Background

The Supreme Court’s decision in South Dakota v. Wayfair, Inc. (2018) allowed states to require remote sellers to collect sales tax based on economic activity rather than physical presence. That ruling is the key reason most states today use economic thresholds (dollars of sales or number of transactions) to trigger nexus for online sellers and marketplaces (South Dakota v. Wayfair, 138 S. Ct. 2080 (2018)).

How nexus applies to online marketplaces

  • Physical presence: a warehouse, office, returns center, or employees in a state creates clear nexus through traditional presence rules.
  • Economic nexus: many states require collection when a remote seller exceeds specific thresholds (commonly based on gross receipts or transaction counts). Thresholds vary by state; common examples include $100,000 or $200,000 in sales or a set number of transactions, but you must check each state’s rules because amounts and tests differ (see Tax Foundation: state economic nexus summary).
  • Marketplace‑facilitator laws: over 40 states now require marketplace platforms (Amazon, Etsy, eBay, etc.) to collect and remit tax on behalf of third‑party sellers for marketplace transactions. In those states, individual sellers often do not need to register for seller‑collected sales tax for marketplace sales, although reporting and registration requirements can still apply for other sales channels (see Understanding State Sales Tax on Marketplace Facilitators).

Practical compliance checklist (actionable steps)

  1. Map your presence and channels
  • List physical locations (fulfillment centers, inventory, employees) and all sales channels (direct site, Amazon, Shopify, Etsy).
  • Identify where your suppliers or drop‑shippers are located—those locations can create nexus.
  1. Monitor sales and transactions per state
  • Use accounting or sales‑tax automation tools to track state‑by‑state gross sales and transaction counts in real time.
  • Set internal alerts at 70–80% of a state’s threshold so you have time to register before crossing the limit.
  1. Confirm who must collect
  • Check marketplace‑facilitator rules for each state; if the marketplace collects tax, you may be relieved of collection but not necessarily of other obligations (e.g., reporting or business registration).
  1. Register and collect promptly
  • Once nexus is established, register for a sales tax permit in that state and begin collecting at the correct rate and taxability rules for your products.
  • File returns and remit on schedule; late registration can lead to back tax, penalties, and interest.
  1. Consider voluntary disclosure programs
  • If you likely owe past taxes, many states offer voluntary disclosure agreements (VDAs) that limit prior‑period exposure if you proactively come forward—consult a tax professional before applying.
  1. Keep documentation
  • Maintain sales reports, exemption certificates, and records of marketplace‑collected sales for audit defense.

Real‑world reminders and common pitfalls

  • Marketplace exceptions: Don’t assume marketplace collection covers all states or all sales types (digital goods, taxable services, and tangible goods can be treated differently). Review state rules and the marketplace’s remittance practice.
  • Dropshipping complications: If your supplier stores inventory in a state, that inventory can create nexus even if you never touch the goods.
  • Retroactive liability: Some states will pursue back taxes to the date nexus was established. Early detection and voluntary disclosures reduce exposure.

Examples

  • Small seller example: A California seller’s direct website sales to Texas customers exceed the state’s economic threshold. The seller must register with Texas, collect sales tax on taxable goods, and file returns for the periods after nexus was triggered.
  • Marketplace example: A vendor selling via a major marketplace may find the platform remits tax for marketplace transactions, but the vendor still needs to track non‑marketplace sales and any registration or reporting requirements the state imposes.

Tools and professional help

  • Sales‑tax automation: Use software (Avalara, TaxJar, or integrated e‑commerce tax engines) to automate rate lookup, tax calculation, nexus monitoring, and filing. These tools reduce manual errors but require correct product taxability mapping.
  • Professional advice: Work with a CPA or state‑tax specialist for complex flows, multistate filing strategy, and voluntary disclosure negotiations. In my practice, proactive quarterly reviews cut audit risk and surprise liabilities.

Interlinks (related FinHelp articles)

Frequently asked compliance questions

Q: If a marketplace collects tax, do I have any obligations?
A: Often yes — you may still need to register, remit for non‑marketplace sales, or provide transaction summaries. Verify each state’s rules and the marketplace’s collection scope.

Q: Are digital products treated the same as tangible goods?
A: No. States differ widely on taxability of digital goods, services, and subscriptions—verify product taxability state‑by‑state.

Professional disclaimer

This article is educational only and does not constitute legal or tax advice. State rules change frequently; consult a licensed tax professional or your state department of revenue for guidance tailored to your business. This content reflects laws and guidance as of 2025.

Authoritative sources

  • South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018).
  • Tax Foundation: state economic nexus summaries (https://taxfoundation.org/).
  • Avalara: nexus and marketplace‑facilitator overviews (https://www.avalara.com/).
  • State departments of revenue and marketplace‑facilitator statutes (check the revenue site for each state).