regime, described in GST/HST for non-resident digital businesses.

If you sell online: when you actually have to collect

Two questions decide everything, per state and in this order. Do I have nexus here? Is what I sell taxable here? An obligation exists only where both answers are yes, and a great deal of anxiety comes from answering the second without ever asking the first.

Nexus comes from physical presence — employees, contractors, an office, inventory in a warehouse — or from crossing the state's economic threshold. South Dakota's $100,000 or 200 transactions is the archetype every state worked from¹, but the figures, what they measure, the period they measure over and whether a transaction count still exists at all vary by state. The current picture is in the economic nexus guide, and the economic nexus calculator tests your own sales against each state's rule.

Taxability is a second research task and it is the one small sellers skip. Physical goods are taxable by default nearly everywhere; services usually are not unless the state lists them, which is the subject of are services taxable; and software, downloads and subscriptions are genuinely contested territory where two neighbouring states reach opposite answers on the same product.

Which channel collects what

What happens once you cross a threshold

Registering is the point of no return, so the order of operations matters. Establish the date you actually crossed, register from that date rather than a convenient one, switch collection on in every channel you sell through, and then file — including zero returns for periods with no sales, which states expect and penalise you for skipping. The full sequence is in what to do after crossing a threshold and how to register for a permit, with the arithmetic of being late in penalties and interest.

The commonest sequencing mistake is collecting before registering. Tax collected without a permit is still the state's money and now has no return to travel on, which turns a simple registration into a disclosure conversation. The second commonest is registering in a state you never actually had nexus in, which buys you a filing obligation and nothing else.

Some states soften the local-rate problem for remote sellers. Texas lets a remote seller choose between collecting at the shipping destination and applying a single local use tax rate of 1.75% everywhere in the state⁷ — one number instead of roughly two thousand local jurisdictions, at the cost of sometimes collecting a little more or less than the destination rate would have produced. Where you are filing across many states at once, the multi-state calculator and the reconciliation calculator handle the aggregation, and finding the rate for an address covers the lookup itself.

How to check whether an online order was taxed correctly

Five minutes settles almost every dispute. Work through these in order; the answer usually appears at step three.

1. Start from the delivery address. Open the order confirmation and find the ship-to address. That address, not the one on your card, decides which state, county, city and district taxes apply to the order.
2. Look up the combined rate for that exact address. Use an address-level lookup rather than a city name or a bare ZIP code. Special district boundaries cut across both, so a ZIP-level guess can be a full percentage point out.
3. Rebuild the taxable base. Take the item price, subtract any discount the seller funded itself, and add the shipping charge if your state taxes delivery. Items your state exempts leave the base entirely.
4. Multiply and compare. Multiply the taxable base by the combined rate and compare the result with the tax line on the order. Anything within a cent or two is rounding, not an error.
5. Act on the difference. If the seller overcharged, ask the seller first — the seller filed the return and holds the credit. If nothing was charged at all, note the amount for the use tax line on your state return.

If the seller agrees it overcharged, the refund normally comes back the way the payment went out, and the seller corrects the amount on its next return. If the seller refuses and you are confident the rate was wrong, most revenue departments accept a claim directly from the buyer once the retailer route is exhausted — but expect to produce the invoice, the delivery address and your own calculation, which is exactly what the five steps above leave you holding.

Common mistakes and edge cases

• Shipping to a no-tax state to dodge the tax. Delivering to Oregon, Montana, New Hampshire or Delaware avoids sales tax at checkout, because those states levy none⁸. It does not avoid the use tax owed where you actually keep and use the goods, and anything registered — a vehicle above all — is taxed when you title it: vehicle sales tax.
• Assuming Alaska means no tax. Alaska has no state sales tax, but many boroughs and cities levy their own and they do reach remote sellers through a joint collection arrangement. See Alaska sales tax.
• Comparing tax lines instead of taxable bases. Two carts showing different tax on the same item are usually taxing different amounts rather than applying different rates. Divide the tax by the base before concluding anything.
• Treating the checkout figure as final. Some sellers show an estimate and settle at ship time. If a local rate changed in between, or the order split across shipments from different warehouses, the settled figure is the real one.
• Expecting a sales tax holiday to apply automatically. Holidays are defined by item category and price cap, and an order placed inside the window but shipped outside it may not qualify. Check the year's rules in sales tax changes for 2026.
• Rounding disputes over a cent. Some systems tax each line and add, others tax the subtotal once; a one-cent difference is arithmetic, not error. See sales tax tables.
• Believing a marketplace covers your whole business. It covers the sales it facilitates and nothing else. Your own website, your wholesale orders and your in-person sales remain entirely yours.
• Buying a gift card and expecting tax on it. The card itself is normally not a taxable sale; the tax attaches when the card is spent on taxable goods, at the rate then in force.
• Pre-orders and backorders. The rate that matters is generally the one in force when the goods ship, not when the order was placed, so a long-lead pre-order can settle at a different figure from the one first quoted.

Where to go next

• Look up the rate at a delivery address — the fastest way to check a tax line against reality.
• Marketplace facilitator laws — which platforms collect, in which states, and what sellers still owe.
• Use tax versus sales tax — the buyer-side liability in full, including how businesses accrue it.
• Global tax rate data — VAT, GST and sales tax rates for cross-border pricing, with the underlying data sources named.
• Every US calculator on the site — forward, reverse, multi-state and reconciliation in one place.