Sales Tax vs Income Tax in the US
Sales tax and income tax are two completely different US taxes that get confused all the time. Here is how each one works and who has to deal with them.
What it is
The US has many kinds of tax, but two trip up newcomers most: sales tax and income tax. They are not versions of the same thing.
- Sales tax is a tax on the sale of goods (and some services). The buyer pays it at checkout, the seller collects it, and the seller sends it to the state. There is no national US sales tax. Instead, each state — and often each city or county — sets its own rate and rules, so the tax on the same item differs from place to place. A few states charge no statewide sales tax at all.
- Income tax is a tax on profit — the money a business or person keeps after expenses. There is a federal income tax that applies across the whole country, and most (though not all) states add their own income tax on top of it.
The simplest way to keep them straight: sales tax is about what you sell; income tax is about what you earn.
Why you should care
They create separate obligations, on separate schedules, to separate authorities — and you can owe one without owing the other. A store might collect and send sales tax every month while paying income tax only once a year. For e-commerce sellers there is good news on sales tax: under "marketplace facilitator" laws, big marketplaces like Amazon now collect and remit sales tax for the sales that happen on their platform, in every state that charges it (as of 2026).
But that does not cover everything. If you sell through your own website — say, a Shopify store — or you store inventory in a state, you may still have your own sales-tax registration and filing to handle. Buying inventory to resell brings in a related document, the resale certificate. On the income-tax side, whether a foreign-owned company actually owes US income tax depends on specific rules about whether it is "engaged in a US trade or business," and on any tax treaty with your country — a real analysis, not a guess.
What happens if you ignore it
Treating the two as one thing, or assuming a marketplace covers everything, leads to missed registrations and unfiled returns. If you owe sales tax in a state and never register, the unpaid tax, interest, and penalties pile up quietly until the state finds you — and sales tax you failed to collect can end up coming out of your own pocket. On the income side, not filing when you should brings separate federal and state penalties.
Because these obligations are easy to overlook when you are selling across many states at once, the safest move is to map them early rather than react to a notice later. And keep in mind that your state annual report is yet another, separate filing — being current on one tax does not mean you are current on all of them.
What we handle for you
We review where your sales and inventory create a sales-tax obligation, register and file where needed, and work out your actual income-tax position — including the treaty analysis for foreign owners. It is central to our e-commerce and Amazon practice. Get a read on your situation before it becomes a surprise.