Background and why it matters

The Supreme Court’s decision in South Dakota v. Wayfair, Inc. (2018) allowed states to require out‑of‑state sellers to collect sales tax based on economic activity, not just physical presence. Since then, states have adopted economic‑nexus rules and expanded how they treat digital goods and subscriptions (SaaS, streaming, digital downloads). That means many online businesses now face registration, collection, and filing requirements in multiple states (South Dakota v. Wayfair, 138 S. Ct. 2080 (2018); see state Department of Revenue guidance).

How nexus is created for digital products

  • Physical presence: offices, employees, servers, or inventory stored in a state can create nexus. Some states treat server locations or hosted infrastructure as a factor.
  • Economic nexus: most states set a sales or transaction threshold (commonly $100,000 in sales or 200 transactions, though thresholds vary) that, once exceeded, triggers registration and collection duties.
  • Click‑through/affiliate nexus: referral links or affiliate relationships with in‑state partners may establish nexus in some states.
  • Marketplace facilitator laws: many states require the marketplace (e.g., app stores, platform marketplaces) to collect tax on sellers’ behalf. That can reduce obligations for sellers but doesn’t eliminate the need to verify which party is responsible.

Example (realistic, anonymized)

A California‑based SaaS company saw rapid growth in Texas clients. After crossing Texas’s economic threshold, it needed to register for a Texas sales tax permit, begin collecting tax on subscription invoices and file periodic returns. Early monitoring and tax software helped avoid penalties and a state audit.

Step‑by‑step compliance checklist

  1. Map where your customers are located and how you source their billing addresses. Sales tax is usually based on customer location (destination‑based), but a few states use origin rules.
  2. Calculate gross sales and transaction counts per state on a rolling 12‑month basis to spot threshold triggers.
  3. Determine how each state classifies your product: digital good, subscription service, SaaS, or taxable information service. State rules differ; classification affects whether tax applies.
  4. Check marketplace facilitator rules for platforms you use (they may collect tax for you).
  5. If nexus exists, register for a sales tax permit in that state, begin collecting the correct rate, and remit on the state’s filing schedule.
  6. Keep exemption documentation and resale certificates where applicable; store them securely and track expirations.

Practical tools and automation

Use a reliable tax engine or accounting integration to automate rate lookup, nexus monitoring, and filing reminders. Popular options plug into ecommerce carts and billing systems to flag states where you’re nearing thresholds. See our guide: Sales Tax Compliance Automation: Tools for Small E-commerce Businesses (internal guide: https://finhelp.io/glossary/sales-tax-compliance-automation-tools-for-small-e-commerce-businesses/).

Common traps and how to avoid them

  • Assuming all digital sales are tax‑free: state law varies widely. Confirm each state’s treatment of digital downloads, streaming, and SaaS (see State Sales Tax for Digital Goods: Who Must Collect? — https://finhelp.io/glossary/state-sales-tax-for-digital-goods-who-must-collect/).
  • Ignoring marketplace facilitator changes: platforms often changed collection rules after Wayfair; confirm whether the marketplace or you must collect.
  • Missing affiliate or contractor activity that creates nexus: small referral relationships can trigger nexus in some states.
  • Poorly segmented billing addresses: using payment processor location instead of customer billing address can misstate where nexus is created.

When to get professional help

In my practice advising online subscriptions and SaaS companies, complex product bundling and multi‑state sales are the most common sources of surprise liabilities. Engage a CPA or sales‑tax specialist when you cross multiple state thresholds, if you operate through marketplaces, or when product taxability is unclear. Our related checklist explains registration and filing basics: State Sales Tax Permits: Registration and Compliance Steps (https://finhelp.io/glossary/state-sales-tax-permits-registration-and-compliance-steps/).

Quick FAQ

  • Do all states tax subscriptions and SaaS? No. Treatment varies: some states tax certain digital services, others exempt them. Always check each state’s statute or revenue guidance.
  • Does Wayfair mean I must collect tax in every state? Not automatically — only in states where you meet that state’s nexus rules.

Resources and authoritative guidance

  • South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018).
  • State Departments of Revenue (search the specific state’s DoR site for up‑to‑date taxability guidance).
  • Streamlined Sales Tax Governing Board for model rules and membership state guidance.
  • IRS (general information that sales and use taxes are state administered) — see IRS resources on sales and use tax.

Professional disclaimer

This article is educational and not tax, legal, or accounting advice. For guidance tailored to your business, consult a licensed CPA or state tax professional. Information is current as of 2025 but state rules change frequently; always verify with the state Department of Revenue before taking action.