Best Practices to Collect Sales Tax as an eCommerce Business

If you're selling products online, collecting sales tax isn’t optional, it’s a legal obligation that can carry serious consequences if mismanaged. And with U.S. states applying different rules, thresholds, and product taxability laws, it can quickly become one of the most confusing parts of running an eCommerce business.

Since the Supreme Court’s South Dakota v. Wayfair decision in 2018, online sellers are no longer exempt from collecting sales tax just because they don’t have a physical presence in a state. Instead, if your business meets certain revenue or transaction thresholds, you may have what's called economic nexus and must begin collecting sales tax in that state.

Failing to collect sales tax where required can lead to audits, fines, and reputational damage. That’s why having a solid tax collection strategy from the beginning is not just best practice, it’s a necessity.

Understand Where You Have Nexus

Nexus determines your obligation to collect sales tax. It can be physical, such as a warehouse or office, or economic, based on your revenue or number of transactions in a state. Each U.S. state has its own threshold for when economic nexus applies, and those thresholds can change.

Your first step is to identify every state where you meet the nexus criteria. This should be reassessed regularly, especially if your business is growing quickly or expanding into new markets. Many brands mistakenly assume they're only responsible for collecting in their home state, but eCommerce has erased those borders.

Staying current on where you're required to collect ensures you're not exposed to penalties, and helps you remain a trusted brand in the eyes of your customers and regulators.

Register Before You Start Collecting

Once you determine where you have nexus, you must register for a sales tax permit with the state’s department of revenue. This step is required before you begin collecting any tax from customers.

Operating without a permit, even if you're collecting tax correctly, can trigger fines. Worse, collecting tax without remitting it properly is considered tax fraud in many jurisdictions.

Every state has its own registration process, but most allow for online applications. After approval, you’ll receive a sales tax ID and instructions for filing returns.

Classify Your Products Correctly

Not all products are taxed equally. Some states exempt certain items, like clothing or digital goods, while others apply special tax rates. Classifying your products correctly is key to charging the right amount.

This becomes especially important for stores with diverse inventories. Misclassification can lead to overcharging customers, or worse, under-collecting and facing back taxes.

Make sure your product catalog is mapped to tax codes accurately. Regular reviews help catch errors before they scale with your business. The more automated your catalog-to-tax engine is, the safer your compliance posture.

Automate Sales Tax Calculations

Manual tax calculation isn't feasible at scale. With thousands of tax jurisdictions in the U.S. alone, rates change frequently and vary by ZIP code, city, and even special districts.

Using a tax automation solution that integrates with your eCommerce platform ensures you're always charging the correct rate at checkout. These systems use location data and product classification to generate real-time tax amounts, reducing risk and saving your team time.

Whether you're on Shopify, WooCommerce, or a custom storefront, integrating a reliable tax engine should be part of your foundational tech stack.

Remit and File on Time

Collecting sales tax is just one part of the equation. States require businesses to file returns and remit payments at specific intervals, monthly, quarterly, or annually, depending on your volume.

Missed filings can result in penalties, interest charges, and in some cases, loss of your sales tax license. Staying organized and on schedule is critical.

Set reminders, automate filings where possible, and keep records of every return. Some platforms even offer managed filing services that handle the process for you, further reducing your administrative burden.

Keep Records and Audit Trails

Sales tax audits are becoming more common, especially as states seek to recoup lost revenue from eCommerce transactions. If you're audited, you’ll need to produce clear records showing how much tax was collected, where it was remitted, and how the calculations were made.

Store invoices, tax reports, exemption certificates, and filing confirmations in a centralized system. Keep documentation for at least the minimum number of years required by each state, typically between three and seven.

Being prepared with detailed records not only speeds up audits but can prevent larger issues from escalating.

Monitor Regulatory Changes

Sales tax laws are in flux. States regularly update their rules on what’s taxable, who qualifies for nexus, and how tax is administered. Even marketplaces and platforms are affected by changing regulations around who’s responsible for collecting tax.

Staying informed is part of staying compliant. Subscribe to updates from state revenue departments, work with a tax advisor who specializes in eCommerce, and make sure your automation tools are always up to date.

Proactive monitoring is far more cost-effective than reacting to a noncompliance notice.

How Lasso Simplifies Sales Tax Management

At Lasso, we understand that checkout optimization isn’t just about conversions, it’s about trust, compliance, and operations. That’s why our platform integrates with best-in-class tax engines to ensure every transaction is compliant, down to the last ZIP code.

Our system is built to calculate tax in real time, no matter where your customer is located. It supports dynamic rates, product-specific rules, and seamless updates as laws evolve. Plus, because Lasso captures all event data using first-party infrastructure, your tax reporting is both accurate and audit-ready.

With Lasso, you get more than a checkout, you get a foundation for growth that’s tax-smart from day one.

Final Thoughts

Sales tax compliance isn’t something eCommerce brands can afford to ignore. The rules are complex, the risks are real, and the cost of mistakes scales with your success.

By identifying nexus, registering properly, classifying products accurately, and automating calculations and filings, your business can operate with confidence. The brands that take sales tax seriously early on are the ones that scale without speed bumps later.

With a platform like Lasso supporting your checkout and data infrastructure, collecting and managing sales tax becomes just another optimized part of the conversion flow, not a compliance headache.