How nexus changed after Wayfair

State tax nexus for remote sellers became a national compliance issue after the U.S. Supreme Court decision South Dakota v. Wayfair, Inc. (2018). The Court allowed states to assert sales-tax collection duties based on economic connections—rather than strictly physical presence—so a remote seller can now have sales-tax obligations in states where it has no office or employees (South Dakota v. Wayfair, 138 S. Ct. 2080 (2018)).

That ruling did not create a single federal rule; each state now sets its own nexus standards and registration process. For that reason remote small businesses must treat nexus as a state-by-state compliance puzzle, not a one-size-fits-all requirement.

Sources: South Dakota v. Wayfair (2018); Tax Administration (taxadmin.org).

How nexus is established (the main pathways)

  • Physical presence nexus: a traditional trigger that includes having an office, warehouse, retail location, inventory stored in a third-party fulfillment center, or employees/representatives making in-state sales calls.

  • Economic nexus: the post-Wayfair standard many states use. Most commonly tied to gross sales or transaction counts in a 12-month lookback period. Commonly adopted thresholds are $100,000 in sales or 200 transactions, but states differ—check each state’s rule before assuming either figure applies.

  • Click-through / affiliate nexus: having affiliates, referral arrangements, or marketplace links that drive sales in a state can create nexus under some laws.

  • Marketplace facilitator rules: many states require marketplaces (Amazon, Etsy, eBay) to collect and remit sales tax on behalf of third-party sellers. This can reduce a small seller’s collection duties but doesn’t eliminate other obligations, like state income tax withholding or registration for use tax reporting.

  • Service and payroll nexus: providing services repeatedly in a state or having employees there can establish income, withholding, and payroll tax obligations.

Authoritative notes: states vary. See state-by-state resources at the Federation of Tax Administrators (TaxAdmin) and state revenue department websites.

Practical steps to determine your nexus exposure (actionable checklist)

  1. Identify the states where you do business
  • Review order history, shipping addresses, and hosted inventory locations for the past 12 months.
  1. Compare activity to each state’s nexus rules
  • Look for economic thresholds (sales volume or transaction counts), inventory location rules, and marketplace facilitator exceptions.
  • Use official state revenue department guidance or the Tax Administration summaries to confirm current thresholds; many states post plain-language FAQs and worksheets. (TaxAdmin)
  1. Check marketplace and fulfillment relationships
  • If you use Amazon FBA or other warehouses, inventory stored in a state can create physical presence nexus. Also confirm whether the marketplace collects tax on your behalf.
  1. Register where required
  • When nexus is established, register with the state as a seller/vendor or for withholding as needed. Registration often must happen before the next taxable sale or within a state-prescribed period.
  1. Collect, remit, and file
  • Set up tax collection in your checkout or invoicing system for applicable locations. File returns on the cadence the state requires (monthly, quarterly, annual).
  1. Keep clear records
  • Retain sales receipts, shipping records, marketplace reports, and nexus analyses for at least the statute of limitations in each state (often 3–4 years, longer if fraud is suspected).
  1. Re-check periodically
  • Nexus status changes with growth, product launches, advertising campaigns, and new fulfillment partners. Reassess at least quarterly.

In my work advising small businesses, most avoid problems by automating steps 1–5 and running a quarterly nexus review. Automation reduces human error and makes audits less stressful.

Common mistakes and how to avoid them

  • Assuming no physical office means no tax duties. Inventory storage, employees, contractors, or repeated service visits can still create nexus.

  • Relying on the $100,000 / 200-transaction rule as universal. That rule is common but not universal—states like California, Florida, and many others have their own thresholds and lookback methods.

  • Ignoring marketplace facilitator rules. If your products are sold through a marketplace, confirm whether the marketplace remits tax, and keep documentation.

  • Poor recordkeeping. Without robust records, your ability to dispute back-tax claims or negotiate waivers is limited.

Registration, collection, and filing: what to expect

  • Registration: Most states let businesses register online through the state revenue department portal. Expect to provide business formation details and an EIN or SSN.

  • Collection: After registration, you must collect the correct state and local sales tax. Rates vary by city/county; use a tax engine or the state’s rate lookup tool.

  • Filing: States set return frequency based on volume; high-volume sellers file monthly, smaller sellers may file quarterly or annually. Late filing leads to penalties and interest.

  • Use tax: If you don’t collect sales tax but buy items for use in a state, your business may owe use tax. This often applies to business-to-business purchases or out-of-state purchases where the seller didn’t collect tax.

Authoritative reference: state revenue departments and TaxAdmin summaries.

Audit risk and how to reduce it

State audits commonly arise from mismatches between a seller’s reported sales and third-party data (marketplace reports, 1099-Ks, or shipment records). To reduce audit risk:

  • Keep automated, date-stamped records of every sale, refund, and shipment.
  • Keep marketplace and fulfillment reports for each state.
  • Document your nexus analyses and decisions to register or not register in each state.
  • When contacted by a state, respond promptly. Early professional help can limit the scope of an audit.

Tip from practice: negotiate voluntary disclosure agreements (VDAs) if you discover unreported nexus. Many states offer limited lookback periods and penalty relief for voluntary disclosures versus after-the-fact audits.

Special situations: digital products, subscriptions, and services

  • Digital products and SaaS: States vary widely on whether digital goods or SaaS are taxable. Treat each state’s rule individually. See our guide on digital product taxation for state-by-state issues.

  • Subscriptions and recurring billing: Taxability can depend on whether the product is considered a tangible good, service, or a mixed sale. Document the nature of what you sell and map it to state rules.

  • Professional services: Some states tax certain professional services; others do not. Repeated in-state service delivery can also create income-tax and withholding obligations.

Related reading: FinHelp.io’s pieces on sales tax for digital products and multi-state nexus can give product-specific guidance:

(These internal resources explain registration steps, automation options, and marketplace rules in greater detail.)

Tools and software recommendations

  • Tax engines and checkout integrations (e.g., Avalara, TaxJar, or built-in e-commerce platform tax tools) automate rate lookup, nexus monitoring, and return generation.
  • Accounting software with multi-state reporting helps reconcile sales by jurisdiction.
  • Use fulfillment reports from warehouses (FBA, 3PLs) to confirm inventory locations and potential physical presence.

Automation reduces errors, but always verify automated decisions with periodic manual reviews.

Example scenario (practical illustration)

A small e-commerce business based in Ohio used Amazon FBA for nationwide fulfillment. After a promotional campaign, the owner crossed $120,000 in sales in State X and stored inventory in State Y. State X’s economic nexus threshold was $100,000, and State Y’s rules create physical nexus for stored inventory. The business registered in both states, began collecting sales tax for those destinations, and filed quarterly returns. By documenting the voluntary registration and working with a CPA, the business limited prior tax exposure and avoided a costly audit.

This mirrors many client cases I’ve handled: early detection and voluntary registration almost always reduce penalties and limit back-tax liability.

Final checklist before you scale

  • Run a 12-month sales and transactions report by state.
  • Identify inventory locations and third-party warehouse activity.
  • Review marketplace facilitator rules for platforms you use.
  • Register and begin collecting in states where nexus is triggered.
  • Keep detailed documentation and run quarterly nexus reviews.
  • Consult a CPA or state-tax attorney before responding to audit notices.

Additional authoritative sources

  • U.S. Supreme Court, South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018).
  • Federation of Tax Administrators (TaxAdmin) state nexus guidance: https://www.taxadmin.org/.
  • State revenue department websites for registration portals and taxability rules.

Professional disclaimer

This article is educational and does not substitute for personalized tax or legal advice. Nexus analysis depends on specific facts—consult a qualified CPA or state tax attorney to determine your business’s obligations.