Remote Sales Tax: A Quick Guide for Online Sellers

Remote sales tax has emerged as a critical component of modern tax policy, particularly in the fast-growing world of e-commerce. With more transactions happening across state lines, tax authorities have adapted legislation to ensure remote sellers contribute to local revenue, even without a physical presence in the buyer’s location. By setting economic thresholds for sales or transactions, states can define when online businesses must begin collecting and remitting these taxes. This article aims to help you understand remote sales tax more.

What Is A Remote Sales Tax

Remote sales tax refers to the obligation for remote sellers—those who lack a physical presence in a buyer’s state—to collect and remit sales tax on transactions that meet or exceed a specified threshold of gross receipts or number of sales.

This concept emerged prominently after shifts in legislation allowed states to assert tax jurisdiction based on economic activity rather than brick-and-mortar operations, thereby leveling the playing field between traditional storefronts and online vendors.

Traditionally, retail sales tax applied only if a business was physically located in that jurisdiction. However, with the rise of online transactions, states recognized a growing need to capture revenue on these interstate deals.

Today, legislation focuses heavily on economic nexus standards—which often revolve around gross sales and threshold volumes of transactions. For instance, many states set a threshold of $100,000 in gross sales or 200 transactions in a calendar year, triggering the requirement to collect and remit sales tax.

Modern marketplace platforms like Amazon, BigCommerce, WooCommerce and Shopify also factor in. If you use a marketplace facilitator or a major e-commerce site, those facilitators might be legally obligated to handle compliance on your behalf.

Why Remote Sales Tax Matters More Than Ever

As e-commerce booms and retail sales increasingly move online, remote sellers face escalating compliance challenges. The 2018 Supreme Court decision in South Dakota v. Wayfair changed the game by allowing states to impose sales tax obligations on businesses without a physical presence—reshaping the tax landscape for everyone from small startups to major online giants. This shift in legislation means that nexus, threshold, economic nexus, and marketplace facilitator rules now directly influence how gross sales are taxed across state lines, leaving businesses scrambling to understand and comply.

While remote sales taxation used to be an afterthought for many online ventures, that’s no longer an option. States like Illinois have set specific threshold limits for annual gross sales or transactions, requiring remote sellers to collect sales tax once they surpass those numbers—often referred to as economic nexus.

The Landmark Case: South Dakota v. Wayfair

In 2018, the Supreme Court decision in South Dakota v. Wayfair, Inc. unleashed a seismic shift by declaring that states could impose sales tax responsibilities on businesses without a physical presence—as long as economic nexus provisions were met. This overturned a long-held precedent that physical operations within a state were a requirement for nexus. States quickly responded by establishing their own threshold benchmarks, typically measured in gross sales or number of transactions.

This decision was a game-changer for remote sellers, since it ushered in a host of new legislation and administrative rules. Now, e-commerce outfits must monitor where they make sales, how many transactions occur in each state, and whether their gross sales surpass a given threshold. Meanwhile, marketplace facilitator regulations grew in tandem—requiring that online platforms track the economic nexus activities of sellers using their system.

Here are some reasons why remote sales tax was established.

Fair competition and retail sales

One primary goal of remote sales tax rules is to ensure fair competition between online merchants and brick-and-mortar stores. In the past, local retail sales businesses might lose out to out-of-state remote sellers who weren’t required to collect sales tax, thus offering lower effective prices. By imposing economic nexus standards and threshold rules, states aim to level the playing field—so local shops have the same compliance burdens as online competitors.

Moreover, capturing sales tax on taxable sales that occur across state lines helps states maintain revenue streams that support public services. Regions like Illinois rely heavily on tax revenue, so they’ve instituted strict nexus criteria to ensure remote sellers pay their fair share. This also includes rules on marketplace facilitator platforms, putting the onus on these large marketplace providers to handle compliance for all sellers under their umbrella.

Ongoing Challenges of Remote Sales Tax & Possible Solutions

After the 2018 Supreme Court ruling that changed the whole picture of handling sales tax, some challenges arise. Here are some of them.

The Need for Uniform Guidelines

Prior to Wayfair, only sellers with a physical presence had clear tax obligations. After the Supreme Court decision, states scrambled to update their legislation to enforce economic nexus based on gross sales or number of transactions—sometimes referred to as a threshold. This resulted in a patchwork of rules, leaving many remote sellers overwhelmed by the variations in compliance requirements. Some states, like Illinois, set specific cutoffs (e.g., $100,000 in gross sales or 200 transactions) to trigger tax obligations, while others have unique definitions or exceptions.

Many experts argue for federal-level guidelines to streamline remote sales tax processes. A national standard for threshold, marketplace facilitator responsibilities, and economic nexus rules would reduce the complexity and confusion plaguing businesses. Until then, remote sellers must navigate a jumble of state-specific legislation, often resulting in higher administrative costs and increased vulnerability to errors or audits.

Taxing Across Borders: The Remote Sales Puzzle

The GAO noted that, after Wayfair, most states enacted or updated economic nexus laws, each defining its own threshold for gross sales or number of transactions. While this has greatly increased sales tax collection—hitting around $30 billion in 2021—managing these requirements has taken a toll on many remote sellers. From expanding filing duties to investing in specialized software, the race to maintain compliance can drain resources and slow business growth.

Additional GAO concerns center on equity, efficiency, and clarity. Remote sellers working across multiple states juggle more complicated rules than a single-location retail sales outlet. And since each marketplace or jurisdiction may have its own standards, confusion multiplies. A national approach—covering aspects like marketplace facilitator obligations—would streamline the entire system, mitigating disparities and bolstering state tax revenue.

Divided Opinions on Possible Solution

Some advocates push for smaller-scale solutions, like a unified registration and filing portal, to simplify compliance for remote sellers. Others propose sweeping reforms that would standardize threshold definitions, marketplace facilitator responsibilities, and nexus rules across all states. Such initiatives might mirror the Streamlined Sales and Use Tax Agreement (SSUTA), which aims to reduce complexity for businesses operating in multiple jurisdictions.

Though individual states have moved the needle—sometimes raising or lowering their gross sales and transactions limits—comprehensive consistency remains elusive. The resulting patchwork fosters ongoing legal challenges, as businesses question the enforceability of these diverse measures under interstate commerce laws. Stakeholders argue that only a robust federal framework can address the underlying confusion around economic nexus, threshold, and marketplace facilitator obligations, ensuring a more uniform approach nationwide.

Why Federal Action May Be the Ultimate Solution?

In the wake of the 2018 Supreme Court decision, courts have been inundated with disputes over who can enforce sales tax collection on remote sellers. This environment breeds uncertainty for businesses that must plan around varying state laws, each with its own threshold, definitions of nexus, and marketplace facilitator mandates. The core issue: Congress holds broad power over interstate commerce, so many believe national laws are necessary for definitive guidance on how states can tax remote sellers.

Without such federal intervention, companies face potential audits, fines, and abrupt legislation changes that could alter their gross sales obligations overnight. Clarity on economic nexus rules and a cohesive standard for retail sales across state lines would significantly reduce the risk of incurring penalties for innocent missteps. Until then, navigating each state’s unique approach remains a major hurdle for compliance in a borderless digital marketplace.

The Road Ahead for Remote Sales Tax

Remote sales tax is more than just a buzzword; it’s a fundamental shift in how states regulate and capture revenue from retail sales across borders. The 2018 Supreme Court decision on economic nexus reshaped marketplace rules, imposing new duties on remote sellers and every marketplace facilitator that helps facilitate these transactions. With states like Illinois enforcing specific threshold levels based on gross sales, nexus is no longer limited to a physical presence—and compliance is no longer optional. Though the road remains complex, a clearer, more consistent legal framework could make navigating these diverse requirements easier for everyone, reducing confusion about variety of thresholds to consider and laying the groundwork for a more equitable digital economy.

Ultimately, adopting cohesive standards could make remote sales tax less of a labyrinth, benefiting both governments and businesses. A balanced approach—recognizing each state’s right to set tax rates but aligning key definitions of marketplace facilitator, nexus, threshold, and economic nexus—could spur a more transparent, efficient system. From uniform registration portals to standardized definitions of taxable sales, collaborative efforts might finally bring order to the multi-state puzzle.