Expanding into the US presents tremendous growth opportunities for online sellers; however, it also means more compliance nightmares, US sales tax mistakes can be costly. With over 269 million online shoppers, it’s one of the world’s most lucrative eCommerce markets. However, navigating US sales tax compliance is far from simple. The US has 45 states and over 14,000 tax jurisdictions, each with its own rules, thresholds, and exemptions. Even seasoned sellers can easily make mistakes that lead to penalties or lost revenue.
Here are five common sales tax mistakes non-US sellers should avoid when entering the US market – and how to prevent them.
US Sales Tax Mistakes #1: Failing to Collect Sales Tax Where You Have Nexus
What’s the issue?
Establishing nexus– a legal connection to a state- requires you to collect and remit sales tax in that state. Since the 2018 Wayfair ruling, physical presence is no longer necessary. Economic activity alone can create nexus.
But there’s no one-size-fits-all rule. Every state has different criteria, and many count marketplace sales toward your nexus threshold—some don’t.
✅ Key Tip: Regularly review each state’s nexus rules, especially how they treat marketplace sales, to ensure full compliance.
US Sales Tax Mistakes #2: Misapplying Tax on Digital Goods
What’s the issue?
Sales tax isn’t just for physical items anymore. Over 20 states tax digital goods, but the taxability varies significantly:
- Some states tax digital games but not eBooks.
- Some base tax rates on the buyer’s location, others on the seller’s.
✅ Key Tip: Understand which states tax your digital products, and at what rate, to avoid overcharging or under-collecting.
US Sales Tax Mistakes #3: Incorrectly Charging Tax on Delivery Fees
What’s the issue?
Whether delivery charges are taxable depends on what’s being shipped, and how those charges are presented on the invoice:
- In some states, delivery fees are exempt if itemized and delivered by a common carrier (e.g., FedEx).
- In others, all delivery charges are taxable regardless of these conditions.
✅ Key Tip: Know how each state treats delivery charges, and ensure your invoices are formatted to meet those rules.
US Sales Tax Mistakes #4: Overlooking Inventory Nexus from Third-Party Fulfillment
What’s the issue?
Using fulfillment centers like Amazon’s 1,250+ warehouses across 40 states can trigger nexus, even if the marketplace collects sales tax on your behalf.
The problem worsens with commingled inventory—Amazon may ship your items from warehouses in states you didn’t intend to establish nexus in.
✅ Key Tip: Monitor where your inventory is stored and factor it into your nexus evaluation.
US Sales Tax Mistakes #5: Ignoring Expense Tracking on Marketplace Sales
What’s the issue?
Selling more than $600/year on a marketplace triggers a 1099-K form—reporting gross revenue to the IRS. However, this form doesn’t reflect costs like shipping, marketing, or product expenses.
Without tracking these costs, you may end up paying taxes on revenue you never truly earned. Also, exempt sales are included in the 1099-K total, which can inflate your taxable income.
✅ Key Tip: Keep detailed records of your costs and clearly identify exempt sales to avoid overpaying on tax returns.
Simplify Your US Sales Tax Compliance
The patchwork nature of US sales tax laws makes compliance a daunting task for non-US sellers. With frequent rule changes and inconsistent thresholds, the risk of mistakes—and the penalties that follow—is high.
Need help?
Our expert tools and services can:
- Track your sales across all states
- Alert you when you’re nearing nexus thresholds
- Identify taxability of digital goods
- Accurately calculate delivery taxes
- Automate reporting and compliance
👉 Contact us today to assess whether you’re registered everywhere you need to be and avoid penalties from US sales tax mistakes.
