Tax Compliance for Ecommerce and Online Sellers in Austin

For an Austin ecommerce seller, tax compliance around out-of-state sales turns on economic nexus, the rule the Supreme Court upheld in South Dakota v. Wayfair in 2018. Before that decision a state could only require you to collect its sales tax if you had physical presence there, an office, an employee, or inventory sitting in a warehouse. After Wayfair a state can require collection based purely on how much you sell into it, with no physical footprint at all. That is why a seller working out of Austin can suddenly owe collection duties in a dozen states, and it is the first thing we check for any online seller who is growing.

Most states adopted a threshold modeled on the one the Court approved, $100,000 of sales into the state or 200 separate transactions, measured over the current or prior year. Texas itself sits higher for inbound sellers, requiring more than $500,000 of Texas revenue in the prior twelve months before an out-of-state seller must register here, which matters when you think about your own exposure in reverse as other sellers ship into Texas. The specifics vary from state to state in ways that count, because some use only the dollar figure, several have dropped the transaction count, and the categories of sales that go toward the threshold differ. There is no single national rule, which is exactly why this is hard to self-manage as a store grows into new markets.

Marketplace facilitator laws are the piece that keeps this from becoming unmanageable. Nearly every state now requires the marketplace itself, Amazon, Etsy, Walmart, eBay, to collect and remit the tax on the sales it processes, so your Amazon and Etsy orders are largely handled by the platform, and in many states those facilitated sales still count toward your own economic nexus threshold. The exposure lives in the sales the marketplaces do not cover, chiefly your own Shopify store or anything you sell direct where you are the merchant of record, and those are the sales you have to track and register for yourself.

Here is the worked example. Say your Shopify store ships $130,000 of product into Colorado this year across 900 orders. You have passed the $100,000 economic nexus threshold, so you are required to register with Colorado, collect its sales tax on taxable orders shipped there, and file returns. If you do not notice until eighteen months later, you owe the uncollected tax out of your own pocket plus penalties and interest, because the duty existed whether or not you charged customers. On a $130,000 base at roughly 7 to 8 percent that is close to $10,000 of tax you may have to cover, before penalties. The thresholds also move as you grow, so a state you sold $70,000 into last year is fine, but the same store shipping $115,000 there this year crosses the line partway through, and the duty begins from the crossing date. Because the crossing can happen mid-year and the duty starts from that date, watching the running totals is the only way to register on time rather than after the fact. Meanwhile at home you collect Texas sales tax at 6.25 percent plus local tax, about 8.25 percent combined in most of the Austin area, on taxable orders shipped to Texas customers. We track your sales by state and register you the moment a state requires it through monthly financial reporting, and the decision is in the Wayfair opinion, with Texas rules on the Texas Comptroller site.

For an Austin ecommerce seller, marketplace facilitator laws are the single biggest reason multi-state sales-tax compliance is workable at all, because they shift the collection duty for a large share of your sales onto the platforms. A marketplace facilitator law requires the marketplace itself, Amazon, Etsy, Walmart, eBay, to collect and remit the sales tax on the transactions it processes on your behalf. Nearly every state with a sales tax now has one, and Texas is among them, so for the orders that flow through those platforms, the platform charges the buyer the right tax and sends it to the state, and you do not remit it yourself.

That relief is real but partial, and understanding the two gaps is what keeps a seller compliant. The first gap is that in many states, the sales the marketplace facilitates still count toward your own economic nexus threshold, even though the platform remits the tax. So those sales can push you over the line in a state and create a registration or filing obligation for your direct sales there, which sellers miss when they assume facilitated sales are entirely off their books. The second gap is your direct sales, the orders through your own Shopify store or website where you, not a marketplace, are the merchant of record. On those, you are responsible for collecting and remitting the tax yourself.

So the practical shape of your compliance is that the marketplace channel is largely handled, while the direct channel is yours. A seller who does everything through Amazon has a lighter direct burden, while one who has built a strong Shopify store carries real direct-sales responsibility in every state where they have nexus. At home in Texas, your direct sales into the state carry the 6.25 percent state rate plus local tax, about 8.25 percent combined in most of the Austin area, and that is your return to file, separate from whatever the marketplaces handle on the platform sales.

Here is the worked example. Suppose in a year you sell $400,000 total, $300,000 through Amazon and $100,000 through your own Shopify store. Amazon collects and remits the sales tax on its $300,000 across the states it ships to, so you do not remit tax on those orders, though in many states that $300,000 still counts toward whether you have nexus. Your $100,000 of Shopify sales is where you must collect and remit yourself, registering in each state where your total sales, sometimes including the Amazon volume, cross the threshold. If $40,000 of that Shopify volume went to Texas buyers in the Austin area, you collect about 8.25 percent on it and file the Texas return. The takeaway is that facilitator laws lighten the load but do not remove it, and a seller who treats them as full coverage will miss the direct-sales obligations that remain squarely theirs. We separate what the marketplaces handle from what you must handle and keep your direct-sales registrations and filings current through bookkeeping, and Texas administers the tax through the Texas Comptroller.

For an Austin ecommerce seller, the Texas franchise tax report is the one state filing that surprises people, because Texas is known for having no income tax and sellers assume that means no state business filing at all. The franchise tax is not an income tax and it is not charged to you personally. It is levied on the entity, an LLC, a corporation, or an S corporation, and it is measured on a base the state calls taxable margin rather than on your take-home profit. A true sole proprietorship, a business you run without forming an entity, is outside the franchise tax completely, which is one of several ways your entity choice carries a Texas filing consequence.

The feature that spares most sellers is the no-tax-due threshold. An entity whose annualized total revenue is at or below roughly $2.65 million owes no franchise tax for that year. Because most online sellers are well under that revenue level, they owe zero franchise tax. What trips sellers up is not the tax, it is the filing. Depending on revenue and the year’s rules, an LLC or corporation may still have to file a franchise report and a Public Information Report annually even when the tax due is zero, and failing to file can lead the state to forfeit the entity’s right to transact business in Texas, which can jeopardize the liability protection the entity was formed to provide. So the franchise tax is a filing obligation with real consequences even when it is not a bill.

When an entity does exceed the threshold, the tax is computed on taxable margin, and Texas gives you more than one way to figure that margin. You can generally take total revenue and subtract either cost of goods sold, or compensation, or a flat percentage of revenue, choosing the method that produces the lowest margin, and then apply the franchise tax rate, which is a fraction of a percent and differs for retailers and wholesalers versus other businesses. For an inventory-heavy ecommerce seller, the cost of goods sold deduction is often the favorable choice, which is one more reason a clean COGS figure matters even in a no-income-tax state.

Here is the worked example. Suppose your Austin online store is an LLC with $1.8 million in total revenue. Because that is below the roughly $2.65 million threshold, you owe no franchise tax, but you still file the franchise report and the Public Information Report to keep the LLC in good standing, and we prepare those. Now suppose the store grows to $3 million in revenue with $1.6 million of cost of goods sold. You exceed the threshold, so franchise tax applies, and computing the margin as revenue minus COGS gives a $1.4 million margin taxed at the applicable low rate, a manageable few thousand dollars, far less than an income tax on the profit would be in most states. We track your revenue against the threshold, choose the margin method that serves you, and file through tax strategy consulting. The rules are on the Texas Comptroller franchise tax page, and the federal framework is in IRS Publication 334.

Yes, potentially, and this is the counterintuitive part of tax compliance for an Austin ecommerce seller, that living in a no-income-tax state does not shield you from other states’ income taxes. Texas charges no personal income tax, so your store’s profit faces no state income tax at home and there is no Texas individual return. But a growing number of states now assert income tax or gross-receipts tax nexus on remote sellers who sell enough into them, so a profitable Austin store can end up filing income tax returns in several states even though its home state has none. The sales-tax nexus most sellers know has an income-tax cousin, and it reaches a different but overlapping set of obligations.

When another state does reach your income, it does not tax all of it, it apportions. The state uses the share of your sales delivered into it to decide how much of your total income it can tax, so a store shipping 10 percent of its sales into a given state is generally taxed by that state on roughly 10 percent of its income. The rules differ, some states use a gross-receipts tax rather than a net income tax, thresholds vary, and a few have economic nexus standards specifically for income tax that a remote seller can cross on sales volume alone. This is genuinely complex, and it is separate from the sales-tax question even though both track your sales by state.

The Austin base still carries a real advantage inside this complexity. Because Texas has no personal income tax, there is no resident-state return taxing your worldwide income and then wrestling with credits for taxes paid to other states. You simply file and pay income tax only in the states that actually reach your activity, with nothing layered on top at home. A seller in California, by contrast, pays California income tax on the entire profit and then files in the other states too, so the Austin seller’s total state income-tax burden is lighter even when the number of out-of-state returns is similar.

Here is the worked example. Your Austin store nets $200,000 and ships nationwide, with $30,000 of sales into a state that asserts income nexus and apportions on a sales basis. That state apportions roughly 15 percent of your income to itself and taxes about $30,000 of income at its rate, so you file a return there and pay that slice. Texas taxes the same $200,000 at zero and has no individual return, so your only state income tax is the apportioned amount owed to the other state, not a full home-state layer plus the other state. A California-based seller with the same numbers would pay California on the whole $200,000 and then that other state on its slice. The point is not that an Austin seller escapes all state income tax, since a large enough store may file in several states, but that the home state adds nothing on top, which is a genuine and recurring advantage over a high-tax base. We map exactly where your activity creates an income-tax filing duty and keep it from multiplying past the law through tax strategy consulting, and the federal small business framework is in IRS Publication 334.

For an Austin ecommerce seller, reconciling the 1099-K is a core piece of tax compliance because it is the figure the IRS holds when your return arrives, and the return has to tie to it cleanly. A 1099-K is the information return that marketplaces and payment processors file to report the gross payments they processed for you. For 2026 the threshold reverted to its long-standing level, so a platform issues one once you exceed $20,000 in gross payments and more than 200 transactions in the year. The IRS receives a copy, matches it against your return by computer, and a large unexplained gap between the two is a common reason a return is pulled for a closer look.

The reason the 1099-K causes trouble is that it reports gross, and gross is not what you kept. The figure includes the marketplace referral and fulfillment fees the platform deducted, the payment processing fees, the sales tax the platform collected and remitted, and the shipping charges you collected and paid to carriers, all before any refunds you issued. If you report only the money that landed in your bank account, your reported revenue will sit far below the 1099-K gross, and that mismatch looks like underreporting even when it is not. If you report the full gross as income, you overpay, because you are taxed on fees and refunds you never had.

The correct approach is to report true gross revenue and then separately deduct every fee, refund, and pass-through, so the return reconciles to both the 1099-K and your bank statements. For an Austin seller this is a purely federal reconciliation, because there is no Texas income tax return to also tie out, which is one way the no-income-tax base keeps compliance lighter, but the reconciliation itself is still central to filing an accurate return that does not draw a notice. If you sell across more than one platform, each files its own 1099-K, so the reconciliation has to combine them without double counting overlapping figures.

Here is the worked example. Your Amazon 1099-K reports $250,000 of gross payments. Inside that figure sits roughly $45,000 of Amazon referral and fulfillment fees, $15,000 of customer refunds, and $12,000 of sales tax Amazon collected and remitted for you. Your real product revenue is near $223,000 once the sales tax that was never yours comes out, and the $45,000 of fees and $15,000 of refunds are legitimate reductions. Reported correctly, you are taxed on true profit rather than the $250,000 headline, and the return matches the 1099-K the IRS holds while reflecting reality. A seller who only recorded net deposits would report revenue far under $250,000 and invite a notice. Done through the year rather than rebuilt in April, this reconciliation also means that if the IRS ever questions the gap between your 1099-K and your reported revenue, the answer is documented line by line rather than reconstructed under pressure, and the same clean revenue figure feeds your Texas franchise report so it does double duty. We perform this reconciliation on every ecommerce return and tie it to the books through bookkeeping, and the IRS explains the form on its Understanding Your Form 1099-K page, with the income rules in Publication 334.