US sales tax nexus for UK ecommerce sellers: A multistate compliance guide

For U.K. ecommerce brands, selling into the United States offers substantial opportunities. Convenient direct-to-consumer (DTC) channels, established marketplaces, and fast fulfilment options enable customers throughout the country to discover and buy your products. But while your company’s U.S. growth is to be celebrated, U.S. sales tax risk builds as sales expand.

Knowing what to do to meet your sales tax obligations generally isn’t straightforward. There’s no single national system like VAT. Instead, sales tax obligations develop state by state — often when you cross economic thresholds or create physical presence through inventory storage or remote employees.

For ecommerce sellers, the challenge is understanding when U.S. sales tax applies, how it differs from VAT or customs duties, and what steps to take to stay compliant.

Key takeaways

U.S. sales tax isn’t centralised like VAT. Sales and use tax obligations are determined state by state, making compliance more complex as you scale.
Your business can trigger sales tax nexus through economic activity, not just physical presence. Both sales thresholds and physical presence such as storing inventory or using a fulfilment centre can create obligations.
Sales tax is separate from customs duties and corporate tax. Understanding these differences is key to avoiding confusion and risk.
A structured, proactive approach helps you stay ahead. Tracking sales, monitoring thresholds, and automating sales and use tax compliance early can reduce risk as your company scales.

Understanding indirect taxes during U.S. expansion

Expanding into the U.S. introduces a different indirect tax landscape than most U.K. finance teams are used to. Knowing how U.S. sales tax works — and how it differs from VAT — is key to managing risk as you scale.

What are indirect taxes?

At a high level, indirect taxes are taxes applied to goods and services that are charged to the customer at the point of transaction. These taxes are collected by businesses on behalf of governments then remitted to relevant tax authorities.

Common indirect taxes for ecommerce businesses include:

Sales tax – U.S. sales tax is applied at the point of sale to the final consumer. Rates and rules vary by state and local jurisdiction.
VAT – VAT in the U.K. and EU is applied throughout the supply chain, with businesses reclaiming input tax and remitting the net amount.
Customs duties and import taxes – These taxes are charged when goods cross borders and are usually based on each product’s classification and value.

How is U.S. sales tax different from VAT in the U.K.?

For U.K. businesses entering the U.S., the key shift is moving from a centralised VAT system with one national authority to a decentralised sales tax model where states, counties, cities, and other local jurisdictions set their own rules and rates. There are more than 12,000 U.S. sales and use tax jurisdictions.

In the U.S., products and services that are taxable in one jurisdiction may be tax-exempt in another. Digital products are a great example. Scouring statutes to figure out which rules apply to which products and where can be more work than a business can handle without help.

States also have different registration and filing requirements. Using manual processes to track registrations and file sales and use tax returns is time-consuming and complicated when you have customers in many locations.

What creates sales and use tax nexus for U.K. sellers?

Understanding how sales and use tax obligations arise starts with nexus. Nexus is the word used to describe the connection between a business and a U.S. state that triggers an obligation for the business to register for, collect, and remit U.S. sales tax. There are many ways to trigger nexus, but the most common are physical nexus and economic nexus.

Physical nexus

Physical nexus is established if your business has a physical presence in a state in the form of an office or warehouse, for example. Attending events and employing remote workers are other ways to establish physical nexus. Your ecommerce company can also establish physical nexus if you use a fulfilment centre to store inventory and process orders, even when the facility is owned by another party, such as Amazon FBA. Among the mistakes that ecommerce businesses can make when selling into the U.S., overlooking goods stored with third parties when determining nexus is common.

Economic nexus

Economic nexus can be established even without physical nexus if your company makes a certain number of sales transactions or reaches a certain amount of revenue within a state. States set their own thresholds, which vary. For example, many states have thresholds of $100,000 in sales and/or 200 transactions. Some states have recently chosen to eliminate transaction-count thresholds, while others never adopted them.

Knowing when sales tax compliance becomes mandatory and what you need to do to stay in good standing with tax authorities in the U.S. is vital to avoid fines and audit penalties.

How the Wayfair decision changed nexus for ecommerce businesses

The U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. allows states to impose sales tax obligations based on economic activity. Prior to the Wayfair ruling in 2018, physical nexus was the determining factor.

For ecommerce businesses selling to U.S. customers, tax compliance became significantly more complex after Wayfair. Ecommerce businesses suddenly had potential obligations in dozens of states instead of just a few.

Your ecommerce business must constantly monitor sales data to know if and when you become liable to register, collect sales and use tax, and remit tax to authorities in all the states where you have economic nexus.

What U.K. businesses need to know about selling on marketplaces in the U.S.

For U.K. ecommerce sellers that sell on marketplaces like Amazon, eBay, or Walmart, U.S. marketplace facilitator laws generally shift the responsibility for sales tax collection and remittance to the platform. This means the marketplace typically calculates, collects, and files sales tax on your behalf for marketplace transactions.

However, this doesn’t eliminate your obligations entirely. You may still need to monitor where you have nexus, register in certain states, and file returns — even if no tax is due — while also managing any direct-to-consumer sales separately. For example, Connecticut requires remote sellers to register and file returns even when they only sell through a marketplace that collects and remits sales tax on their behalf.

Because rules vary by state, marketplace facilitator laws simplify compliance but don’t remove the need for oversight across your U.S. sales activity.

Sales tax, duties, and import fees explained

When goods are shipped from the U.K. to the U.S., customs duties and import taxes may apply at the border, depending on the product type, value, and trade rules. These are separate from U.S. sales tax and are typically assessed before your goods reach your customer.

U.S. sales tax, by contrast, applies to the final sale to the customer within the U.S. It’s a consumption tax, charged at checkout based on the delivery location — not on import. This is where many U.K. businesses get confused.

It’s also important to consider who is responsible for paying customs duties and import taxes. For example, under Delivered Duty Paid (DDP), the seller takes on these costs, while under Delivered At Place (DAP), the customer may be responsible for paying customs duties when they receive the package. Many ecommerce businesses opt to calculate all the taxes and duties at checkout to prevent surprised customers from being upset or refusing shipments.

How is U.S. sales tax different from income tax, transfer pricing, and double tax relief?

U.S. sales and use tax operates independently from corporate tax concepts. Sales tax is governed by nexus rules, not by where your business is legally established. Corporate income tax, transfer pricing, and double tax relief all relate to how profits are taxed across jurisdictions. This means a U.K. company can have a U.S. sales tax obligation in a state even without a corporate tax presence, transfer pricing exposure, or double tax considerations.

A practical approach to navigating U.S. sales tax nexus

Track U.S. sales by state.
Monitor revenue and transactions across DTC channels, marketplaces, and fulfilment locations.
Compare sales against nexus thresholds.
Identify where economic thresholds are being approached or exceeded.
Review physical presence triggers.
Check where you have remote employees, store inventory, or fulfilment partners operate.
Register to collect sales tax.
Register in all states where you have nexus before you begin collecting sales tax.
Apply the correct tax at checkout.
Calculate sales tax based on accurate rates for each jurisdiction, product type, and exemption rules.
File returns and remit tax on schedule.
Comply with filing deadlines for every state where you have an obligation.
Keep monitoring as you scale.
Reassess your nexus obligations regularly as your company adds sales channels, enters into mergers, and acquires customers in new states.
Automate sales and use tax compliance to reduce risk.
As business expands, manually tracking nexus becomes difficult to sustain. Using AI-powered tax compliance software like Avalara to automate nexus monitoring, registration, calculations, and returns filing helps reduce risk and free up internal resources.

Grow your ecommerce business in the U.S. with Avalara

Make proactively addressing your sales and use tax obligations your first step towards confidently selling in the U.S. Avalara offers Agentic Tax and Compliance™ solutions designed to help businesses manage tax obligations globally. Contact an Avalara tax compliance specialist to learn how automation can support your expansion.

FAQ

Coming from a VAT system, it’s natural to think if the sale isn’t taxable, it shouldn’t count. But most U.S. states measure thresholds using total (gross) sales into the state. Some states include exempt sales and some include sales made through registered marketplace facilitators.

In most cases, sales tax obligations start from the point you cross a nexus threshold — not before. This means you’re generally required to begin collecting and remitting tax on future sales once the threshold is exceeded. However, if your business had a physical presence (such as inventory in a state) or delayed registering after crossing the threshold, tax authorities may assess liability for prior periods. That’s why it’s important to monitor thresholds closely and act promptly when they’re triggered.

Indirect taxes are often described as regressive. Everyone pays roughly the same rate on purchases, but lower-income consumers spend a higher share of their income on those purchases. For ecommerce companies, the focus becomes customer experience. This becomes particularly relevant when expanding into the U.S., where sales tax is typically added at checkout and varies by location. Unlike VAT, which is usually included in the advertised price, sales tax can change the final amount a customer pays — making accurate tax calculation essential.

U.K. companies don’t typically pay U.S. sales tax themselves but they may be required to collect and remit it on behalf of U.S. customers. If your business creates sales tax nexus in a state (through sales volume or physical presence), you must register, charge the correct sales tax at checkout, and pass it to the relevant tax authority. Automating sales and use tax compliance with agentic AI can help your business reduce risk.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.