E-Commerce Tax Guide: Income Tax, Sales Tax, and Reporting for Online Sellers

Selling online is a business, and the IRS treats it that way whether you sell full-time on Amazon or part-time on Etsy. Every online seller has three tax obligations: (1) federal and state income tax on net profits, (2) self-employment tax (15.3%) on net self-employment income, and (3) sales tax collection and remittance in states where the seller has nexus (physical or economic). The 2025 reporting threshold for Form 1099-K dropped to $600, meaning virtually every seller who receives payments through a third-party platform (Amazon, Shopify Payments, PayPal, Stripe, Etsy Payments) will receive a tax form. The 1099-K reports GROSS payments (before fees, returns, and refunds), which means the seller must properly account for all costs and adjustments to arrive at net profit.

What does an online seller’s tax return look like?

How do I know if I need to collect sales tax?

Sales tax obligations depend on nexus, a connection between your business and a state that triggers a collection requirement. Physical nexus comes from having a location, employee, or inventory in a state. Economic nexus, established after the 2018 Supreme Court decision in South Dakota v. Wayfair, triggers when you exceed a state’s revenue or transaction threshold (each state sets its own figure and period; Florida and Pennsylvania use $100,000 of sales, for example, while California and Texas use $500,000). Each state sets its own rules, rates, and exemptions. If you sell online and ship to multiple states, you likely have economic nexus in several states and must register, collect, and remit sales tax in each.

What is the difference between sales tax and use tax?

Sales tax is collected by the seller at the point of sale and remitted to the state. Use tax is owed by the buyer when sales tax was not collected, typically on out-of-state purchases or items withdrawn from inventory for personal use. As a business, you owe use tax on equipment, supplies, or inventory purchased from vendors who did not charge sales tax. Many states combine sales and use tax on a single return. Failing to self-assess use tax can result in back-tax assessments for the full statute of limitations period, typically three to four years, plus interest and penalties.

Related guides:

• E-Commerce Tax Obligations: What Online Sellers Must Know
• Amazon FBA Tax Issues: Inventory Nexus, 1099-K, and What Sellers Actually Owe
• Form 1099 Reporting Requirements for Small Businesses

Does an Amazon-only seller need a sales tax permit?

In some states, no. Beginning October 1, 2019, California doesn’t require registration from a seller whose retail sales are all facilitated by a marketplace facilitator registered with the state, even with inventory in a California fulfillment center. Texas doesn’t require a permit from a remote seller who sells only through a marketplace provider that certifies it collects.

Other states handle marketplace sales differently. New York counts them toward your own $500,000-and-100-sales test, and California counts them toward its $500,000 line. Pennsylvania goes the other way: a marketplace seller with no physical presence there leaves out sales made through a facilitator that collects for it when testing the $100,000 threshold. Florida has you leave certified marketplace sales off your return, though you still register for qualifying direct sales. Texas still wants records of your marketplace sales kept for four years.

Add your own website and the California exception stops fitting, since it needs every sale to go through a facilitator. Check whether the marketplace you use is registered, or certifies that it collects, in each state you care about.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.