Is it Illegal to Not Charge Sales Tax on Online Sales?

The legality of not charging sales tax on online sales depends on whether a seller has established nexus within a tax jurisdiction that imposes sales tax rates. Following the 2018 Supreme Court decision in South Dakota v. Wayfair, Inc., states can now require remote sellers to collect sales tax based on economic nexus rather than physical presence. This decision reshaped compliance standards, allowing cities and states to set sales thresholds based on revenue or transaction volume. Businesses selling goods and services online must monitor whether their purchases exceed these thresholds, as failing to collect tax revenue can lead to audits, fines, and back taxes. Platforms like Kintsugi help to simplify tracking sales tax rates, managing filing, and automating compliance across tax jurisdictions.

Failing to charge sales tax where required can expose businesses to penalties, interest charges, and reputational damage. Many tax jurisdictions enforce strict filing requirements, especially in high-tax areas like New York, where local sales taxes and levies can further complicate compliance. Online sellers engaged in business-to-business transactions must also assess whether their sales tax rates include applicable use taxes and exemptions to avoid tax pyramiding. Companies can simplify compliance obligations by using automated tools like Kintsugi Intelligence to calculate tax rates, track sales thresholds, and prevent errors in filing. By understanding these obligations and leveraging tax automation tools, businesses can maintain accuracy, protect their tax revenue, and meet the legal requirements for sales tax collection.

Understanding Sales Tax Obligations

Sales tax is a consumption tax imposed by states and cities on goods and services purchased by consumers. For online sellers, obligations to collect sales tax are determined by nexus, which establishes a connection between the seller and a tax jurisdiction. Nexus can be physical, such as owning a warehouse or office, or economic, which is based on sales thresholds tied to revenue or transaction volume. The South Dakota v. Wayfair, Inc. ruling empowered tax jurisdictions to enforce sales tax rates even when businesses have no physical presence. Businesses conducting business-to-business transactions often assume their sales are exempt, but exemptions must be documented to prevent errors and tax pyramiding. Leveraging automated platforms like Kintsugi allows sellers to simplify compliance, track tax rates, and streamline filing processes across multiple jurisdictions.

Sales tax rates and filing obligations differ between cities and states, requiring businesses to assess their tax base and understand whether use tax applies when sales tax is not collected. Companies selling goods and services must track purchases, ensure proper exemptions, and manage compliance with evolving sales tax rates and levies. For example, businesses operating in New York face state and local sales taxes, which can add complexity to their filing and compliance requirements. Automated tools like Kintsugi Intelligence help monitor tax rates, manage nexus requirements, and prevent tax pyramiding errors. By proactively addressing these obligations, businesses can protect their tax revenue, maintain accurate filing, and ensure they meet sales threshold requirements in every relevant tax jurisdiction.

Legal Implications of Not Collecting Sales Tax

Failing to collect sales tax when legally required can lead to severe penalties, interest charges, and back tax revenue assessments. Many tax jurisdictions, including New York, actively enforce compliance laws, imposing fines on sellers who exceed sales thresholds but fail to meet filing and levy requirements. Businesses involved in business-to-business transactions must also document exemptions to prevent tax pyramiding, ensuring they comply with sales tax rates and use tax rules. Ignoring these obligations can trigger audits, resulting in additional financial burdens, reputational damage, and even legal actions. Tools like Kintsugi enable businesses to track nexus, monitor tax rates, and simplify filing processes, reducing non-compliance risk in multiple tax jurisdictions.

Beyond financial penalties, non-compliance can also affect a seller's ability to expand into other states and cities that enforce stricter sales tax regulations. Many jurisdictions impose retroactive audits, requiring businesses to pay tax revenue owed on past purchases, goods, and services that were not properly taxed. High-tax areas like New York have rigorous enforcement mechanisms, making it essential for sellers to maintain accurate filing records and monitor sales tax rates. Companies must also evaluate whether use tax applies if sales tax was not collected at the point of sale. Automated systems like Kintsugi can simplify compliance with nexus, tax rates, and sales thresholds, protecting businesses from audits and fines while managing complex tax jurisdictions.

Determining Your Sales Tax Responsibilities

Understanding your sales tax obligations is critical to maintaining compliance and avoiding costly penalties. Businesses selling goods and services online must carefully evaluate nexus, sales thresholds, and tax jurisdiction rules to determine whether they are required to collect and remit sales tax. The following steps provide guidance on assessing and managing your responsibilities effectively:

• Assess Nexus Status: Determine whether your business has established nexus in a tax jurisdiction through physical presence, such as a warehouse, storefront, or office, or through economic nexus based on sales thresholds. Many states, including New York, enforce sales tax rates and filing requirements once a seller exceeds $100,000 in revenue or completes 200 transactions annually. Companies involved in business-to-business transactions should evaluate whether exemptions apply or if use tax obligations are triggered instead.
• Register and File Sales Tax Permits: Once nexus is established, businesses must register for sales tax permits in the relevant tax jurisdictions before collecting or remitting tax revenue. Failing to register before collecting sales tax may result in fines and retroactive audits. After registration, businesses must adhere to filing schedules set by cities and states, which may require monthly, quarterly, or annual filing depending on revenue levels.
• Track and Calculate Sales Tax Rates: Businesses must accurately track sales tax rates for each tax jurisdiction where they operate, as rates can differ between states and cities. For example, New York applies local sales taxes in addition to state sales tax, requiring sellers to calculate combined rates for each location. Businesses selling goods and services must also evaluate whether exemptions apply to certain purchases or business-to-business transactions to avoid tax pyramiding.
• Monitor Sales Thresholds and Economic Nexus: Many states impose economic nexus laws based on sales thresholds, which require businesses to collect sales tax once they exceed a specific revenue or transaction limit. For example, New York applies nexus rules once sellers generate $500,000 in revenue or complete 100 transactions. Businesses engaged in business-to-business transactions should document exemptions and assess whether use tax applies if sales tax is not collected at the point of sale.
• Stay Updated on State and Local Tax Changes: Sales tax rates, filing deadlines, and tax jurisdictions frequently change, requiring businesses to stay informed to maintain compliance. High-tax jurisdictions like New York often adjust sales tax rates or levies to fund services, creating challenges for businesses managing multiple filing obligations. Regularly reviewing updates and leveraging tools like Kintsugi can help businesses adjust calculations, track use tax, and monitor exemptions.

Best Practices for Compliance

Maintaining compliance with sales tax laws is essential for businesses selling goods and services online. Businesses must address nexus, sales thresholds, and filing obligations to avoid audits, penalties, and back tax revenue assessments. The following best practices provide a structured approach to ensure accurate reporting, timely filing, and compliance with sales tax rates and tax jurisdictions:

• Track Transactions and Purchases Accurately: Businesses should maintain detailed records of all purchases, goods, and services sold across tax jurisdictions to avoid errors during filing. This includes documenting customer locations, sales thresholds, and any exemptions claimed to ensure compliance with local sales taxes. For example, high-tax jurisdictions like New York impose specific sales tax rates based on location, making accurate data tracking essential. Tools like Kintsugi simplify data management by automating filing, tracking tax rates, and ensuring accurate reporting for sellers in multiple jurisdictions.
• Monitor and Apply Exemptions Correctly: Businesses engaged in business-to-business transactions must carefully review exemptions to prevent tax pyramiding and improper levies. Some goods and services qualify for exemptions, but documentation must be stored and easily accessible during audits. Failure to validate exemptions can lead to penalties and back tax revenue assessments in tax jurisdictions with strict enforcement, such as New York.
• Automate Tax Calculations and Reporting: To maintain compliance, businesses must keep up with changing sales tax rates and levies across multiple cities and states. Manual calculations increase the risk of errors, especially when dealing with local sales taxes and multi-jurisdiction rules. Automated systems like Kintsugi streamline tax reporting by tracking nexus, applying for exemptions, and generating filing reports customized to each tax jurisdiction.
• Schedule Timely Filing and Payments: Businesses must adhere to filing deadlines set by tax jurisdictions to avoid interest charges and late-payment penalties. Depending on sales thresholds and revenue, sellers may be required to submit monthly, quarterly, or annual reports. For example, New York imposes strict deadlines for filing and remitting sales tax collected from goods and services. Using platforms like Kintsugi allows businesses to schedule reminders, automate submissions, and track tax revenue owed, ensuring compliance with all deadlines and sales tax rates.
• Review Nexus Rules and Economic Thresholds Regularly: Businesses must frequently evaluate nexus and sales thresholds to determine whether sales tax obligations apply as they expand into new tax jurisdictions. Many states, including New York, enforce economic nexus based on revenue or transaction volume, which can trigger filing requirements. Businesses involved in business-to-business transactions should also assess use tax obligations if sales tax were not collected at the point of sale.
• Conduct Periodic Audits and Compliance Reviews: Regular internal audits can help businesses identify errors, report tax revenue accurately, and confirm that sales tax rates and filing procedures comply with jurisdiction rules. Reviewing nexus, exemptions, and levies protects businesses from penalties and keeps them prepared for government audits. High-tax areas like New York often target sellers for audits, emphasizing the importance of maintaining updated records.

Stay Compliant with Kintsugi

In today’s digital economy, compliance with sales tax laws is essential for online businesses selling goods and services. The Wayfair decision has redefined nexus, requiring sellers to evaluate sales thresholds and tax jurisdiction obligations to determine whether they must collect and remit sales tax. Businesses that fail to comply risk audits, penalties, and substantial back tax revenue assessments, especially in high-tax jurisdictions like New York, where both local sales taxes and state regulations apply. Automated platforms like Kintsugi help to simplify the process by tracking sales tax rates, calculating use tax, and ensuring proper filing across jurisdictions. Businesses can reduce errors and protect their bottom line by leveraging tools that manage nexus, monitor exemptions, and prevent tax pyramiding.

Businesses must also recognize that sales tax rates and filing rules differ across cities and states, requiring ongoing monitoring of tax bases and levies. Whether managing business-to-business transactions, documenting exemptions, or addressing use tax obligations, companies must prioritize accuracy and consistency to avoid compliance gaps. Automated tools like Kintsugi Intelligence streamline processes for tracking sales thresholds, calculating tax rates, and generating accurate filing reports. As tax jurisdictions continue strengthening enforcement efforts, businesses must stay proactive, leveraging platforms like Kintsugi to adapt to changing regulations and ensure full compliance. With the right strategies, companies can maintain legal integrity, protect tax revenue, and support long-term growth in the competitive e-commerce market.