Do Foreign Businesses Have to Collect Sales Tax in the US?

Expanding your business into the United States can be an exciting opportunity, but it also comes with a whole host of regulatory requirements. 

One of the most common questions, in this regard, among global entrepreneurs and non-US businesses is: 

“Do foreign businesses have to collect sales tax in the US?” 

This article breaks down the complexities of US sales tax and explains how your business might be impacted, even if you have no physical presence in America. 

We will also show you how doola simplifies the entire compliance process.

Understanding US Sales Tax Basics

Sales tax in the US is a state and local tax collected on the sale of goods and services. Unlike federal income tax, which is managed by the national government, sales tax is administered by individual states or local jurisdictions. 

US sales tax isn’t one-size-fits-all, it’s a tangled web of state-by-state rules, rates, and thresholds that every founder needs to navigate.

What Is Sales Tax?

Sales tax is an indirect tax imposed by state and local governments on retail sales. The tax is collected at the point of purchase and remitted by the seller to the appropriate tax authority.

Common Sales Tax Misconceptions vs. Facts

Sales tax in the US isn’t just complex, it’s commonly misunderstood. And for founders outside the US, that misinformation can be costly.

Let’s bust the most common myths that confuse ecommerce sellers and replace them with facts that keep your business safe and audit-proof.

Misconception #1: “The US has a federal sales tax.”

Reality: There is no federal sales tax in the United States. Sales tax is governed entirely at the state and local levels.

Example: A customer in California pays 7.25% sales tax on a $100 product. A customer in Delaware, on the other hand, pays 0% because Delaware doesn’t charge sales tax at all. 

So technically, it’s the same product, at the same price, receiving completely different tax treatment, based solely on the customer’s location.

Misconception #2: “You only charge sales tax if your business is based in that state.”

Reality: Sales tax is based on where your customers are, not just where your business is located. If you have nexus in a state, either physically or economically, you may be required to collect sales tax there.

Example: Let’s say you’re a founder in India with a US LLC, selling $150,000 worth of goods to customers in Texas. You may trigger economic nexus in Texas and need to collect Texas sales tax, even if you’ve never set foot there.

📌 Note: Nexus can be triggered by things like:

• Reaching a revenue threshold (e.g., $100,000 in sales)

• Shipping a certain number of orders (e.g., 200+ annual transactions)

• Having a warehouse, employee, or contractor in a state

Misconception #3: “Shopify or Amazon handles all your sales tax obligations automatically.”

Reality: Platforms like Shopify can calculate and collect sales tax, but it doesn’t file or remit taxes for you (unless you use additional integrations or third-party services). You’re still responsible for:

• Registering for a sales tax permit in each applicable state

• Filing monthly/quarterly sales tax returns

• Remitting the correct amount to the proper tax authority

Example: Suppose you enable automatic tax calculations in Shopify, but miss the step of registering with New York’s tax authorities.

Shopify might get the numbers right, but without registration, you’re still liable for penalties for collecting NY sales tax.

Misconception #4: “If I’m not based in the US, I don’t need to worry about sales tax.”

Reality: Even non-US founders can have sales tax obligations if they’re selling to US customers and meet economic nexus thresholds.

Example: Operating from Singapore with a US LLC and a domestic dropshipper, let’s say, you fulfill orders across 10 states. Once your sales in Florida hit $100K, you trigger economic nexus. 

That means, you are now on Florida’s sales tax radar, and you’ll need to register and collect sales tax, even if you’ve never been to the state.

Misconception #5: “Digital goods are tax-free.”

Reality: Many states now tax digital products like eBooks, online courses, and downloadable files, especially as digital commerce expands.

Example: If you’re selling an online course in Washington state, it is taxable. But if you’re selling the same course to someone in Oregon, it is not taxable as Oregon doesn’t have sales tax.

Sales Tax vs. Other Taxes: What Every Founder Should Know

While federal income tax targets business earnings, sales tax is specifically levied on consumer transactions. This distinction is crucial for business owners to understand to avoid missteps in tax compliance.

Let’s unpack the differences with real examples, use cases, and insights: 

Still confused about how sales tax stacks up against income or corporate tax? Well, if you’re mixing up sales tax with income or corporate taxes, you’re not alone.

Let doola break it down for you. Book a free demo and get clarity tailored to your business.

What Triggers Sales Tax Obligations for Foreign Businesses?

You don’t need a storefront in New York or a warehouse in Texas to owe US sales tax. In e-commerce, crossing a line on a spreadsheet can be enough to trigger obligations. 

That line is called sales tax nexus, and if you’re selling into the US as a global founder, you need to know if you’ve crossed it.

What Is Sales Tax Nexus?

At its core, sales tax nexus is a legal connection between your business and a US state.

Once you have nexus in a state, you’re required to register, collect, file, and remit sales tax for any taxable sales to customers in that state, even if your business operates overseas.

There are two primary types of nexus that apply to foreign businesses:

So how do you actually know if you’ve triggered nexus in a state and what steps to take next? A simple checklist can help you find out where you stand and what action you need to take.

Sales Tax Nexus Self-Assessment Checklist

Ask yourself the following questions to determine if your business has nexus in any US state:

📌 doola’s Pro Tip for the Do’ers: It’s not just about where you are, it’s about where your business touches. Nexus is triggered by the footprint your operations leave across state lines.

The Real Cost of Getting Sales Tax Wrong

Sales tax non-compliance can bleed your business dry before you even realize it’s happening.

Miss one filing deadline or overlook a nexus-triggering activity, and you could be staring down five-figure penalties, state audits, account freezes, or worse, being banned from selling in certain states.

Here’s what’s really at stake when you ignore or miscalculate your sales tax obligations:

Penalties & Interest: How Much Could It Cost?

Let’s say you’re a non-US e-commerce founder selling via Shopify. You unknowingly cross the economic nexus threshold in California, where you’re required to collect and remit sales tax.

• Total revenue in CA in 12 months: $120,000

• Sales tax rate (average): 7.25%

• Sales tax you failed to collect: $8,700

Now, add the penalties, and here’s what it results in:

And this is just one state. Now imagine this playing out across multiple states, and you’re looking at compliance chaos and a trail of audit triggers. 

That’s how founders end up buried under a pile of notices and penalties.

Audit Risk: You Don’t Want That Email

Failing to register or file on time in nexus-triggering states can flag your business for audit.

State auditors may go back 3–7 years, depending on the state, and demand back taxes, penalties, and proof of compliance for every transaction.

Example Scenario:

An online accessories brand based in the UK selling to US customers discovered post-acquisition due diligence that they owed $67,000 in backdated taxes and fines across 4 states. 

The deal almost fell through because of it and investors were ready to walk away during acquisition talks.

Platform Disruptions

Shopify, Amazon, Etsy, and other marketplaces may pause or restrict your account if you can’t provide a valid sales tax permit in the required states.

That’s lost sales, lost trust, and a massive hit to customer retention.

Legal Exposure & Reputational Damage

Failing to handle sales tax properly isn’t just a paperwork problem, it can expose your business to serious legal consequences.

Some states go beyond fines, with civil and even criminal penalties for ongoing non-compliance. 

And it doesn’t stop there: reputational damage can quietly kill your momentum. Investors walk away from messy books. Acquirers back out. Even potential partners may think twice. 

Ultimately, compliance isn’t just protection, it’s positioning.

✅ What Founders Can Do

Smart founders don’t wait for a tax notice to act. Partner with doola for a full sales tax risk check, then register in the right states before crossing key thresholds. 

Set aside the tax from day one, because paying out of pocket later hurts, and automate everything you can to avoid errors. 

And of course, sales tax doesn’t have to be scary when you’ve got doola in your corner. 

Book a free demo and future-proof your business now.

Physical Presence vs. Economic Nexus

Foreign businesses may establish nexus in two primary ways: through a physical presence or via an economic connection.

Let’s dissect how physical vs. economic nexus work for US LLCs and how both scenarios impact compliance for US-based operations.

Understanding these two types of nexus is essential, as the steps to compliance vary significantly based on which scenario applies to your business. 

Check out our State Sales Tax Guide to understand these nuances better.

Navigating Sales Tax Registration and Compliance

Once you determine that you have a nexus, the next step is proper registration and ongoing compliance. Here are the steps you need to follow:

Step 1: Register for a Sales Tax Permit

Each state where you are liable requires registration. This process is vital to legally collect sales tax.

Step 2: Collect Sales Tax on Applicable Transaction

Begin collecting the appropriate sales tax on applicable transactions. Many online platforms provide built-in tax calculations, but you need to ensure they match state-specific regulations.

Step 3: File Your Returns 

Regular filing of sales tax returns with each state is mandatory. Filing frequencies can vary, some states require monthly, others quarterly or annually.

Step 4: Remit Taxes to the State Authorities 

Finally, remit the collected taxes to the respective state authorities. In some instances, marketplaces like Amazon and Etsy will handle these tasks.

However, in many cases, the responsibility lies with you.

For businesses looking for streamlined solutions, doola offers comprehensive support through the Sales Tax Service Page to help navigate this process with ease.

State-by-State Variability and Its Implications

Each state (and often each city or county) has its own rules, rates, exemptions, and filing requirements. That means selling into California is nothing like selling into Florida or Texas.

Sales tax in the United States involves 13,000+ jurisdictions.

And for founders scaling across borders, understanding this variability is a key business imperative.

Again, US sales tax laws are fragmented. Rates, exemptions, and filing frequencies differ not just from state to state, but sometimes even at the local level within a state. 

This means a one-size-fits-all approach simply doesn’t work. So let’s find out how sales tax varies across states.

Sales Tax Landscape: State-by-State Comparison

In the US, sales tax isn’t governed by a single national policy, it’s a maze of state-specific rules.

Just a quick comparison across a few states shows how unpredictable and complex things can get.

💡 State Spotlight: Colorado has over 700 taxing jurisdictions, one of the most fragmented in the country!

Reality Check for Global Founders

Say for example, you’re running a Shopify clothing brand from Germany and rake in $520,000 in US sales, $300K from California alone. 

You’ve now triggered economic nexus in states like California and New York, which means you’re required to register in multiple states.

You also need to collect varying tax rates across cities like Los Angeles, New York City, and Austin, and juggle different filing cadences (monthly in California, quarterly in New York). 

On top of that, you’ll need to report marketplace-collected taxes separately. 

That’s a full-time job just to stay compliant. So, why not just doola it?

With doola, compliance doesn’t have to be complicated. 

You don’t need to memorize 50 sets of tax laws or become an expert in every state you sell to. doola keeps you ahead of the game with expert-led monitoring, automated filings, and personalized guidance, so you can stay compliant without losing sleep (or sales).

Here’s how doola makes sales tax compliance effortless:

• Tracks nexus across all 50 state so you know exactly where you stand

• Handles registrations without the bureaucratic maze

• Automates filings and keeps tabs on every deadline

• Sends real-time alerts on changing laws and thresholds

• Offers strategic insight on when (and where) you actually need to register

Global founders scaling to 7 figures and beyond trust doola to keep their books clean and their businesses audit-ready. See for yourself what they have to say about our services.

Common Mistakes Foreign Businesses Make

Expanding into the US market is a huge win. But if you’re a global founder navigating sales tax, one misstep can trigger penalties, interest, or audits. 

Here are the most common traps foreign businesses fall into and how to sidestep them with confidence:

❌ Registering in the Wrong State

The Trap: Registering in states where you don’t have nexus (or worse), skipping registration in states where your activity does trigger tax obligations.

The Solution: Use a nexus assessment tool or consult a compliance expert (like doola’s team) to map out where you actually need to register based on your economic activity (sales volume, transactions, fulfillment centers, etc.).

Example: Let’s say you sell $120K worth of candles into California. Now, even if you operate from the UK, you’ve triggered nexus and must register there, but not necessarily in states where sales are under threshold.

❌ Ignoring Economic Nexus Thresholds

The Trap: Failing to track whether you’ve crossed a state’s economic threshold, either by total revenue or transaction count, can leave you liable for back taxes and penalties.

The Solution: Implement automated sales tracking that flags when you’re nearing nexus thresholds in any US state. Set alerts at 80% of threshold to prep in advance.

💡 Did you know? 

In New York, exceeding $500K in sales + 100 transactions in a year creates nexus. In South Dakota, it’s just $100K or 200 transactions. Every state is different.

❌ Assuming Marketplace Platforms Have You Covered

The Trap: Thinking platforms like Shopify, Amazon, or Etsy handle all your sales tax responsibilities. In reality, they may collect and remit taxes for marketplace-facilitated sales only, not for your direct website or international channels.

The Solution: Understand the marketplace facilitator laws in each state. Then, register and file where required, even if tax was already collected on your behalf. Tools like doola help you track and file mixed-channel sales accurately.

Example: Etsy collects tax for you in most states, but if you also sell via your own website or do email-based invoicing, you may still have filing obligations.

❌ Misunderstanding Taxability of Digital Products

The Trap: Believing digital goods (like courses, e-books, or software) are always exempt from sales tax. In fact, many states tax digital downloads, SaaS, and even streaming content.

The Solution: Check each state’s taxability chart for digital products. Or better yet, use a service that keeps this constantly updated (like doola’s compliance engine). Don’t assume what’s tax-free in your country is treated the same way in the US.

Example: Your online video editing tool may be tax-free in Florida but taxable in New York or Texas. Getting this wrong could mean months of unpaid taxes.

Bottom Line for Founders

Sales tax isn’t just about charging the right rate, it’s about knowing where, when, and if you should be collecting in the first place. With laws that shift constantly across 50 states, it’s easy to slip up.

That’s where doola comes in, keeping your compliance airtight, your registrations up to date, and your tax liabilities crystal clear, no matter where your business is based.

How doola Can Help With Sales Tax & Compliance

At doola, we understand that managing multi-state sales tax compliance can be overwhelming, especially for foreign businesses. 

Our comprehensive suite of services is designed to simplify every step of the US sales tax process, giving you peace of mind and allowing you to focus on growing your business.

Schedule a demo to learn more about how doola can make US tax readiness simple and efficient. 

FAQs: US Sales Tax for Foreign Businesses

Do I need to collect US sales tax if I’m based outside the US but sell to US customers?

Yes. If you meet the threshold for economic nexus or have any physical presence in a state, you may be required to collect sales tax.

What is economic nexus? How does it apply to foreign sellers?

Economic nexus is established when your sales volume or number of transactions in a state exceeds a set threshold. Even without physical presence, surpassing these thresholds can make you liable for collecting sales tax.

How do I determine which states require me to register for sales tax?

You must assess both your physical and economic activities within each state. Utilizing resources like doola’s State Sales Tax Guide can help simplify this process.

Can I use a third-party service to manage compliance on my behalf?

Absolutely. Many foreign businesses choose to work with third-party experts or use platforms like doola to streamline sales tax registration and compliance.

Are digital products and services subject to US sales tax for foreign businesses?

This depends on the state. Some states tax digital products while others do not. It’s critical to review state-specific rules and consult expert guidance.