Overview

State nexus rules determine whether a state can require a business to collect sales tax on sales to customers in that state. The rules matter for marketplace sellers because they decide when you must register, collect tax at checkout, file returns, and keep records. Since the U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair, states have broadened their rules and many now use economic thresholds or marketplace facilitator laws to trigger collection obligations (U.S. Supreme Court, 2018).

Why Wayfair and marketplace facilitator laws matter

  • Wayfair: The Supreme Court ruled that states may require out-of-state sellers to collect sales tax based on economic activity, not just physical presence. That decision removed the blanket protection of the “physical presence” test and opened the door to economic nexus thresholds.
  • Marketplace facilitator laws: Most states passed laws that shift collection responsibility from individual third-party sellers to the marketplace (Amazon, Etsy, eBay, etc.). Under these laws the marketplace often collects and remits sales tax on behalf of its sellers, but sellers still need to understand when they must register, provide exemption certificates, and report gross receipts for income tax purposes.

How nexus is created for online marketplace sellers

1) Physical presence
If you maintain an office, store, inventory, employees, or an in-state fulfillment center you typically have physical nexus. Fulfillment centers operated by you or by a marketplace (e.g., FBA inventory) may create nexus in the state where the goods are stored.

2) Economic nexus
States set economic thresholds — usually based on sales revenue, number of transactions, or both — that create nexus once exceeded. Thresholds vary by state and change over time; always check the state department of revenue or the National Conference of State Legislatures (NCSL) for current rules (NCSL: sales tax resources).

3) Marketplace facilitator rules
If a state has a marketplace facilitator law, the online marketplace may be responsible for collecting and remitting sales tax for sales made through the platform. This eases compliance for many small sellers but doesn’t remove all obligations: sellers must track sales, provide valid resale or exemption certificates, and comply with state registration rules where required.

4) Affiliate, click‑through, and agent nexus
Some states use click‑through or affiliate rules to create nexus when remote sellers have referral arrangements with in‑state affiliates. These rules differ by state and have been weakened or repealed in some jurisdictions, so verify current law.

Key practical differences for marketplace sellers

  • If the marketplace collects tax: In most states the marketplace will collect and remit sales tax for covered transactions. Sellers should confirm whether the marketplace reports sales to the state in the seller’s name and whether the marketplace issues a tax summary or Form 1099‑K-like statements for the seller.
  • If the marketplace does not collect tax (or if you sell off-platform): You are responsible for registering in the state once nexus exists, collecting the proper sales tax rate, filing timely returns, and remitting tax. You also must keep exemption certificates and sales records.

Accurate recordkeeping and reporting

Good recordkeeping reduces audit risk and simplifies registration and filing. Track: gross sales by state; whether the marketplace collected tax; invoices and exemption certificates; shipping and fulfillment locations; and marketplace settlement reports. Many sellers use sales-tax automation software (e.g., TaxJar, Avalara) or their e-commerce platform’s built-in tools to map nexus, calculate rates, and prepare returns.

Common state variations and where to confirm

States differ on thresholds (some use $100,000, others $200,000, $500,000, or a transaction count), the effective date of rules, and rules around marketplace facilitators. For current, state‑level details consult: the state department of revenue website for each state and the NCSL’s sales tax and nexus resources (NCSL). For California-specific rules see the California Department of Tax and Fee Administration (CDTFA).

Examples (how this plays out)

  • Example A (marketplace sells and collects): You sell handcrafted goods on a major marketplace that collects sales tax in a state where you have no physical presence. The marketplace collects and remits sales tax for those transactions. You still should keep documentation proving the marketplace collected tax and confirm whether you need to register for any reporting obligations.

  • Example B (you sell direct and exceed economic threshold): You sell directly through your own website and exceed a state’s economic threshold. You’ll likely need to register with that state, collect sales tax on future sales, file tax returns, and consider prior-period liabilities.

  • Example C (fulfillment center creates nexus): You use a fulfillment provider like Amazon FBA that stores inventory in multiple states. Inventory stored in a state can create physical nexus there and require registration and collection.

Steps to take right now (practical checklist)

  1. Map where your customers and inventory are located. Pay attention to fulfillment centers and dropship partners.
  2. Review marketplace policies. Confirm which transactions the marketplace collects tax for and whether the marketplace remits in the seller’s name or its own.
  3. Check state nexus thresholds and marketplace facilitator laws. Start with NCSL and each state’s DOR or CDTFA.
  4. Use sales-tax automation or configure your cart/platform to tax correctly by jurisdiction.
  5. Register in states where you have nexus and file returns on time. Don’t assume the marketplace’s collection relieves you of all obligations.
  6. Keep exemption certificates and marketplace reports organized.
  7. If you discover past non‑compliance, consider a voluntary disclosure agreement (VDA) in the affected state to limit liability and penalties.

Common mistakes I see in practice

  • Assuming marketplace collection means you can ignore all state requirements. Marketplaces reduce the burden but do not always eliminate registration or reporting rules.
  • Under‑tracking early sales. New sellers often cross economic thresholds faster than they expect, especially after promotions or wholesale deals.
  • Ignoring inventory locations. Holding inventory in a third‑party warehouse often creates nexus.

Voluntary disclosure agreements (VDAs)

If you uncover past uncollected tax, many states offer VDAs that allow you to come forward, pay a limited look‑back period (often 3–5 years), and reduce penalties. VDAs vary by state; consult a tax professional before filing.

Audit risk and enforcement

States increasingly use marketplace reports and third‑party data to identify sellers who haven’t registered or collected. Failure to comply can lead to assessments for unpaid tax, interest, penalties, and expensive audits. Good recordkeeping and timely voluntary disclosure can reduce exposure.

Resources and authoritative references

  • National Conference of State Legislatures (NCSL) — state nexus and marketplace facilitator summaries: https://www.ncsl.org/
  • California Department of Tax and Fee Administration (CDTFA) — sales and use tax and economic nexus: https://www.cdtfa.ca.gov/
  • State departments of revenue — use the DOR website for each state for registration forms, threshold details, and filing rules.

Internal finhelp.io links (related reads)

Professional tips (from practice)

  • Automate where you can: Tax engines reduce calculation errors and speed registration. I recommend evaluating automation early—when you pass the first state threshold.
  • Document marketplace communication: Save marketplace settlement reports and any seller‑support correspondence that confirms a marketplace collected tax on your behalf.
  • Plan for state income tax exposure: Nexus can also trigger income tax filing obligations in certain states. Treat sales tax nexus and income tax nexus as separate but related issues.

FAQ (short)

Q: If a marketplace collects sales tax for my sales, do I still need to register in that state?
A: Often you do not need to collect tax for those marketplace transactions, but you may still need to register or file returns for other reasons (reporting, income tax, or sales you make off the marketplace). Check the marketplace’s disclosure and the state’s law.

Q: How quickly do states change nexus rules?
A: States update their statutes and administrative guidance frequently. Rely on state DOR guidance and NCSL summaries and review your nexus map at least annually or after major changes in sales or operations.

Professional disclaimer

This article is educational and does not constitute tax or legal advice. Nexus and sales-tax obligations depend on facts and state law. Consult a CPA or tax attorney for personalized guidance.

Author note

In my practice helping e-commerce clients for more than a decade, sellers who maintain clean records, verify marketplace reports, and use automation reduce audit risk and limit unexpected tax bills. Start with mapping where you sell and where your products are stored—those two facts usually reveal most nexus obligations.