Tax & ComplianceSales tax and 1099-K basics for online sellers
A plain-English overview of sales tax collection, marketplace facilitator laws, and 1099-K forms — plus what Octoship does and doesn't report.
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Selling online means you're running a business, and businesses have tax obligations. The two topics sellers ask us about most are sales tax (what you collect from customers) and Form 1099-K (what payment platforms report about you). Here's how they work at a high level.
Sales tax: who collects it?
Most US states charge sales tax on goods sold to buyers in that state. Whether you need to collect it depends on whether you have nexus in that state — a connection strong enough to require you to collect. Nexus can be physical (you live or store inventory there) or economic (your sales into the state cross a threshold, often around $100,000 in annual sales, though the exact rules vary).
Marketplace facilitator laws
Every state with a sales tax now has a marketplace facilitator law. If you sell on a large marketplace like Etsy, eBay, or Amazon, the marketplace itself generally collects and remits sales tax on those orders. Sales through your own website (for example, a Shopify store) usually leave collection to you.
| Where you sold | Who typically collects sales tax |
|---|---|
| Large online marketplaces | The marketplace |
| Your own storefront | You, in states where you have nexus |
| In person (markets, fairs) | You, under your home state's rules |
Getting set up to collect
- 1Figure out where you have nexus
Start with your home state, then check your sales by state against each state's economic nexus threshold. Your storefront's sales reports can usually break this down.
- 2Register for a sales tax permit
Apply with each state's revenue department where you have nexus. Many states let you register online for free.
- 3Turn on tax collection in your storefront
Most e-commerce platforms can calculate and collect sales tax automatically once you add your registrations.
- 4File and remit on schedule
States assign a filing frequency — monthly, quarterly, or annually. File even when you owe nothing; missing a zero return can still lead to penalties.
Form 1099-K
Form 1099-K is an information return that payment processors and marketplaces send to sellers and to the IRS, reporting the gross payments you received. The federal reporting threshold has changed several times in recent years, and some states set lower thresholds of their own, so check the current IRS guidance for the tax year you're filing.
- A 1099-K reports gross payments — before fees, refunds, and shipping costs. You report your actual income and deduct business expenses on your return.
- Not receiving a 1099-K doesn't mean the income isn't taxable. Business income is reportable either way.
- Personal transactions (like splitting dinner with a friend) aren't business income, but keep records if they ran through the same account.
What Octoship does (and doesn't) do
Octoship doesn't process your sales, so we don't issue 1099-Ks and don't collect sales tax on your orders. What we do give you is clean records of what you spent on shipping — often one of a seller's largest deductible expenses.
ScreenshotHave a question about Octoship receipts or invoices? Send us a message. For questions about what to file, a tax professional is your best first mate.
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