eCommerce Sales Tax By Each State, Plus Puerto Rico (2024)

In order to sell online you need to ensure that you’re following your state's guidelines. This includes doing your taxes efficiently, but most importantly accurately. However, we understand that taxes can be a challenge to handle.

That’s why we’ve done all the research for you and compiled it into an easy-to-understand guide. Keep reading to learn what eCommerce sales tax is and how to make sure you’re getting it right.

eCommerce Sales Tax 2021

Like normal sales tax, eCommerce sales tax is simply a percentage of money that is added to the price of an online purchase. The only items that sales tax is added to are items that are considered taxable.

As an online retailer, you are not exempt from ecommerce trends like charging your customers taxes. Although how much you tax will be different depending on the state you live in. Some states even allow cities to have their own sales tax too.

Some shoppers add items to their cart and then forget about them once they see the tax rate. This is when companies utilize their abandoned cart recovery methods. But how do you know when you need to collect sales tax from your customers?

Well, here’s a basic rule of thumb:

Collect sales tax when your product is taxable and has a nexus in that state.

Let’s explain the term nexus in more detail. A sales tax nexus is just a fancy word for a retailer having a “significant connection” to a state. To have “nexus” means that your state will allow you to charge a sales tax to your customers.

When starting an eCommerce business in your home state you will always have a tax nexus. Although, you can create a nexus in other states too. Here’s how to do it:

Have a physical business location operating in another state
Store your inventory in the state you want to have nexus in and use inventory management techniques to help you control it
Create a drop-ship relationship. The dropshipping meaning is a form of business where sellers accept customer orders without having any of the product in stock. Instead, items are purchased from third-party suppliers who will ship the product to the customer. So, the seller never handles the items. This can help create nexus.
You can create economic nexus if your business exceeds a certain amount of sales in your state.

‍eCommerce Sales Tax by State

The sales tax your customers are required to pay will vary depending on the state you live in. Some states have higher tax rates than others. In addition, eCommerce sales tax rates will change on a monthly basis.

The average tax percentage ranges from 0-7.2%, with California having the highest. Oregon, Alaska, Delaware, Montana, New Hampshire, and Guam do not have sales tax.

Knowing this, make sure that when you're budgeting for your business try to utilize prices with taxes included.

To learn what the sales tax percentage is in your state, utilize the information below:

Alabama

State Rate: 4.000%; Local Rate: 0%-9.0%

Alaska

State Rate: 0.000%; Local Rate: 0%-9.5%

Arizona

State Rate: 5.600%; Local Rate: 0 – 7.30%

Arkansas

State Rate: 6.500%; Local Rate: 0% – 6.125%

California

State Rate: 7.250%; Local Rate: 0% – 3.25%

Colorado

State Rate:2.900%; Local Rate: 0% – 8.3%

eCommerce Sales Tax Solutions

Did you know that there is a simple way to manage your sales tax issues? By using eCommerce sales tax tools you’ll eliminate the frustration of calculating your sales tax percentage. There are so many different business tools out there for you to choose from.

Meaning that instead of spending time doing math, you can get back to focusing on what matters most for your business. These tools can help make filing yearly returns that much easier. In addition, you’ll be able to breathe better knowing your business is always inventory audit-ready.

To make things easier, I’ve compiled a list of the best eCommerce software for you to choose from.

eCommerce Sales Tax Calculator Software

Alvara: Alvara is one of the most popular tax software apps for a reason. It offers users a simple and clean interface with up-to-date tax rules and rates. More than this, it has over 700 integrations so that you’re able to manage data across multiple applications. Finally, Alvara has affordable rates starting as low as $25 per month.
TaxJar: For companies looking for auto-filing features, TaxJar is your guy. It allows users to organize their data and gather return-ready reports. TaxJar also works seamlessly with any popular eCommerce marketplaces. Pricing starts at $19 per month and plans are customizable.
Vertex: Own a small business? Vertex is a good option for you then. It is very user-friendly and easy to navigate. Moreover, it keeps track of the latest tax trends, activity, and regulations and sends you alerts. This platform is highly accurate and centralizes all your data in one place. For questions about pricing you’ll need to contact Vertex directly.
DAVO: Finally, there’s DAVO–the best option for traditional a brick and mortar shop. DAVO software collects sales data from your POS systems and tallies the daily collected sales tax. It also has auto-fill functionality and integrates with popular platforms like Quickbooks, Square, and revel. Their pricing is a bit steeper compared to others. Prices start at $39.99 per month, but they offer a free trial so you’re able to see if it’s the right fit for you first.

Regardless of what eCommerce software you choose to work with you’ll find comfort in knowing your sales tax rates will always be correct. This is especially crucial for your consumers when you accept payments online via ACH payment. If you’d like to learn more about what goes into running a successful eCommerce business check out our blog. We also recommend that you research the best eCommerce platform for SEO.

By using the tools above and having a competitive and strong business plan, success will come easy to you.

‍Frequently Asked Questions about eCommerce Sales Tax

What Is Sales Tax?

Sales tax is a portion of money paid to the government for the sales of specific goods and services. Not all states have sales tax nor does every item incur a sales tax either.

Does Every State in the U.S Have a Sales Tax?

No, every state does not have a sales tax. There are five states who do not, they include Oregon, Alaska, Delaware, Montana, and New Hampshire.

What Is the Standard Sales Tax Rate?

The U.S does not have a national sales tax, so there is no across-the-board rate. However, you can expect to find sales tax rates range between 2.9 to 8.75% in any given state.

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eCommerce Sales Tax By Each State, Plus Puerto Rico (2024)

FAQs

How to calculate sales tax for ecommerce? ›

Know the retail price and the sales tax percentage. Divide the sales tax percentage by 100 to get a decimal. Multiply the retail price by the decimal to calculate the sales tax amount.

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What is the online sales tax in Puerto Rico? ›

Puerto Rico sales and use tax is in Spanish “Impuesto a las Ventas y Uso,” aka IVU. The tax rate is 11.5%; the municipality where the sale took place receives 1% of that and the government of Puerto Rico receives the remaining 10.5%.

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How does ecommerce work with taxes? ›

Most states require businesses to register for a sales tax permit (also known as a seller's permit), which authorizes online sellers to collect sales taxes on purchases within that jurisdiction. Most states consider it illegal to collect sales tax without a permit because merchants may simply pocket the money.

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What is the state sales tax rate in Puerto Rico? ›

Puerto Rico sales tax details

Puerto Rico (PR) is not a state but a commonwealth. The Puerto Rico sales and use tax rate is 10.5%. Puerto Rico has been an unincorporated territory of the United States since 1898, when it was acquired from Spain in the aftermath of the Spanish American War.

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Is online sales tax based on billing or shipping address? ›

In a destination-based (or interstate) ecommerce transaction, the location where your customer takes possession of the product is the point of taxation. This is the shipping address, meaning your business would use this address to calculate sales tax, not the billing address.

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What is the formula for sales tax? ›

Calculating the sales tax applied to a purchase is a matter of simply multiplying the tax rate by the purchase price using the equation sales tax = purchase price x sales tax rate.

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What are the sales tax rules in Puerto Rico? ›

The SUT rate applicable to the sale of tangible personal property is 11.50% out of which 10.5% goes to the Commonwealth of Puerto Rico and 1% goes to municipalities. The SUT rate applicable to business to business services is 4%.

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What tax does Puerto Rico pay? ›

Puerto Rico is an unincorporated territory of the United States and Puerto Ricans are U.S. citizens; however, Puerto Rico is not a U.S. state, but a U.S. insular area. Consequently, while all Puerto Rico residents pay federal taxes, many residents are not required to pay federal income taxes.

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Do I need to register for sales tax in Puerto Rico? ›

Retailers with “sales tax nexus” in Puerto Rico are required to register for a Puerto Rico sales tax permit. This includes businesses that have sales tax nexus on the island because they have a location, employee, inventory, or other business tie to Puerto Rico.

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Do I need a tax ID for ecommerce? ›

Keep in mind that the IRS requires businesses of all sizes to have an employer identification number. So, it doesn't matter if you are an ecommerce business with only one employee or a multinational corporation. You'll need the number for your business to be compliant.

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Do I have to collect sales tax for other states? ›

To summarize, businesses that sell to customers across state lines are generally only required to collect and remit sales tax in states where they have nexus. Sales tax nexus can be established through physical presence, economic activity, referrals originating in the state, and ties to in-state affiliates.

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What is the best state to open an online business in? ›

Delaware

Delaware is one of the best states to incorporate an online business and has multiple advantages over other states. -Taxes and regulations: The tax rate in Delaware is lower than in most states. Delaware has no income tax and no franchise tax. The state also has fewer regulations for businesses to comply with.

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When did sales tax start in Puerto Rico? ›

Puerto Rico Eliminates Excise Tax and Introduces Sales/Use Tax. Effective November 15, 2006, Puerto Rico's recently-enacted Law No. 177 formally eliminates its excise tax and replaces it with a general sales and use tax. The law authorizes a 5.5% island-wide and 1.5% local sales and use tax generally applicable…

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Does Puerto Rico charge sales tax on services? ›

The SUT rate is imposed at 10.5% at the state level and an additional 1% at the municipal level, for an aggregate 11.5%. Designated professional services and business-to-business (B2B) services are taxed at a 4% SUT rate.

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What is Puerto Rico's biggest export? ›

Puerto Rico main exports products are pharmaceuticals, accounting for over 50 percent of all exports.

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How do online retailers calculate tax? ›

Most states use destination-based sourcing for sales tax collection. This means that as the seller, you will charge sales tax based on your customer's ship-to address. Your tax calculation function must include the state rate and local jurisdiction rates such as at the city or county level.

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How do you calculate sales in commerce? ›

The formula for calculating gross sales is:

Gross sales = total price of all items sold.
Gross profit = gross sales - cost of goods sold.
Net sales = gross sales - all expenses.

Nov 23, 2023

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How does Amazon calculate sales tax? ›

The tax rate applied to your order will be the combined state and local rates of the address where your order is delivered to or fulfilled from. For example, if you live in a state that does not impose a sales tax, you may still see tax calculated on your order if shipped to another state.

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Does Shopify calculate sales tax? ›

Today, Shopify Tax provides you with sales tax liability insights, sales tax calculations, collection, and reporting. You can use a third-party service available on the Shopify App Store to manage registration and filing. In the future, we may expand our offering to provide these services as well.