5 Costly Sales Tax Mistakes E-Commerce Founders Make (And How to Avoid Them)

TLDR: Many business owners assume sales tax is simple but mistakes like ignoring Nexus, missing deadlines, or using the wrong rates can lead to audits and penalties. This guide breaks down the most common errors and how to prevent them. doola helps automate compliance, file on time, and avoid costly missteps.

Sales Tax Compliance Is Easy to Mess Up

Sales tax rules vary by state, and compliance becomes harder as your business grows across geographies and platforms. Even experienced founders often miss key requirements—leading to penalties, interest charges, or backdated filings.

Here are the most common mistakes we see—and how to fix them before they become problems.

Mistake #1: Ignoring Nexus Obligations

Many founders believe they only need to collect sales tax in their home state. That’s rarely true.

If you sell online, you can have economic Nexus (based on sales volume or transaction count) or physical Nexus (based on inventory, employees, or office space) in multiple states.

Failing to recognize new Nexus triggers can result in unfiled taxes and potential audits. The solution is to regularly review your sales and fulfillment data to identify where you’ve crossed Nexus thresholds—and register accordingly.

Mistake #2: Missing Filing Deadlines

Sales tax filing frequencies vary: some states require monthly returns, others quarterly or annually. But even if you owe zero in a given period, you’re still required to file.

Missing a return—even a zero-dollar one—can trigger penalties.

To prevent this, use a sales tax calendar and set reminders so you never miss a due date. Or better yet, automate your filings with doola.

Mistake #3: Charging the Wrong Tax Rate

Sales tax rates don’t just vary by state—they vary by city, county, and even ZIP code. Businesses that apply a flat tax rate risk undercharging or overcharging, both of which can create compliance issues.

To get it right, your e-commerce platform needs to be configured with accurate tax settings. And as your Nexus footprint grows, so does the complexity of maintaining those rates.

Mistake #4: Assuming Marketplaces Handle Everything

Platforms like Amazon, Etsy, and Walmart are required to collect and remit tax in some states under Marketplace Facilitator Laws—but not all.

Many sellers wrongly assume they’re covered across the board. If you’re selling on your own site (Shopify, WooCommerce, etc.), you’re still responsible for collecting tax in many states.

Double-check your platform coverage and make sure you’re registered in the states that require you to manage sales tax yourself.

Mistake #5: Not Keeping Proper Records

Sales tax audits can happen years after the fact. If you don’t have detailed documentation—like sales tax reports, returns, and exemption certificates—you could be on the hook for back taxes, interest, and fines.

You need a system for organized, long-term recordkeeping, especially if you operate in multiple states or channels.

How doola Helps You Stay Compliant

doola helps you stay ahead of every compliance issue mentioned above. We monitor your Nexus exposure, file in every required state, keep your data organized, and ensure every rate and return is accurate.

With doola, you don’t have to guess—we take care of it, so you can focus on growing your business.

👉 Book a free demo with doola

FAQs

What is the most common sales tax mistake?

Ignoring Nexus obligations is one of the most common errors. Many businesses don’t realize they owe tax in multiple states.

Do I need to file if I didn’t collect any sales tax?

Yes. Even if you collected $0 in tax during a period, most states still require you to file a return.

Can I just charge a flat tax rate?

No. Sales tax rates vary widely by location. Using flat rates can lead to under- or overcollection and trigger compliance issues.

How does doola help?

doola helps you identify where you owe tax, register in the correct states, configure your tax settings, and file all required returns—on time, every time.