Sales Tax 101 for Ecommerce Sellers

Photo by Nathana Rebouças on Unsplash 

1. Why Sales Tax Is So Complex for Online Sellers in 2025

• Economic Nexus: Every state has different thresholds and filing requirements. Some even have city or local taxes that require separate filings.

• Product Taxability: What’s taxable in one state (e.g., clothing, digital goods) may not be in another.

• Platform Marketplace Rules: Marketplaces like Amazon, Etsy, and Walmart often collect and remit sales tax on your behalf for marketplace sales, but your own website (Shopify, WooCommerce, BigCommerce) still requires you to collect, remit, and file independently.

• Home Rule States: (like Colorado) mean you have to deal with state and sometimes city jurisdictions separately.

This complexity creates a lot of opportunities for mistakes if you try to do everything manually.

2. Ideal Tech Stack to Automate Sales Tax for Accuracy and Time-Saving

Here’s the best-practice structure you should use in 2025:

3. How to Set Up Your Integrations

A. Connect Your Ecommerce Platform to Your Tax Engine

• Use built-in integrations.

• Example: Shopify integrates natively with Avalara. BigCommerce integrates with Avalara and TaxJar.

• Setup:

a. Install the app/plugin.

b. Configure tax collection settings.

c. Map product categories correctly (e.g., distinguish taxable and non-taxable goods).

d. Set up economic nexus tracking (the tax engine alerts you when you cross a state's

threshold).

B. Sync Tax Engine with Accounting Software

• Connect Avalara or TaxJar to QuickBooks Online or Xero.

• Sync invoices, tax collected, refunds, and adjustments.

• Map the tax liability account properly in your accounting system.

C. Automate Reporting and Filing

• Set the tax engine to:

a. Prepare returns monthly, quarterly, or annually based on the filing frequency.

b. Auto-file returns where possible (most states allow e-filing via Avalara or TaxJar).

c. Send you alerts before a filing is due (important for home-rule cities where manual steps

may be required).

D. Pull Marketplace Sales Reports Monthly

• Even if Amazon/Walmart collects and remits tax for you, pull monthly reports showing the breakdown.

• Keep this on file for audits (states still sometimes audit you even if the marketplace handles tax).

4. Platform Recommendations

5. Diagram of Ideal Flow (Simplified)

Customer Purchase 
   ↓ 
Ecommerce Platform (Shopify, WooCommerce, etc.) 
   ↓ (automatically pushes transaction data) 
Sales Tax Engine (Avalara / TaxJar) 
   ↓ (calculates correct sales tax + tracks nexus) 
Accounting System (QBO, Xero) 
   ↓ 
Sales Tax Return Auto-Filed (or manually filed with pre-prepped data) 

6. Bonus Tips to Improve Accuracy

• Run monthly reconciliations: Match tax collected (per tax engine) to sales tax liability in accounting.

• Update nexus tracking quarterly: Especially if revenue is growing fast.

• Double-check product taxability rules: Especially if you sell apparel, food, supplements, digital products, or subscription services (rules change often).

Ready to simplify your sales tax process and avoid costly mistakes? Let’s set up your customized sales tax tech stack the right way — so you can focus on growing your business, not drowning in tax paperwork.

👉 Contact me today to schedule a Tax Tech Strategy Session. We’ll review your sales channels, automate your filings, and make sure you’re fully compliant (and stress-free) heading into your next filing!