For most of the internet era, an online seller’s sales tax obligations tracked something physical: a warehouse, an office, a sales rep with a territory. If a business had none of those in a state, it generally had no duty to collect that state’s sales tax. That arrangement ended in June 2018, and the replacement is a patchwork of dollar thresholds, transaction counts and marketplace rules that differ in almost every jurisdiction.
The practical result is that two sellers with identical revenue can owe registration in wildly different numbers of states, depending on where their customers happen to live and which channels they sell through. A brand doing $4m through a single marketplace may have almost no direct filing burden. A brand doing $900k across its own checkout, a wholesale portal and three marketplaces may be exposed in twenty states or more.
This guide explains how nexus works, what the two main flavors look like in practice, how thresholds are actually counted, and where the traps sit. It covers the mechanics rather than prescribing a course of action, because the right answer for any specific business depends on facts a general article cannot see.
In short
- Nexus is the connection between a seller and a state that lets the state require sales tax collection. Since 2018 it comes in two main forms: physical and economic.
- South Dakota v. Wayfair (US Supreme Court, June 2018) removed the physical presence requirement, and states responded by writing revenue and transaction thresholds into law.
- $100,000 in annual sales is the most commonly cited economic threshold, but several large states set it higher, and the transaction-count prong has been repealed in a growing number of jurisdictions.
- Marketplace facilitator laws shift collection to the platform for marketplace orders, which narrows direct exposure but rarely eliminates registration entirely.
- Back-tax exposure builds quietly, because a missed registration accrues tax, interest and penalties on sales already made, and lookback periods can extend for years.
What nexus means and why it changed after Wayfair
Nexus is a legal term for the minimum connection a business needs to a state before that state can impose an obligation on it. For sales tax, the obligation in question is collection: charging the tax at checkout, holding it, and remitting it on a filed return. Sales tax is a tax on the buyer that the seller is deputized to collect, which is why the stakes of getting it wrong sit with the seller rather than the customer.
Understanding how this rule shifted matters beyond compliance departments. Tax policy is one of the levers that reshapes competitive position between marketplace sellers, direct brands and physical retailers, which is part of the wider story of how retail news shapes the global e-commerce industry from quarter to quarter.
The rule before 2018
The controlling precedent was Quill Corp. v. North Dakota, decided by the US Supreme Court in 1992. Quill held that a state could not require a seller to collect its sales tax unless the seller had a physical presence there. The case predated consumer internet retail by several years, and it was written with mail-order catalogs in mind.
Under Quill, a catalog or online retailer shipping into a state where it owned nothing and employed nobody had no collection duty. States could still levy a matching “use tax” on the buyer, but voluntary use tax compliance by consumers has always been close to negligible. The revenue gap grew with every year of e-commerce expansion.
What the Court actually decided
In South Dakota v. Wayfair, Inc., decided June 21, 2018, the Supreme Court overruled Quill’s physical presence rule. According to the opinion, the physical presence test had become “an unsound and incorrect interpretation” of the Commerce Clause given the scale of modern remote retail. A summary of the case and its procedural history is available on Wikipedia, and the full opinion is published by the Court itself.
The law the Court reviewed was South Dakota’s, and its design mattered. It applied only to sellers exceeding $100,000 in gross revenue from sales into the state or 200 or more separate transactions, it was not retroactive, and South Dakota was a member of the Streamlined Sales and Use Tax Agreement. The Court pointed to those features as reducing the burden on interstate commerce, which is why so many states copied the structure closely.
Why states moved so fast afterwards
Within roughly eighteen months of the decision, effectively every state with a general sales tax had enacted an economic nexus standard. Most borrowed the South Dakota numbers verbatim at first, then diverged as legislatures adjusted for population and revenue expectations. That divergence is the source of most of the complexity sellers deal with today.
A second wave followed almost immediately: marketplace facilitator statutes, which move the collection duty onto the platform rather than the individual seller. Those laws changed the shape of the problem for anyone selling through Amazon, Walmart, eBay, Etsy or similar channels, and they are covered in their own section below.
Physical nexus: inventory, staff and trade shows
Wayfair added economic nexus. It did not remove physical nexus, and physical nexus generally has no minimum dollar threshold at all. A single trigger in a state can create a collection duty from the first taxable sale, which is why physical presence is usually the first thing a specialist reviews.
Inventory held by a fulfillment network
Inventory owned by a seller and stored in a state is the classic physical nexus trigger, and it is the one most often missed by e-commerce operators. When a marketplace fulfillment program moves units between warehouses for speed, the seller frequently does not choose the destination state and may not track it closely. Ownership of the goods usually stays with the seller throughout.
Several states have taken the position that this creates nexus; a smaller number have said publicly that it does not, and at least one state court has ruled against a revenue department on the point. The status here has moved repeatedly since 2018, so the position in any given state needs checking against that state’s current published guidance rather than against a summary written at an earlier date.
People, contractors and affiliates
Employees working in a state create physical nexus in essentially every jurisdiction, and remote work has made this far more common than it was in 2019. A single customer support hire who relocates can bring a state into scope for sales tax as well as payroll and income tax. Independent contractors performing services on the seller’s behalf can trigger it in many states too, though the tests differ.
Some states also maintain “click-through” or affiliate nexus provisions, which attach when in-state affiliates refer customers above a small revenue floor. These predate Wayfair and mostly survived it. They tend to matter for brands running large affiliate programs rather than for typical direct sellers.
Temporary presence and trade shows
Attending a trade show, running a pop-up, or sending staff to install or service products can create nexus even for a short visit. Many states publish a safe harbor for trade show attendance, expressed as a number of days per year and sometimes conditioned on whether orders are taken on site. Those safe harbors vary enough that a brand doing a national event circuit generally reviews each one separately.
Delivery in the seller’s own vehicles is another trigger in a subset of states, which is relevant for furniture, appliance and regional grocery operations. Common carrier delivery does not create nexus on its own.
Economic nexus thresholds and how they are counted
Economic nexus attaches when a seller’s activity into a state crosses a numeric line, with no physical connection required. The line looks simple in a summary table and is considerably less simple in application, because states differ on what counts, over what period, and what happens on the day the threshold is crossed.
What counts toward the threshold
The first divergence is the measurement base. Some states count gross sales, meaning every dollar shipped into the state including exempt and wholesale transactions. Others count retail sales only, and others count taxable sales only. A wholesaler with heavy exempt volume can be over the line in one state and comfortably under it in the state next door on identical revenue.
Marketplace sales add another split. A number of states exclude sales made through a registered marketplace facilitator from the seller’s own threshold calculation, on the logic that the platform is already collecting. Others include them, which can push a seller over a threshold on volume they never collected tax on themselves.
The measurement period problem
States use at least three different measurement windows: the current or previous calendar year, the previous twelve months on a rolling basis, or the state’s fiscal year. A rolling twelve-month test requires monitoring that most spreadsheet approaches handle badly, because the answer can change in a month when a large prior-year month drops out of the window.
What happens after the threshold is crossed also varies. Some states require collection beginning with the next transaction, some from the first day of the following month, and some from the first day of the following quarter or year. The gap between crossing and collecting is where a lot of unintended liability is created.
Transaction counts are fading
The 200-transaction prong copied from South Dakota created an awkward outcome: a seller shipping 210 low-value orders into a state could owe registration on a few thousand dollars of revenue. Several states have since repealed that prong, including South Dakota itself, which removed it effective July 1, 2023 according to the state legislature’s own summary of Senate Bill 30.
The direction of travel is toward revenue-only tests, but the repeals happened on different dates and a number of states retain the count. New York is a notable variation because its test is conjunctive: it applies when a seller exceeds both a revenue figure and a transaction figure, which is a narrower trigger than the more common “either or” structure.
The table below shows the main threshold patterns with representative states. It is illustrative rather than exhaustive, and every figure needs verifying against the state revenue department’s current guidance before it is relied on, because these numbers are amended by legislatures on their own schedules.
| Pattern | Representative states | Typical structure | What tends to trip sellers up |
|---|---|---|---|
| Standard revenue-only | South Dakota, Wisconsin, Iowa, North Dakota | Roughly $100,000, transaction prong repealed | Gross versus taxable measurement base |
| Revenue or transactions | Georgia, Illinois, Michigan, Minnesota | Roughly $100,000 or 200 transactions | Low-ticket sellers cross on count, not value |
| High-revenue single test | California, Texas | Roughly $500,000, no transaction prong | False comfort from a national $100k rule of thumb |
| Conjunctive test | New York | Revenue figure and transaction figure together | Assuming the common “either or” logic applies |
| No statewide sales tax | Alaska, Delaware, Montana, New Hampshire, Oregon | No state-level collection duty | Alaska local jurisdictions still administer a remote seller program |
Alaska deserves the footnote it gets in that table. There is no statewide sales tax, but a large number of Alaskan boroughs and cities levy local sales tax, and they administer remote seller collection collectively through a shared commission. A seller applying a “five states have no sales tax” heuristic can miss Alaska entirely.
Marketplace facilitator rules and what they cover for you
Marketplace facilitator laws are the single biggest reduction in compliance burden that most online sellers have seen since Wayfair. They also generate the most confident wrong assumptions, usually of the form “the marketplace handles my tax, so I have nothing to do.”
What the facilitator takes on
Where these statutes apply, the platform is treated as the seller for tax purposes on orders it processes. The platform calculates the tax, collects it at checkout, files the return and remits the money in its own name. The individual seller is generally relieved of collection and remittance duty on those specific transactions.
Every state with a general sales tax now has some version of this, though the definitions of “facilitator” differ at the edges. Payment processors and pure advertising channels normally fall outside the definition. A platform that lists inventory, processes payment and communicates order terms normally falls inside it.
What stays with you
Direct channel sales are untouched. Orders through a brand’s own Shopify, BigCommerce or WooCommerce checkout are the seller’s responsibility in full, and for many brands that channel alone crosses thresholds in a dozen states or more. Wholesale and B2B sales sit outside marketplace coverage as well.
Several states also require a seller to stay registered and file returns reporting marketplace sales even when the platform did the collecting, sometimes as an informational line and sometimes as a deduction on the return. And as noted above, some states count marketplace volume toward the seller’s own threshold, which can create a registration duty driven entirely by sales the seller never collected on.
| Channel | Who typically collects | Counts toward your threshold? | Do you still file? |
|---|---|---|---|
| Registered marketplace (Amazon, Walmart, Etsy) | The platform | Depends on the state | Often yes, as an informational or deduction line |
| Own website checkout | The seller | Yes, in every state | Yes, where registered |
| Social commerce with in-app checkout | Usually the platform, if it meets the definition | Depends on the state | Usually yes if registered |
| Social commerce linking out to your site | The seller | Yes | Yes, where registered |
| Wholesale and B2B | The seller, subject to exemption certificates | Depends on gross versus retail base | Yes, where registered |
| Phone, EDI and offline orders | The seller | Yes | Yes, where registered |
Sellers shipping outside the United States face a structurally similar problem with a different vocabulary, since VAT registration thresholds, import one-stop-shop schemes and deemed-supplier rules follow the same logic of pushing collection toward platforms. The mechanics of that shift are covered separately in what changed in cross-border selling for retail teams.
Registration, filing frequency and the paperwork trail
Registration is where the abstract question of exposure becomes a set of concrete accounts, deadlines and login credentials. It is also where sequence matters, because some steps are difficult to reverse.
Order of operations
The usual sequence starts with a nexus study: a review of where inventory has been stored, where staff and contractors sit, and where sales volume by state stands against each threshold, measured on the correct base and period. That study is what determines whether a state is in scope and, critically, since when.
Registering in a state generally starts the clock going forward but does not resolve periods already elapsed. Where a seller has been over a threshold for some time, registering without addressing the prior period can surface the exposure without settling it. Voluntary disclosure agreements exist in most states precisely for that situation, and they typically offer a limited lookback window and penalty relief in exchange for coming forward before the state makes contact. A VDA is normally negotiated before registration rather than after, which is one reason the sequencing question is worth resolving early.
Registration itself is usually free or close to it, though a handful of states charge a fee and some require a bond. Most states issue a sales tax permit that must be displayed or produced on request, and several require renewal.
Filing frequency and zero returns
States assign filing frequency based on expected or actual volume, commonly monthly, quarterly or annually. Frequency is often reassessed each year, and a business that grows into a higher band may be moved to monthly filing with limited notice. Missing that reassignment is a common source of late-filing penalties on accounts that are otherwise fully paid.
Zero returns are the other quiet trap. In most states a registered seller must file even in periods with no taxable sales, and the penalty for a missed zero return is a flat amount rather than a percentage of tax. A dormant registration in fifteen states can therefore generate real money in penalties on no revenue at all.
Exemption certificates
Sales to resellers, manufacturers, nonprofits and government buyers can be exempt, but the exemption belongs to the transaction only if the seller holds valid documentation. In an audit, an untaxed sale without a certificate on file is typically treated as a taxable sale, and the seller owes the tax that was never charged.
Certificates have their own rules: some expire, some are state-specific, and multistate forms are not accepted everywhere. Brands with meaningful B2B volume generally treat certificate management as an ongoing operational process rather than a filing-cabinet task.
Common mistakes that create back-tax exposure
The failures that produce large assessments are rarely exotic. They cluster into a short list, and most of them are visible in a company’s own data before a state ever asks.
- Treating $100,000 as a national rule. The figure is common but not universal, and applying it to California or Texas overstates exposure while applying it to a lower-threshold state understates it.
- Measuring on the wrong base. Running every state against taxable sales when several count gross sales can hide a crossing entirely, particularly for sellers with heavy wholesale or exempt volume.
- Ignoring where inventory physically sits. Fulfillment network transfers are invisible in a revenue report and highly visible in an audit.
- Assuming marketplace coverage is total. It covers marketplace orders in states where the platform is registered. It does not cover the direct channel, and it does not always remove the filing duty.
- Registering late without a disclosure strategy. Registration can expose the prior period without resolving it, and the options narrow once a state initiates contact.
- Letting dormant registrations run. Deregistration is a deliberate act in most states, and an unused permit keeps generating filing obligations.
- Sourcing tax to the wrong address. Most states source remote sales to the destination, and local rates within a state can vary by several percentage points across ZIP boundaries, so rooftop-level accuracy matters more than the state rate.
Exposure compounds because sales tax is a trust fund tax in most states. The money was supposed to be collected from the buyer, so states tend to treat non-collection less forgivingly than an underpayment of income tax, and in some circumstances responsible individuals can be held personally liable. Interest accrues from the original due date rather than from discovery.
There is a diligence dimension too. Unremediated sales tax exposure is a standard finding in acquisition due diligence, and it frequently ends up in escrow or as a price adjustment. The wider regulatory picture that shapes these obligations is covered in more depth in how retail policy in the United States is set and challenged.
When to bring in a specialist instead of software alone
Sales tax automation is genuinely good at the mechanical parts of the problem: rate lookup by address, tax calculation at checkout, return preparation and remittance. It is much weaker at the judgment calls, and the judgment calls are where the money is.
What software handles well
Rate determination is a solved problem for most sellers. Modern tax engines maintain jurisdiction boundaries at address level, apply product taxability rules by category, and file returns automatically in registered states. For a business selling standard goods through standard channels, that coverage is sufficient day to day.
Threshold monitoring is also commonly built in, with dashboards showing progress toward each state’s line. Those dashboards are useful early warning, though their accuracy depends on the underlying configuration matching how each state actually measures. A broader survey of the tooling landscape sits in this rundown of the retail compliance stack, mapped.
What software handles badly
Product taxability at the edges is the first weak point. Whether a particular SKU is a taxable prepared food, an exempt grocery item, a taxable digital good or a nontaxable service is a legal characterization, and getting it wrong applies consistently across every transaction. Clothing, food, software, supplements and shipping charges are the recurring problem categories.
Historical exposure is the second. A tax engine configured today starts calculating today, and it has nothing to say about the eighteen months a seller spent over a threshold in four states beforehand. Quantifying and resolving that period is professional work.
Situations where operators commonly bring in a licensed practitioner include a known lookback period, an audit notice, a pending acquisition or fundraise, product categories with contested taxability, and any set of facts where physical nexus is arguable rather than obvious. The cost of a scoped nexus study is usually small relative to a multi-state assessment, and a study also produces the documentation a buyer or auditor will ask for.
None of that removes the value of automation. The pattern that works for most growing sellers is software for the recurring mechanics and a specialist for the periodic questions, with a documented review whenever the channel mix, the fulfillment footprint or the product catalog changes materially. Keeping an eye on how these obligations shift over time is part of reading retail news with the industry context attached, since threshold changes and marketplace rules move with legislative sessions rather than with business quarters.
This is general information, not tax advice
Everything above describes how sales tax nexus generally works in the United States as of publication. It is educational information rather than legal, tax or customs advice, and it is not a substitute for professional guidance on any specific set of facts. No article can assess a particular business’s inventory footprint, channel mix, product taxability or filing history.
Thresholds, measurement periods, marketplace definitions and local rates are amended regularly by state legislatures and revenue departments, and figures accurate on one date can be superseded shortly afterwards. Any number cited here needs verifying against the relevant state department of revenue’s current published guidance, the Streamlined Sales Tax Governing Board for member states, or the state’s own statutes before it is relied on for a filing decision.
Businesses with a specific question about registration, historical exposure or product taxability generally get better outcomes by consulting a licensed CPA, a state and local tax practitioner or a tax attorney admitted in the relevant jurisdiction. Where cross-border imports are also in scope, a licensed customs broker covers ground that a sales tax specialist does not. Aggregate context on the scale of US e-commerce, useful for sizing this problem, is published by the US Census Bureau.
FAQ on sales tax nexus
What is the difference between physical and economic nexus?
Physical nexus comes from a tangible connection to a state, such as owned inventory, an employee, a contractor performing services or an office. It generally has no dollar threshold, so one qualifying fact can create a collection duty. Economic nexus comes purely from sales activity into the state crossing a revenue figure and, in some states, a transaction count. A business can have either, both or neither in any given state.
Does the $100,000 threshold apply everywhere?
No. It is the most common figure because many states copied South Dakota’s statute after the 2018 Wayfair decision, but it is not universal. Several large states, including California and Texas, set a substantially higher figure, and the measurement base and period differ as well. Treating it as a national rule is one of the more expensive assumptions in this area, so each state’s current published threshold is worth checking directly with that state’s revenue department.
If Amazon collects tax on my orders, do I still need to register?
Possibly. Marketplace facilitator laws move collection to the platform for orders it processes, which covers those specific transactions. Registration can still be required if the seller has physical nexus in the state, if direct channel sales cross the threshold independently, or if the state counts marketplace volume toward the seller’s threshold and requires a return reporting it. The answer differs by state, so it is a question a practitioner can resolve against a specific channel mix.
Does storing inventory in a fulfillment warehouse create nexus?
In many states, owned inventory stored in the state is a recognized physical nexus trigger, regardless of who moved it there. A minority of states have taken a contrary position, and at least one has been challenged in court, so the picture is not uniform. Because fulfillment networks relocate units without seller input, the practical step most operators take is pulling the inventory-by-state report from the platform and comparing it against each state’s current guidance.
What happens if I discover I should have been collecting for the past two years?
The state’s claim generally covers the tax that should have been collected, plus interest from the original due dates and penalties. Most states operate voluntary disclosure programs that offer a limited lookback period and some penalty relief for sellers who come forward before the state initiates contact, and these are usually negotiated before registering rather than after. Because eligibility and sequencing are both time-sensitive, this is a situation where professional advice is typically obtained early rather than late.
Which states have no sales tax at all?
Five states have no general statewide sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon. Alaska is the important caveat, because many Alaskan boroughs and municipalities levy local sales tax and administer remote seller collection jointly through a shared commission. Local option taxes also exist in some other jurisdictions, so “no state sales tax” and “no tax obligation” are not the same statement.
Do I have to file a return in a month with no sales?
In most states, yes. Once registered, a seller is normally expected to file for every assigned period, including periods with no taxable activity, and a missed zero return commonly draws a flat penalty regardless of the amount of tax due. Sellers who no longer have nexus in a state generally have to close the registration deliberately, because permits do not lapse on their own.
Can sales tax software handle all of this on its own?
Software handles rate lookup, calculation, threshold monitoring and return filing well. It is weaker on product taxability characterization at the edges, on physical nexus questions that turn on facts, and on historical exposure that predates the configuration. The common pattern is automation for the recurring mechanics and a licensed practitioner for the judgment calls and any lookback period.
How often do these rules change?
Frequently. State legislatures amend thresholds, repeal transaction-count prongs and adjust marketplace definitions on their own sessions, and local rates change on quarterly cycles in many states. Several states removed their transaction-count prong after 2019, including South Dakota effective July 1, 2023. Any figure used for a filing decision should be confirmed against the state’s current guidance rather than a secondary summary.