Do I need to register for US sales tax?
Most times, yes. U.S. sales tax registration is mandatory once your business creates nexus. You may need a sales tax permit and to start filing returns immediately. Missing this can trigger penalties, back taxes, and compliance risks that will gravely hurt your bottom line.
This is where many non-U.S. founders get confused. The United States does not have a federal VAT system. Instead, sales tax is controlled by state and local governments, and each state sets its own registration rules, economic nexus thresholds, and filing requirements. Some businesses register too early. Others wait too long and face unexpected liabilities.
This guide explains exactly when U.S. sales tax registration is required, how the registration process works, and what happens if you fail to comply.
Understanding Sales Tax Nexus
You must determine whether you have created nexus before you collect sales tax. Nexus is the legal term for the connection between your business and a state that creates tax obligations.
There are two main types: physical and economic nexus. If either exists, you must register for sales tax in that state.
The expansion of economic nexus rules came from the Supreme Court decision in South Dakota v. Wayfair, which allowed states to require remote sellers to collect and remit sales tax even without physical presence. You can review the official case summary through the Supreme Court of the United States website.
Physical Nexus: When Presence Creates Registration Requirements
Physical nexus is created when your business has a tangible physical presence in a state. Once physical nexus exists, U.S. sales tax registration is generally required before you can legally collect sales tax. For many non-US founders, this is the first trigger of state-level sales tax obligations.
A physical presence can include:
- A physical office or business location
- U.S.-based employees or independent contractors
- Inventory stored in warehouses or fulfillment centers
- Third-party logistics providers (3PLs), including Amazon FBA
- Owned or leased equipment located in a state
Even one warehouse or one remote employee can create a nexus in most states. Businesses are generally required to register for sales tax once they establish physical or economic nexus. The physical presence alone is enough in this case. You must complete the sales tax registration process, obtain a sales tax permit or seller's permit, and apply through the state's department of revenue before charging customers tax.
It is illegal to collect sales tax without first registering in the state where the business operates. The Sales Tax People emphasizes that if a business continues selling without registering or fails to remit taxes, states can impose penalties that generally range from 5% to 25% of the unpaid tax amount.
Economic Nexus & When Sales Volume Triggers Registration
Economic nexus is based on sales activity and not physical presence. Economic nexus is established based on the amount of sales revenue or the number of transactions a business has in a state.
These rules expanded after The South Dakota vs. Wayfair decision expanded the definition of nexus. This allows states to require sales tax collection from out-of-state sellers based on economic nexus. A remote seller can create a nexus even without a physical connection to the state because of this ruling.
You will generally need to register, obtain a sales tax permit, and begin collecting and remitting sales tax if your taxable sales exceed a nexus threshold.
Common triggers for economic nexus include:
- Taxable sales exceed the economic nexus threshold
- Your business completes 200 or more transactions in a state
- You sell tangible personal property or taxable services
- Your company sells to customers across multiple states
Businesses are generally required to register for sales tax once their sales activity hits the threshold for physical or economic nexus. There is a good chance you may owe taxes to the state if you continue selling without registering.
Businesses must monitor sales and use tax obligations carefully because each state has its own nexus thresholds. Once your sales activity hits the threshold for physical or economic nexus, businesses are generally required to register for sales tax before collecting or remitting tax to the state's department of revenue (see Sales Tax Nexus Explained).
Here's Some Reassurance for Non-US Founders
Many Non-US founders are overwhelmed with how to manage their sales tax obligations and by the number of applications they must file to comply with various state laws. In reality, most companies only need to register for sales tax in one or two states when entering the U.S. market. Businesses can begin filing sales tax returns and paying sales tax once registered.
The sales tax registration process is usually straightforward and handled through the department of revenue. Business information needed for sales tax registration includes a Federal Employer Identification Number (EIN), business address, and NAICS code (tax ID number).
Online registration through the state revenue website for sales tax permits is preferred in most states for faster processing. It can usually provide a permit within 10 business days. Your sales tax license allows you to legally pay taxes and manage your own sales taxes for sales tax purposes after approval.
Additional details non-U.S. founders should know:
- Some businesses may need foreign qualification before registering in certain states
- A valid exemption certificate may allow certain purchases to qualify for sales tax exemption
- Some states apply systems like gross receipts tax instead of traditional sales tax
- There are a few exceptions depending on products and local jurisdictions
Final Thoughts
Navigating U.S. sales tax as a non-U.S. business doesn't have to be overwhelming. Even small businesses can stay compliant by understanding their physical location, state wide sales tax, and local sales taxes obligations. Registering in the appropriate offices and obtaining a sales tax license ensures your business meets filing requirements, maintains tax exempt status, and avoids penalties.
Ready to take action? Register your business and confirm where you must collect and remit taxes with our free Nexus Checker. Once you know your nexus, you can manage filings, pay taxes, and maintain compliance with confidence.
Still have questions? View our pricing for full-service compliance support.
Frequently Asked Questions
Do I need to register for sales tax in every U.S. state?
No. You only need to register for sales tax in states where your business has established nexus. You must register for sales tax in states where you have met the nexus standards. If you do not have physical nexus or have not crossed an economic nexus threshold, registration is typically not required yet.
What happens if my business does not register for sales tax?
Failing to register for sales tax can lead to serious consequences. Businesses that fail to register for sales tax may face hefty penalties and interest if they are notified about back taxes.
Can I register for sales tax myself?
Yes. You can register for a sales tax permit yourself or hire a tax professional to register for your state sales tax permits on your behalf. Many companies work with a tax professional because the sales tax registration process can involve multiple state agencies, forms, and deadlines.
Note: The sales tax permit, or Certificate of Authority, is issued once registration is approved, allowing businesses to collect sales tax.
How long does sales tax registration take?
Sales tax compliance can be complex and time-consuming to navigate, especially in the United States. Online registration for sales tax permits is preferred for faster processing in most states. However, timelines vary depending on the state's department of revenue and whether additional business information is required.
Do all states charge sales tax?
No. Alaska, Delaware, Montana, New Hampshire, and Oregon do not have a state sales tax, so registration is not required. However, the majority of states do require tax registration and expect businesses to collect sales tax, file returns, and remit sales tax once nexus exists.