Sales Tax and VAT Basics for Online Stores

Taxes on sales are complicated, they differ by country, and the rules change. This guide gives a general overview to help you ask better questions. It is not tax or legal advice. Talk to a qualified accountant or tax adviser about your situation.

Two main systems

Sales tax (used in the United States and a few other places) is typically added at the point of sale, with rates that vary by state and sometimes by city or county. VAT or GST (used in the UK, EU, and many other countries) is charged at each stage, and businesses generally register once their sales pass a threshold, or earlier if they choose.

Key questions to answer

Where is my business based, and where are my customers?
Do I need to register? Thresholds and rules differ by place.
What rate applies to my products and to each customer's location?
How do I show prices? Consumer prices in many countries must include tax. In others, tax is added at checkout.
How do I file and pay, and how often?
What records must I keep?

United States: sales tax

Since a 2018 Supreme Court decision, states can require out-of-state sellers to collect sales tax once they reach certain economic thresholds, based on sales or transaction counts. This is often called economic nexus. Each state sets its own thresholds and rules, so a small store selling nationwide can have obligations in several states. Many states also have marketplace facilitator rules, under which large marketplaces collect tax on sales made through them. Some products are taxed differently or exempt.

UK, EU, and VAT

VAT registration thresholds, rates, and treatment differ between countries. For sales to consumers in other EU countries, special schemes exist to simplify reporting. After Brexit, UK and EU sales involve additional rules for imports, exports, and customs. Digital products and services are often taxed according to where the customer is located. See selling digital products online.

Automate where you can

Most ecommerce platforms and payment tools can calculate tax based on the customer's location, or integrate with tax services. Set them up carefully, test with sample orders, and keep settings current. See choosing an ecommerce platform.

Display and communicate clearly

Show whether prices include tax
Show tax lines clearly at checkout. See checkout page best practices
Explain shipping, duties, and import charges for international customers, because surprise fees drive abandonment. See shipping and returns pages
Provide proper receipts and invoices

Keep records

Keep orders, invoices, tax calculations, and filings for the period required where you operate. Good records also support your pricing and profit decisions. See how to price products online.

Common mistakes

Ignoring tax until the business is large
Assuming a marketplace handles everything
Charging the wrong rate for a product type or location
Not registering when thresholds are passed
Mixing personal and business finances

When to get help

Speak to an accountant when you start, when you expand to new states or countries, when you launch digital products or subscriptions, or if you're unsure whether you need to register.

Also see privacy and data duties for stores and terms of service and website disclaimers.

The bottom line

Learn which tax rules apply to where you and your customers are, automate calculations, keep records, and use a professional for the details.