Quick answer: sales tax is a state and local tax, not a federal one, so the rules depend on where you sell and what you sell. Forty-five states and Washington, D.C., have a statewide sales tax; Alaska, Delaware, Montana, New Hampshire and Oregon do not, although some Alaska localities do. If you sell taxable products or services directly to customers in a sales tax state where you have a physical presence (for most side hustlers, your home state), you usually need a seller’s permit and must collect and remit tax. Sales made through large online marketplaces are usually handled by the marketplace under marketplace facilitator laws, but you may still need to register. Check your state revenue department’s website before your first sale.
Income tax gets most of the attention in side hustle advice. Sales tax is the quieter obligation, and it works completely differently. It is collected from customers on each sale, held in trust by the seller and paid to the state, often monthly or quarterly. Getting it wrong can mean paying the tax out of your own pocket later, plus penalties.
The good news is that many side hustles either sell services that are not taxed in their state or sell through marketplaces that collect the tax for them. The rest need a permit, a simple process and a filing habit. This guide explains each piece. It is part of our series on starting and running a side hustle, alongside guides on structure, pricing and income tax.
Sources: South Dakota v. Wayfair, Inc., U.S. Supreme Court (2018); Federation of Tax Administrators and state revenue department websites on state sales tax rates and registration; Streamlined Sales Tax Governing Board materials on economic nexus and marketplace facilitator laws; U.S. Small Business Administration, Register with State Agencies; IRS, Publication 334 (treatment of sales tax collected on Schedule C). State rules change often; confirm details with your state revenue department. This article is general information, not tax or legal advice. Checked October 2026.
How Sales Tax Works (and Why It Is Different From Income Tax)
Income tax is calculated on your profit once a year. Sales tax is calculated on each taxable sale, at the moment of the sale, as a percentage of the price. The customer pays it; the seller collects it and sends it to the state.
That difference matters. Sales tax is not your money. States treat it as funds held in trust, and many hold business owners personally responsible for tax they collected but did not pay. Keeping it separate from your income, ideally in a separate account, prevents a painful surprise at filing time. Our guide to opening a separate bank account for your side hustle explains how to set one up.
There is no federal sales tax in the United States. Each state sets its own rules, rates and exemptions, and many cities and counties add local sales taxes on top. A sale in one city can carry a different total rate than the same sale a few miles away.
Which States Have Sales Tax
Forty-five states and the District of Columbia levy a statewide sales tax. The five states without one are Alaska, Delaware, Montana, New Hampshire and Oregon, sometimes remembered as “NOMAD.” Alaska allows local governments to charge sales tax, and many do, so even Alaskan sellers may have obligations.
Some states use different names. Hawaii has a general excise tax that applies to the seller. Arizona’s transaction privilege tax is also technically a tax on the seller. Both function much like a sales tax for planning purposes, but the details differ, so read the state’s own guidance.
Rates vary widely. State-level rates run from under 3% to over 7%, and combined state and local rates in some cities exceed 9%. Your state revenue department publishes current rates and usually offers a lookup tool by address.
What Is Taxable: Products, Digital Goods and Services
Whether you owe sales tax depends heavily on what you sell.
Physical products are taxable in every sales tax state unless an exemption applies. Common exemptions include groceries in many states, prescription medicine and, in some states, clothing. Handmade goods, resale items, crafts and printed products are usually taxable.
Digital products are inconsistent. Some states tax digital downloads such as e-books, music and templates, while others do not. Software, streaming and online courses can each be treated differently.
Services vary the most. Many states tax few services, while others, including Hawaii, New Mexico, South Dakota and Washington, tax a broad range. Common service categories that some states tax include landscaping, cleaning, pet grooming, repair work and certain personal services. Freelance writing, consulting and tutoring are untaxed in many states, but not all.
The only reliable answer is your state’s taxability guidance for your specific product or service. Most revenue departments publish industry guides, and many answer questions by phone or online.
When You Need a Seller's Permit
A seller’s permit (also called a sales tax permit, sales and use tax license or certificate of authority, depending on the state) authorizes you to collect sales tax. You generally need one in a state when two things are true:
- You have nexus there, meaning a connection strong enough for the state to require you to collect.
- You make taxable sales there that are not fully handled by a marketplace facilitator.
For most side hustlers, nexus comes from physical presence. Living and working in a state, storing inventory there, selling at local markets or doing in-person services there all count.
Registration is usually free or inexpensive and done online through the state revenue department. The U.S. Small Business Administration’s state registration page links to each state’s agency. Some states also require a temporary permit for craft fairs or pop-up events, and event organizers often ask to see it.
A seller’s permit is separate from a general business license. Your city or county may require one as well. Our guide to business licenses and permits for side hustles covers the local side.
Economic Nexus After South Dakota v. Wayfair
Before 2018, a seller generally needed a physical presence in a state before that state could require it to collect sales tax. In South Dakota v. Wayfair, Inc., decided in June 2018, the Supreme Court allowed states to require collection from remote sellers based on their sales volume into the state, even without physical presence.
Every state with a sales tax now has an economic nexus rule. Thresholds vary, but many states set them at $100,000 in annual sales into the state, and some also used or still use a count of transactions, often 200. Several states have dropped the transaction count in recent years, and a few use higher dollar thresholds.
For a small side hustle, these thresholds are usually far away. A seller who ships a few thousand dollars of products across the country each year is unlikely to cross any state’s remote seller threshold. Still, track sales by state so you know if a particular state starts to approach the limit, especially if you sell through your own website rather than a marketplace.
Marketplace Facilitator Laws: When the Platform Collects for You
After Wayfair, states adopted marketplace facilitator laws. Every state with a sales tax now has one. These laws require large online marketplaces to calculate, collect and remit sales tax on sales made through their platforms on behalf of third-party sellers.
For a side hustler selling on major marketplaces for handmade goods, resale or general merchandise, that means the platform usually handles the tax on those sales. You will often see the tax collected listed separately in your sales reports.
Marketplace laws do not always remove every obligation:
- Some states still require you to register even when all of your sales go through a marketplace, though many exempt marketplace-only sellers.
- Sales outside the marketplace are your responsibility. Sales through your own website, social media, local markets or direct invoices are not covered.
- Some states require you to report marketplace sales on your return as exempt or deductible sales.
Read your state’s marketplace guidance, and keep marketplace sales reports with your records.
Collecting, Filing and Paying
Once registered, the routine is straightforward:
- Charge the correct rate on taxable sales. Many payment and e-commerce tools calculate it automatically based on the customer’s location or yours, depending on state sourcing rules.
- Keep records of each sale, the tax charged and any exempt sales with their documentation, such as a resale certificate from a business buyer.
- File returns on schedule. States assign a filing frequency, often monthly, quarterly or annually, based on expected sales volume. Small sellers often get quarterly or annual schedules.
- File even when you owe nothing. Many states require a return for every period, including zero-sales periods, and charge penalties for missing ones.
- Pay the tax collected. Some states offer a small discount for timely filing.
On your income tax return, the IRS explains in Publication 334 that you can either exclude sales tax you collected from gross receipts or include it in gross receipts and deduct the tax you paid to the state. Either way, it should not be taxed as your income. Our primer on side hustle taxes for beginners covers how the income side works.
Sales Tax Situations Side Hustlers Run Into
Craft fairs and markets. Many states require vendors at events to hold a permit and collect tax at the event’s local rate. Organizers often collect the permit number.
Buying supplies for resale. With a seller’s permit, many states let you give suppliers a resale certificate so you do not pay sales tax on items you will resell. Using it for personal purchases is not allowed.
Services with materials. A handyman or a custom framer may owe tax on materials, on labor or on both, depending on the state.
Selling to other states from your own site. Physical presence rules apply in your home state. Elsewhere, economic nexus thresholds decide whether you must register.
Buying without paying tax. If you buy taxable items for your business from an out-of-state seller that did not charge tax, many states expect you to pay use tax on them.
A Quick Sales Tax Checklist for New Side Hustles
- Look up whether your product or service is taxable in your state.
- Register for a seller’s permit before your first taxable sale, if required.
- Set up your checkout or invoicing tool to charge the correct rate.
- Track sales by channel (marketplace versus direct) and by state.
- Hold collected tax in a separate account.
- Put every filing due date on your calendar and file even with zero sales.
- Check your state’s marketplace facilitator rules and registration requirements.
- Revisit taxability when you add a new product or service.
Frequently Asked Questions
Do I have to charge sales tax on my side hustle?
It depends on your state and what you sell. If you sell taxable products or services directly to customers in a sales tax state where you have a presence, you usually need a seller’s permit and must collect tax.
Do I need a seller's permit if I only sell on a marketplace?
Marketplaces collect and remit tax on your sales in every sales tax state, but some states still require you to register. Check your state’s marketplace facilitator guidance.
Are services subject to sales tax?
Sometimes. A few states tax many services, while most tax only specific categories. Look up your service in your state’s taxability guidance.
Which states do not have sales tax?
Alaska, Delaware, Montana, New Hampshire and Oregon have no statewide sales tax. Some Alaska localities do charge local sales tax.
Is sales tax I collect counted as income?
The IRS allows you either to exclude collected sales tax from gross receipts or to include it and deduct the tax you remit. It should not end up taxed as your profit.
What happens if a seller fails to collect sales tax it owed?
States can assess the uncollected tax plus penalties and interest. Many offer voluntary disclosure programs that may reduce penalties for sellers who come forward on their own.
The Bottom Line
Sales tax for a side hustle comes down to three questions: is what you sell taxable, where do you have nexus, and who is collecting, you or the marketplace? Answer them with your state revenue department’s guidance, get a permit if you need one, charge and track the tax correctly, and file every period on time. Done from the first sale, it is a small routine. Discovered a year later, it can be an expensive cleanup.