Before 2018, sales tax was straightforward for most US small businesses: you collected sales tax in states where you had a physical presence (a store, an office, employees). Online sellers could ignore states they shipped to as long as they had no boots on the ground.
The June 2018 Supreme Court decision in South Dakota v. Wayfair changed this. States can now require out-of-state sellers to collect sales tax based purely on economic activity in the state. Most states adopted thresholds of $100,000 in sales or 200 transactions per year. The result: an online business in Idaho can owe sales tax in 30 states without ever stepping foot in any of them.
This guide covers what nexus means today, how to figure out where you have it, and how to comply without losing your weekends to state tax forms.
What sales tax nexus means today
Nexus is the legal connection between your business and a state strong enough to require sales tax collection. Three main types exist:
Physical nexus
You have a physical presence in the state. Office, warehouse, employees, regularly traveling sales reps, inventory held by a fulfillment partner (FBA, ShipBob, ShipMonk). Physical nexus has always existed; it still applies.
Economic nexus
You crossed a sales-volume threshold for the state, even without physical presence. Most common threshold: $100,000 in annual sales OR 200 transactions, looking at either the current year or the prior year. Some states have other thresholds: California is $500,000, New York is $500,000, Texas is $500,000. Most are at $100,000.
Marketplace nexus
You sold through a marketplace (Amazon, Etsy, eBay, Walmart) that crossed the threshold and is required to collect on your behalf. In most states with marketplace facilitator laws, the marketplace handles the sales tax. You may still need to register; the collection is done.
What triggers each type
Physical presence triggers
- Office or store. Obvious.
- Employees working in the state. Including remote employees.
- Inventory in the state. FBA warehouses are the most common cause. Amazon distributes your inventory across multiple state warehouses; each one creates physical nexus.
- Property used in the state. Cars, machinery, billboards.
- Trade shows in the state. Some states count this as physical presence; some have safe harbors.
Economic nexus triggers
Most states: $100,000 in gross sales OR 200 transactions in the current or prior calendar year. Look at each state's specific rule; they vary in:
- Whether the threshold is "current year" or "current and prior year" (most states use current and prior).
- Whether the $100,000 includes only taxable sales or also non-taxable (most include both).
- Whether the 200-transaction threshold applies (most states; a few dropped it).
How marketplace facilitator laws work
Since 2019, all 45 sales-tax states have passed marketplace facilitator laws. These laws require marketplaces (Amazon, Etsy, eBay, Walmart, etc.) to collect and remit sales tax on behalf of third-party sellers.
This is good news for marketplace-only sellers: the marketplace handles the sales tax. You may still need to register in the state for reporting purposes, but you do not collect or remit sales tax on marketplace sales.
This is more complicated for sellers who use multiple channels:
- Marketplace + own website. Marketplace sales are facilitator-collected. Your own website sales are your responsibility. You collect on website sales in states where you have nexus.
- Multiple marketplaces. Each marketplace facilitator collects on its own platform sales.
- Marketplace + wholesale to retailers. Wholesale sales typically are not retail and so do not generate sales tax for you (the retailer collects on resale).
The compliance process
Step 1: Map your nexus
Pull your sales by state for the prior 12 months. Compare each state's total against that state's economic-nexus threshold. Add states where you have physical presence (FBA inventory, employees, office, regular travel).
Step 2: Register in each nexus state
For each state where you have nexus, you need a sales tax permit. The application is typically free or low cost ($0 to $50). We file the application in each state for $99 service fee.
Step 3: Configure your storefront
Shopify, WooCommerce, BigCommerce, Stripe all support sales tax calculation. You enter the states where you have nexus; they calculate tax at checkout based on the customer's destination.
Step 4: File returns
Each state requires periodic returns (monthly, quarterly, or annually depending on your sales volume in that state). Most use a digital filing platform (state tax website or third-party tools like Avalara, TaxJar).
Step 5: Remit collected tax
Filed returns include payment of the sales tax you collected. Late filings often have penalties; missed filings have larger penalties.
What if you have not been collecting in past years?
This is more common than it sounds. Many ecommerce businesses crossed nexus thresholds in 2019, 2020, or 2021 and did not register. Some states have been aggressive about back-collection.
Voluntary Disclosure Agreements (VDA)
Most states offer VDAs, which let you become compliant going forward while limiting back-tax liability. Typical terms: you pay back sales tax for the past 3 to 4 years (often called the "look-back period"), the state waives penalties, and you become a registered seller going forward.
VDAs are much cheaper than being caught by a state audit, where the state can go back further and assess full penalties.
Get help
For sellers with significant back-tax exposure (more than a few states or more than 6 to 12 months of missed collection), work with a state tax specialist. Our Tax Preparation partner CPAs include specialists in multi-state sales tax.
SaaS and digital products
SaaS taxability varies wildly by state. About 19 states currently tax SaaS as a taxable service or digital product. The list grows. Major SaaS-taxing states include New York, Texas, Pennsylvania, Washington, Arizona, Tennessee, Utah, Connecticut, Ohio, Massachusetts, and others.
For SaaS founders: the same nexus rules apply. If you cross the economic-nexus threshold in a state that taxes SaaS, you need to register and collect. SaaS founders often discover this years after they should have been collecting; VDA programs are common in this category.
Common mistakes
- Assuming marketplace facilitator covers everything. It covers marketplace sales, not your own website.
- Ignoring FBA inventory. Each FBA state warehouse creates physical nexus.
- Not tracking the prior-year threshold. Many states base current-year obligation on prior-year sales.
- Not registering once over threshold. States can audit and assess back tax.
- Treating SaaS as exempt by default. 19 states tax it.
- Filing returns only in your home state. Each nexus state has its own filing schedule.
The takeaway
Sales tax nexus expanded dramatically with Wayfair. If you sell online and you have crossed $100,000 in sales in any state in the current or prior year, you probably have nexus there. Register, configure your storefront to collect, and file the returns.
Our Sales Tax Registration service handles the registration, configures the connection to your filing tool (Avalara or TaxJar), and matches you to a CPA who can clean up back-tax exposure if any exists.