Why state nexus matters now

The legal standard for when a state can require a seller to collect sales tax changed permanently after the U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc. (2018). States can now set rules that trigger tax obligations based on an out‑of‑state seller’s economic activity in the state, not just a physical presence. That shift makes nexus one of the most important compliance issues for any online seller or marketplace operating across state lines.

Federal law does not set sales tax rules; states do. That means thresholds, dates of enforcement, and registration procedures vary by state. The National Conference of State Legislatures (NCSL) maintains state-by-state summaries that are helpful when you’re checking current thresholds and rules (NCSL, https://www.ncsl.org).

How nexus is established: the common types

States use several legal theories to establish nexus. The most common are:

  • Physical presence nexus: Having a warehouse, office, store, employees, or in some states even contractors or leased equipment in the state.
  • Economic nexus: Reaching a sales-dollar threshold (commonly $100,000) or a transaction-count threshold (commonly 200 transactions), though many states use other numbers. These thresholds vary; always check the exact rule for the state involved.
  • Marketplace facilitator nexus: Many states require the marketplace (Amazon, Etsy, eBay) to collect and remit sales tax on behalf of sellers using the platform.
  • Click-through/affiliate nexus: Some states create nexus when out-of-state sellers have referral agreements with in-state businesses or affiliates.
  • Marketplace seller nexus (marketplace-assisted): If a marketplace stores inventory or fulfills orders for third-party sellers, that activity can create nexus for the seller as well as for the marketplace.

Note: State law language differs. The practical effect is the same: once you have nexus, you generally must register, collect sales tax at the point of sale, file returns, and remit the tax.

Marketplace facilitator rules: what sellers need to know

Most large marketplaces are now defined as “marketplace facilitators” under state statutes. That label means the marketplace is responsible for collecting and remitting sales tax for marketplace sales. However, important exceptions and reporting requirements remain:

  • If a marketplace collects and remits tax, third‑party sellers typically won’t need to separately collect sales tax on those marketplace transactions. But sellers still must track gross sales by state and verify how the marketplace reports and remits tax.
  • Some states still require sellers to register for a permit even if the marketplace collects tax — primarily so the state can audit records or ensure proper exemption handling.
  • Rules vary by state and by type of item (tangible goods vs. digital goods vs. services). See our explainer on Marketplace Facilitator Rules: Who Collects and Remits Sales Tax? for state-specific guidance and examples.

Practical checklist: steps to evaluate and manage nexus

  1. Inventory your activities by state
  • Count sales (dollars and transactions) for each state, and list physical contacts (inventory, drop-shippers, employees, contractors).
  1. Compare activity to each state’s nexus thresholds
  • Use state sites or the NCSL summary to confirm thresholds and effective dates. Thresholds change; re-check quarterly. (NCSL, https://www.ncsl.org)
  1. Determine whether marketplaces have collected tax for you
  • For marketplace sales, review your monthly reports from the platform. Confirm whether the marketplace is remitting tax and whether you must register in the state for reporting.
  1. Register for sales tax permits where required
  • Once nexus exists, register before you start collecting. Many states have online portals for business tax registration. Late registration can increase exposure for back taxes and penalties.
  1. Implement collection and compliance
  • Configure point-of-sale and checkout tax rules to charge the correct tax rate and to apply exemptions. Track origin vs. destination sourcing rules for each state.
  1. Maintain and produce exemption certificates
  • If you accept resale or exemption certificates, store them in a secure, searchable system. States expect sellers to produce valid certificates during audits.
  1. File returns and remit tax on time
  • Missing a return or remittance can trigger penalties and interest. Keep filing calendars for each permit you hold.
  1. Keep records for audits
  • Retain invoices, exemption certificates, marketplace reports, and shipping records. Many states require 3–7 years of records; some require longer.

Automation and software: reduce risk and save time

Manual tracking becomes expensive and error-prone as you expand into multiple states. Automation tools calculate rates, manage exemption certificates, and generate filing-ready reports. In my experience guiding e-commerce clients, implementing a tax engine before crossing economic thresholds prevents most later headaches. For hands-on implementation guidance, see our guide: How to Implement Sales Tax Automation for Small Businesses.

When selecting software: confirm coverage for states you sell into, ability to integrate with your shopping cart or ERP, and support for marketplace-reported transactions.

Common mistakes sellers make (and how to avoid them)

  • Assuming no physical presence = no tax obligations. After Wayfair, that assumption is dangerous.
  • Ignoring marketplace reporting. Marketplaces often remit tax, but their reporting may not relieve you of registration or recordkeeping responsibilities.
  • Waiting until audited to register. States can assess back taxes and penalties dating to when nexus first arose.
  • Poor documentation for exemptions. If you accept a resale certificate, you must keep a valid, state-specific certificate on file.

Example scenarios (realistic, anonymized)

  • A boutique in Ohio starts selling nationwide through its website. Sales to multiple states push it over several states’ $100,000 thresholds in a calendar year. The boutique registered in those states and implemented a tax engine. That prevented retroactive assessments and allowed the owner to price correctly.

  • A crafts seller using a marketplace learned the marketplace collected tax for most sales, but discovered it still needed to register in states where it had separate direct sales through its own site. The seller consolidated reporting and adjusted checkout flows to avoid double collection.

Audits, appeals, and voluntary disclosure agreements

If a state audits and finds uncollected tax, penalties and interest can be significant. Many states offer voluntary disclosure agreements (VDAs) that reduce or eliminate penalties if you proactively register and pay owed tax for a limited look-back period. Consult a tax professional if a state contacts you about back taxes; an experienced advisor can often negotiate better terms or identify legitimate exemptions.

Frequently asked questions

  • How do I find current thresholds for a state? Use state revenue department websites and the NCSL summaries; keep copies of the law or regulation that created the threshold.
  • Do physical activities by third-party fulfillment providers create nexus? Often yes—inventory stored in a warehouse (including third‑party logistics providers) commonly creates physical nexus for the seller.
  • Can I pass sales tax collection to customers? No—collecting and remitting is your responsibility if you have nexus. Charging customers without remitting still leaves you liable.

Action plan for the next 30–90 days

  • Run a state-by-state sales and transactions report for the last 12 months.
  • Compare totals to state thresholds and flag states where you’re close to or over the threshold.
  • If flagged, register for a permit and implement collection rules, or engage a CPA with e-commerce experience.
  • If you sell on marketplaces, download transaction and tax reports monthly and reconcile them with your accounting system.

Useful resources

Professional disclaimer

This article is educational and not tax, legal, or accounting advice. Nexus and sales tax rules are state-specific and frequently change. Consult a qualified CPA or tax attorney for advice tailored to your business.

References

  • South Dakota v. Wayfair, Inc., 585 U.S. ___ (2018).
  • National Conference of State Legislatures, state sales tax and nexus summaries (2024–2025 updates).