Sales Tax Isn’t Optional: What Digital and Product-Based Entrepreneurs Need to Know
June 4, 2025
Let’s start simple. Sales tax is a small percentage of a sale that gets added on when a customer buys something—usually goods, and sometimes services. As a business owner, it’s your job to collect that tax from the customer and send it to the state. You don’t get to keep it. And if you don’t handle it correctly, the state will come looking for it—plus penalties.
Most people assume sales tax only applies if you’re running a storefront. But in today’s digital world, that’s not how it works. If you sell products or certain types of services online, especially across state lines, you might owe sales tax in places you’ve never even been.
The reason? Something called nexus—a fancy word for “connection.”
You only need one of a few types of connections to owe tax. It could be that you’re located in a state. It could be that you have a warehouse there. Or it could simply be that you sell enough into the state that they consider you taxable. That last one is called economic nexus, and it’s become a big deal since a 2018 Supreme Court case called South Dakota v. Wayfair, Inc.
In that case, the court ruled that states can require online and remote sellers to collect sales tax—even if the business has no physical presence in the state.
That ruling changed the game. Since then, most states have created their own economic nexus rules, and thresholds vary.
Here’s what you need to know—so you’re not caught off guard.
💡 Who Does This Affect?
Product-Based Businesses
If you sell physical goods—whether in person, through a warehouse, or online—you probably owe sales tax somewhere. At minimum, you owe it in the state where you live and operate. But if you:
- Use a fulfillment center like Amazon FBA
- Ship products across state lines regularly
- Sell at volume to customers in other states
…then you may have triggered nexus in those states and need to register, collect, and remit tax.
Digital Entrepreneurs
This is where people tend to get surprised.
Even if you don’t sell physical products, you might still owe sales tax depending on what you’re selling and where your customers live.
Examples of taxable digital products and services:
- Downloadable templates, guides, PDFs, or eBooks
- Pre-recorded courses and webinars
- Software subscriptions or membership sites
- Bundled programs that include both digital products and live support
States like Texas, Washington, New York, and Pennsylvania all tax certain digital goods. And more states are tightening the rules each year.
So yes, even if you’re a coach, creator, or consultant, you might owe tax on your digital income.
📍 What Triggers Economic Nexus?
Each state sets its own thresholds. Some examples:
| State | Gross Revenue | Transaction Threshold |
|---|---|---|
| Arkansas | $100,000 | 200 transactions |
| California | $500,000 | None |
| New York | $500,000 | 100 transactions |
| Texas | $500,000 | None |
| Washington | $100,000 | None |
This means you could owe tax in a state even if you’ve never been there. Once you pass that threshold, the clock starts ticking. You’re expected to register for a permit, start collecting tax at checkout, and file returns on time.
🗓️ When Do You File?
Once you’re registered in a state, they’ll assign you a filing frequency—usually monthly, quarterly, or annually—based on how much you’re selling.
Here’s what that typically looks like:
- Monthly: For higher-volume sellers (this is the most common assignment)
- Quarterly: For moderate sales volume
- Annually: For low-volume businesses, often under a certain revenue threshold
⏰ So… When’s It Due?
For monthly filers, most states expect your return by the 20th of the following month. But it varies. Some states want it by the 15th. Others by the 25th. A few (like California) set the due date at the very end of the month.
Here are some examples:
| State | Due Date (Monthly Filers) |
|---|---|
| California | Last day of the month |
| Texas | 20th of the month |
| New York | 20th of the month |
| Georgia | 20th of the month |
| Washington | 25th of the month |
| Illinois | 20th of the month |
If the due date falls on a weekend or holiday, most states will push it to the next business day.
Also: even if you didn’t make any taxable sales, you’re probably still required to file a zero-dollar return. Miss it, and the state may charge you penalties anyway.
🔧 Apps That Make Sales Tax Easier
Let’s be real: manually tracking this in Excel is a nightmare. Fortunately, there are tools that can help:
- TaxJar: Great for tracking nexus and automating sales tax filings across multiple platforms.
- Avalara: Offers more robust automation and integrates with enterprise-level systems.
- Quaderno: Especially useful for digital product sellers, coaches, and global VAT.
These tools can help calculate the right tax based on your customer’s location, automate filings, and keep track of thresholds.
But here’s the bottom line: they’re tools, not insurance.
Even with software, the liability is still on you. If something’s wrong, the state’s not going after your app—they’re coming after you.
✅ What to Do Next
If you’re unsure whether this applies to you, here’s what I recommend:
- Review your sales by state. Where are your customers located? Have you passed any thresholds? (Many POS software systems like Shopify and Shop keep up with information that will make this step easier)
- Register for sales tax permits before you start collecting tax. That’s a legal requirement.
- Update your checkout systems to calculate and collect sales tax at the point of sale. (Make sure digital products are configured correctly!)
- Set a recurring task to file returns on time—even if it’s just once a quarter.
- Work with a professional who understands multi-state sales tax, especially if your revenue is growing.
Final Word
Sales tax isn’t exciting, but it’s necessary. And skipping over it can create some very expensive problems down the road.
If you’ve built your business to be scalable, profitable, and sustainable, then your backend systems—including sales tax—need to support that.
Revenue isn’t truly yours until you’ve handled what belongs to the state.
Don’t let a technicality cost you peace of mind. Get clear. Get registered. Get back to growing your business with confidence.
Need help figuring out where you might owe or setting up your system properly?
Let’s talk. I do this every day—so you don’t have to.
