How to File Sales Tax Returns: A Step-by-Step Guide for Business Owners

You’ve found it! Your go-to, easy-to-skim guide on how to file sales tax returns. We’ve broken everything down clearly and answered the exact questions you’ve probably Googled more than once.

Most business owners we talk to are short on time. They can’t devote their entire day to taxes and bookkeeping. 

And honestly, sales tax is usually one of those subjects that feels confusing, boring, and easy to put off, only until it turns into a bigger problem.

During our consultation calls, we often get questions like:

“What happens if I don’t collect sales tax?”
“How do I even file it?”
“Is there, like, a fine… or jail?”(It’s usually a fine. But still. Let’s avoid that.)

This guide is here to answer all of that.

We’ll walk you through how to file sales tax returns, what sales tax compliance really means, and the basics you need to stay out of trouble.

And if your brain’s already tired? Book a quick demo. Our experts will guide you through it.

What Is a Sales Tax Return?

At its core, a sales tax return is a report you file with the state (or multiple states) to show how much sales tax you collected from your customers and will remit the amount to the government.

But what this looks like can vary depending on your business model.

If you run an e-commerce business, sales tax usually applies to the physical products you sell online. That means if you’re selling T-shirts, candles, home decor, or anything else that ships to customers, you may need to collect sales tax at checkout.

This will be based on where your customers are located, not just where your business is based.

Once you collect that tax, you’re expected to file a return with the appropriate state(s), reporting how much you collected and sending it in. A typical return includes:

• Your total sales

• The tax collected

• A breakdown of sales by state or city (in some cases)

• Any exempt sales or refunded transactions

If you sell through platforms like Shopify, Amazon, or Etsy, you may need to report differently depending on who collected the tax, you or the platform.

If you sell digital products or services, whether sales tax applies depends on both what you’re selling and where your customers are located. Some states do tax digital items like:

• eBooks

• Downloadable templates

• Online courses

• SaaS subscriptions

Others don’t.

So, if you’re a creator selling digital goods or a software founder offering monthly plans, you’ll need to check which states your customers are in and whether those states tax your specific offering.

Your sales tax return would still include the same details, but only for states where your product is taxable and you’ve passed a nexus threshold (such as $100,000 in revenue or 200 transactions in that state).

If you’re a freelancer or service provider, sales tax can be a little murky. Most professional services like consulting, copywriting, coaching, or video editing aren’t taxable in many states.

But some states do tax certain services. For example:

• Graphic design is taxable in New York

• Photography services are taxable in Texas

• Web development may be taxable depending on the scope and deliverables

So, if you’re invoicing clients for services that are considered taxable in your state or in your client’s state, you may need to collect sales tax and file returns accordingly.

🚩 And PLEASE don’t confuse sales tax returns with income tax returns.

The two are not the same. Like, not even close.

Here are the key differences, plain and simple:

So yeah, don’t mix them up. Both matter, but they do very different jobs.

Why You Can’t Skip Filing Sales Tax Returns

Let’s be blunt: sales tax isn’t optional.

Once you’re registered to collect it, you’re also required to file returns. On time, every time.

Yes, even if you had zero sales.
Yes, even if you collected $0 in tax.

Here’s why filing your sales tax returns matters, plus, what could go wrong if you don’t.

🔖 Related Read: Sales Tax Basics for E-Commerce Businesses: What You Need to Know

How Do Sales Tax Returns Vary by State?

Each state has its own rules, deadlines, forms, and quirks related to sales tax returns.

Here’s what typically varies:

1. Filing Frequency

Some states want you to file sales tax returns monthly, others quarterly or annually. And that depends on how much sales tax you’re collecting.

Example: California starts most new filers on quarterly, while Texas may put you on monthly if your sales tax owed exceeds a certain threshold.

2. Nexus Rules

Some states require you to file only if you have nexus there, which means a connection like physical presence or hitting certain sales thresholds (e.g., $100,000 in sales or 200 transactions).

Example: In Washington, economic nexus rules apply — if you pass $100K in sales, you have to register and file.

3. Local Tax Reporting

Some states have local (city or county) sales tax that must be reported separately from the state rate.

• Destination-based states (like Colorado or New York): You collect tax based on the buyer’s address and report by city or county.

• Origin-based states (like Texas for in-state sellers): You use your business location to determine the rate.

This affects how detailed your return needs to be.

4. Due Dates and Extensions

Filing due dates also vary. Most are on the 20th or last day of the month, but it depends on the state and your frequency.

Some offer grace periods, others don’t.

A few states (like California) also allow online extensions, while others don’t.

5. Marketplace Facilitator Laws

Platforms like Amazon, Etsy, and Walmart are considered “marketplace facilitators.” That means in most states, they are responsible for collecting and remitting sales tax on your behalf.

But that doesn’t mean you’re off the hook.

You might still be required to:

• File a sales tax return

• Report the sales made through the marketplace (even if no tax is due)

• Separate marketplace sales from your own website sales (like Shopify or WooCommerce)

Example:

In California, Amazon collects and remits tax for your FBA sales. But when you file your return, you still need to report those sales under “sales through marketplace facilitator” — and show $0 tax due, since Amazon already paid it.

But in some states, you may not have to file at all if 100% of your sales were through a marketplace.

Who Needs to File Sales Tax Returns?

We think this is probably the first question that pops into your head before you even begin to understand how sales tax works. Right? It’s fair.

Our brains are literally wired to avoid pain, and yes, taxes are often perceived as financial pain.

Psychologists like Daniel Kahneman call this “loss aversion.” It’s the idea that the pain of losing money (like paying taxes) hits twice as hard as the joy of earning it.

Naturally, your brain moves this whole “filing” thing to the very bottom of your to-do list. But the IRS and state tax agencies don’t care about your pain.

Basically, you need to file sales tax returns if you fall under any of the following categories:

• You have a physical presence (like an office, warehouse, or employees) in a state, also known as physical nexus.

• You exceed a certain amount of sales or transactions in a state, which creates economic nexus.

• You sell taxable products or services in states where they are considered taxable.

• You sell through platforms like Amazon, Etsy, or Shopify that collect tax on your behalf, but you may still be required to file returns in some states.

• You are a foreign or non-resident business selling to U.S. customers and you cross economic nexus thresholds.

(This rule was solidified after the South Dakota v. Wayfair ruling in 2018, which clarified that if you sell enough to customers in a state, you’re responsible for collecting and filing sales tax—even if you are not physically located in the U.S.)

• You drop ship, store inventory in a U.S. warehouse, or work with fulfillment centers such as Amazon FBA.

And yes, digital product sellers, this includes you too.

“But I just sell online courses, digital art, or templates… do I really need to file?”

Short answer: probably yes.

This is where a lot of creators and small business owners get tripped up, so let’s clear the air.

Some states tax digital goods. If you cross a state’s economic threshold or if your digital products are taxable in that state, you are required to file sales tax returns.

How Can a Business Unintentionally Trigger Nexus?

You’d be surprised how easy it is. Here are a few ways you might accidentally walk into a tax obligation:

• You’re selling through Amazon FBA, and your inventory is stored in their warehouses located in multiple states.

• You hire a remote contractor in a state where you otherwise have no physical presence.

• You start doing really well and surpass $100,000 in sales in a state without realizing it.

• You drop ship, and your third-party suppliers are delivering from within certain states.

• You advertise through affiliate marketers who live in states with click-through nexus laws.

Just like that, you may have triggered nexus without even knowing it.

🔖 Related Read: Sales Tax Nexus Explained: What Every Business Owner Needs to Know in 2025

When and How Often to File Sales Tax Returns

Got a better sense of what sales tax filing means for your business? Great.

Let’s move on to the next part: when and how often you actually need to file your returns.

How Often Do You Need to File?

This part is simple but important. Filing frequency refers to how often you’re required to report and pay sales tax to the state. It’s not something you choose. The state assigns it based on your sales volume and tax liability within that state.

Most states assign one of the following filing frequencies:

• Monthly – Usually required for sellers collecting a high volume of sales tax, often $1,200 or more per year in that state.

• Quarterly – Assigned to businesses with a moderate tax volume; this is common for many small to mid-sized businesses.

• Annually – For businesses with low or irregular taxable sales.

When you register for a sales tax permit, the state will let you know your assigned filing frequency in your welcome letter or confirmation notice. You can also find this by logging into your state’s sales tax portal.

Can Your Filing Frequency Change Over Time?

Yes. States periodically review your tax filings and may adjust your filing frequency based on the amount of tax you’ve been collecting.

For example:

• If you were originally assigned monthly filing but your taxable sales drop, the state may switch you to quarterly or annual filing.

• If your sales increase significantly, they may shift you back to monthly so they can collect tax more frequently.

Some states also allow you to request a change in filing frequency, especially if your business slows down or becomes seasonal. This isn’t guaranteed, but it’s worth checking with our sales tax experts or your state’s tax department portal if your business activity has changed significantly.

What Happens If You Miss a Filing Deadline?

Even if you had zero sales during a filing period, you’re still required to file a zero return.

If you skip a filing entirely, states may:

• Estimate the tax owed and assess it automatically

• Freeze your sales tax account

• Revoke your sales tax permit

Missing deadlines can lead to:

• Late filing penalties – Typically a flat fee, like $50 or $100 per missed return

• Late payment penalties – A percentage of tax owed, usually 5% to 25%

• Interest on unpaid taxes – Often compounded monthly

• Increased risk of audit – Especially if you miss multiple deadlines

Some states offer a short grace period, but not all. It’s safer to file on time, even if you don’t owe anything.

Is There a Way to Avoid Penalties If You Made a Mistake?

Yes, if you act fast.

If you made an honest error or forgot to file, many states have voluntary disclosure programs or penalty abatement options. Reaching out proactively and fixing the issue, may reduce or waive penalties.

However, once you’re flagged for repeated missed filings or under-reporting, most states become far less forgiving.

So, it’s best to stay compliant before the problem snowballs.

How to Prepare Before Filing

Here’s how to prepare before filing. Let’s break it down step by step.

1. Collect All Your Sales Data (From Everywhere)

To file correctly, you need to know your numbers correctly, like:

• How much you sold (total revenue)?

• How much tax you collected?

• Which transactions were exempt?

• What platforms already handled sales tax on your behalf

Total sales: Get the full amount you earned during the tax period (monthly, quarterly, etc.). If you sell in multiple states, break it down by state; most tax forms will ask for it.

Sales tax collected: You need to know exactly how much sales tax you collected from your customers. This should match what your platform shows. For example, if you’re using Shopify, Amazon, or Stripe, download their sales tax reports.

Exempt sales: These are transactions where you didn’t charge tax, either because the item wasn’t taxable, or the customer had a valid exemption. Keep a list of these and have proof (like resale certificates).

Marketplace Sales (if any): If you sell through places like Amazon, Etsy, or Walmart, they might have already collected and sent the tax to the state for you. If so, don’t include it again in your filing, or you’ll double-pay.

📌 doola’s Pro Tip for the Do’ers: Create a simple spreadsheet or folder to organize these numbers by state and category.

2. Validate Exempt Transactions (Don’t Just Assume)

This is where many sellers get confused, and often, unknowingly make mistakes that cost them later.

Not every sale you make will be taxable. That’s perfectly normal. 

But when you skip charging sales tax on an order, you need to have a clear, valid reason, and documented proof, for why it was exempt. The state doesn’t take your word for it. They’ll expect evidence.

There are usually two reasons why a transaction would be tax-exempt.

The first is when you sell to another business that’s buying from you purely to resell. These buyers don’t pay tax because the final customer is the one who will be taxed. 

In such cases, the buyer should give you what’s called a resale certificate. This is an official, state-issued form that proves they’re allowed to make tax-free purchases for resale purposes. 

Before you file, make sure you have a copy of that certificate for every exempt B2B sale. Double-check that it’s filled out properly, signed, and hasn’t expired. If you can’t produce it during an audit, the state can hold you responsible for the uncollected tax.

The second scenario is when the item you sold simply isn’t taxable in that state. That could be groceries, clothing, digital products, medical supplies. It all depends on what you’re selling and where the customer is located. 

For example, digital templates might be tax-exempt in Florida but fully taxable in Pennsylvania. Don’t assume. 

Check the taxability rules for each product you sell in the specific states you’ve made sales into. If you didn’t collect tax because the item falls under a non-taxable category, make sure that’s clearly documented in your records.

Before you file, go through your exempt transactions and confirm whether each one was covered by either a resale certificate or a valid product exemption. 

If a sale doesn’t fall under either category, and you still didn’t charge tax, it’s safer to treat it as taxable and include it in your report. 

Guesswork here can lead to penalties if you get audited later.

3. Don’t Trust ZIP Codes Alone

This part troubles a lot of sellers. Tax rates are based on jurisdictions, not ZIP codes.

Two people in the same ZIP code might fall under different local tax rates. If you use the wrong rate, you could underpay or overcharge, and even get flagged.

Instead of relying on ZIP, use:

• Your state’s official tax rate lookup tool (many have address-based search)

• doola or any other accounting software that calculates by address

Think of this step as making sure you’re paying the right amount to the right people.

4. Set Aside Dedicated, Distraction-Free Time to Prepare Your Numbers

Before you begin the filing process, block off 30 to 45 minutes of uninterrupted time to review your numbers. 

Start by closing any unrelated browser windows or apps. Sit down with all the sources you use to track your business finances.

This includes your e-commerce platforms like Shopify, or any marketplace dashboards (like Amazon or Etsy), your payment processors (like Stripe or PayPal), and any bookkeeping software you use.

Begin by checking your total sales for the filing period. Make sure your sales totals are consistent across all platforms. If one source shows $25,000 in sales and another shows $23,500 for the same period, stop and figure out why. 

It could be a reporting delay, a missing sales channel, or a refund not accounted for.

Next, look at the amount of sales tax you collected, state by state. You need to verify that the numbers make sense based on where you shipped orders and whether you had a tax obligation in that state. 

If you collected tax from a state you’re not registered in, or missed tax in a state where you’re supposed to collect, flag it for correction.

Then review your exempt sales. If you have sales marked as tax-exempt, make sure you have supporting documents like resale certificates or state-specific rules that clearly list the item as non-taxable.

Missing or incorrect exemption data can lead to penalties if you’re audited.

Finally, scan for anything that looks inconsistent or out of place. A sudden dip in tax collected, a spike in refunds, or a month where nothing was reported could be a sign that something was missed or misreported.

Taking this time now, before you file, helps you catch mistakes early. It gives you space to ask questions or pull missing data without fighting hard against a deadline.

What Are the Best Tools to Automate Sales Tax Prep?

If you’re tired of jumping between platforms, spreadsheets, and portals just to prepare for sales tax filing, don’t worry. There are ways to simplify this process.

The smartest move is to use a tool that brings all your sales and tax data together in one place and helps you prepare accurately and efficiently.

That’s where doola comes in.

Key Features of doola’s Sales Tax & Reseller Certificate Service:

• Sales Tax Registration: doola helps you register your business to collect and remit sales tax in the required states, making sure you stay compliant with state laws.

• Reseller Certificate Acquisition: Get the documentation you need to buy inventory tax-free from suppliers, boosting your profit margins.

• Hassle-Free Process: doola’s experts take care of the paperwork, so you can focus on growing your business without drowning in admin.

• Compliance Assurance: Stay ahead of changing tax laws and avoid penalties with doola’s proactive compliance support.

5. Managing Multi-Channel Sales

Selling on platforms like Shopify, Amazon, and Etsy adds layers of complexity to sales tax management.

Here’s how doola can help streamline it:

• Shopify: doola ensures your Shopify store is properly set up to collect the right sales tax, based on your nexus and product type.

• Amazon: While Amazon collects and remits sales tax in many states, doola helps you understand your remaining reporting obligations and stay compliant.

• Etsy: doola assists in managing your Etsy tax settings and guides you on proper tax collection and remittance.

For a more detailed analysis of how to file sales tax returns tailored to your specific business needs, consider booking a demo with our experts.

Step-by-Step Guide: How to File Sales Tax Returns

Here’s a detailed but specific step-by-step guide to filing sales tax returns:

Step 1: Log Into Your State’s Tax Portal

Start by logging into your state’s official Department of Revenue portal. This is where you’ll file and pay sales tax. If you’re registered in more than one state, you’ll repeat this process for each one.

Here are links to a few major state portals:

• California CDTFA

• Texas Comptroller eSystems

• New York Sales Tax Web File

• Florida Department of Revenue

Where people get tripped up: Using the wrong login or portal. If you’re registered as an individual but meant to file as a business, you’ll need to switch profiles or contact support.

Get in touch with our sales tax experts to get more information. 

Step 2: Select the Right Filing Period

Once logged in, choose the period you’re filing for, monthly, quarterly, or annually, depending on what the state assigned you. Filing for the wrong period (or skipping one) is a common reason for penalties.

Double-check that:

• You’re filing for the correct year and month/quarter

• You haven’t already submitted that period’s return

• You include all activity for the entire filing period (even if you had zero sales)

If your state requires “zero returns,” you’ll still need to file even if no tax was collected.

Step 3: Enter Gross Sales, Taxable Sales, and Exempt Sales

This section is where the actual math happens. You’ll be asked to input:

• Gross sales: Total revenue before tax, including all sales (taxable and exempt)

• Taxable sales: Sales that were subject to tax in that state

• Exempt sales: Sales where tax wasn’t charged, either because the buyer had a valid resale certificate or the product was non-taxable

Note: Don’t include shipping fees or tax amounts unless the state specifically asks for them.

Sellers often input gross sales and taxable sales as the same number. This causes under-reporting or overpayment if you had exempt transactions or marketplace-collected sales.

Step 4: Allocate Sales by Jurisdiction (if required)

In some states, like Texas, Colorado, or Alabama, you’re required to break down sales by city, county, or special district. This is especially important in destination-based states, where tax rates are determined by where the product is shipped.

Here’s how this works:

• In destination-based states, you collect the tax rate based on your buyer’s address.

• In origin-based states, like Texas (for in-state sales), you use your business’s location to determine the rate.

Example: If you sold to five cities in Colorado, you need to allocate sales and tax collected for each of those cities, based on the customer’s shipping address.

Use your sales report or an analytics tool like doola, to get this breakdown. Don’t guess here. It won’t work. Local jurisdictions can audit you separately from the state.

Step 5: Review, Double-Check, and Submit

Before hitting “submit,” carefully review all the information you entered. 

Make sure:

• Sales amounts match your reports

• Taxable vs. exempt sales are correct

• Marketplace sales (Amazon, Etsy, etc.) aren’t duplicated

• Jurisdiction allocations, if required, are accurate

Once submitted, you’ll usually get a confirmation message or submission number.

Remember, even a small error, like listing tax collected from the wrong state, can lead to a notice or fine.

Step 6: Pay the Tax Due

After submitting your return, you’ll be prompted to make a payment. Most states offer:

• Direct debit from your business bank account

• Credit card payments (sometimes with a processing fee)

• Scheduled payments (for future-dated payments before the due date)

If you owe zero tax but still had to file, you can skip the payment. But make sure your return says $0 due and is still marked as filed.

Step 7: Save and Download Proof of Filing

Always download or save a copy of your return and the payment confirmation. You might need it for:

• State audit requests

• Amending a future return

• Bookkeeping or end-of-year tax filing

Keep a digital folder named by state and filing period. For example, “California Q1 2024 Sales Tax Return”, and store everything there.

Common Mistakes to Avoid When Filing Sales Tax Returns

Even small mistakes on your sales tax returns can have serious consequences.

Most states now use automated data-matching systems to detect inconsistencies between what businesses report and what they’re expected to report, based on their industry, location, and past returns.

For example, if your Shopify sales report shows $50,000 in revenue but your state return shows only $38,000, the system will automatically flag the discrepancy. You may then receive a Notice of Estimated Assessment, in which the state estimates how much you owe and charges you accordingly, even if the error was unintentional.

Before we walk through the most common filing mistakes, let’s first understand why small errors matter and what auditors are really looking for.

You might think a small math mistake or a missing zero return doesn’t mean much, but to the state’s automated audit system, it’s a pattern disruption. And those systems are designed to find gaps.

Here’s what happens behind the scenes:

• If your tax collected doesn’t match your gross sales, even by a small percentage, it can trigger an audit flag.

• If your reported sales drop sharply, but your business is still active, the system may see that as underreporting.

• If you file inconsistently (late one quarter, missing another), the system can mark your account for review.

In short, the audit process often starts with minor mismatches that pile up over time. The cleaner your returns, the lower your risk of getting fined.

Here are some common mistakes that sellers make while filing sales tax returns:

Misreporting Exempt Sales

Many sellers incorrectly report all their sales as either fully taxable or fully exempt, without backing it up.

If you’re claiming resale exemptions, make sure you have valid resale certificates on file, clearly linked to each sale.

If you’re selling non-taxable items (like certain digital goods or groceries), confirm that they’re actually exempt in that state.

A common mistake is assuming all exemptions apply across states. That’s not true. Each state has its own rules, and they change often.

Filing for the Wrong Jurisdiction

In states like California, Colorado, and Alabama, you must report sales by local jurisdiction, and not just by state total.

A common error is entering all sales under the state-level rate without breaking them down by city, county, or special district. This is especially problematic in destination-based states, where you collect tax based on the customer’s shipping address.

Using ZIP codes to determine jurisdiction is unreliable. You need to use an address-based lookup tool or a tax platform that calculates exact local rates.

Forgetting to File Zero Returns

Most states require you to file a return even if you collected zero tax. This is called a zero return, and missing one is still considered non-compliance.

Forgetting this can lead to estimated tax assessments, penalty notices, or even license suspension.

Set calendar reminders and file every return your business is responsible for — regardless of activity.

Inaccurate Tax Settings in Your E-Commerce or POS System

Platforms like Shopify, WooCommerce, Amazon, and Stripe don’t automatically know where you have nexus. You have to set it up manually.

If your sales tax settings are wrong there — for example, if you’re not collecting tax in a state where you’ve crossed a nexus threshold, you’ll under-collect, underreport, and owe the difference out of pocket.

On the other hand, collecting tax in a state where you’re not registered is also a compliance risk.

Always review your platform’s tax settings any time your sales increase, your team expands, or you enter new states.

🔖 Related Read: 5 Costly Sales Tax Mistakes E-Commerce Founders Make (And How to Avoid Them)

How doola Helps With Sales Tax Compliance

Here’s how doola distinguishes itself with its integrated sales tax registration and reseller certificate acquisition services.

doola simplifies the process of obtaining necessary sales tax permits and reseller certificates, ensuring compliance across various states.

🚀 E-Commerce Platform Integration

Seamless integration with platforms like Shopify and Amazon allows for real-time tracking of sales and tax data, reducing manual entry errors.​

🚀 Dedicated Compliance Support

Access to a team of experts who provide guidance on sales tax obligations, helping businesses navigate complex tax landscapes.

🚀 Comprehensive Back-Office Solutions

Beyond sales tax, doola offers services like LLC formation, bookkeeping, and business analytics, consolidating essential business operations into a unified platform.

Get Trusted Advice from a doola Compliance Specialist

FAQs

What if I didn’t collect sales tax but should have?

You may still be liable to pay the tax out of pocket. It’s best to contact your state’s tax department or a compliance expert to resolve it quickly and avoid penalties.

Do I need to file if I had no sales this period?

Yes. Most states require a “zero return” even if you had no sales. Skipping it could lead to late fees or account issues.

How do I correct a previously filed return?

Most states allow you to amend a return through their tax portal. Look for an option to file an amended return and provide the corrected figures.

What if I operate in multiple states?

You may need to register and file in each state where you have nexus. Multi-state sellers often benefit from using automated tax tools or professional help.

Can I file sales tax returns without an accountant?

Yes, especially if you use platforms like doola or other sales tax software. However, for complex situations, getting expert advice is still a good idea.