Nexus and Sales Tax for Remote Sellers After Wayfair

Overview

The 2018 Supreme Court decision in South Dakota v. Wayfair, Inc. removed the strict physical‑presence rule for sales tax nexus and opened the door for states to require remote sellers to collect sales tax based on economic or virtual connections. This change reshaped compliance for online sellers, subscription businesses, and any company making multistate sales. In my practice as a CPA advising e‑commerce clients, I’ve seen businesses move from being unconcerned about state sales tax to needing structured multistate compliance programs.

Why Wayfair matters (brief history and legal framework)

Before Wayfair, the precedent in Quill Corp. v. North Dakota (1992) required a physical presence for a state to impose sales tax collection duties. Wayfair (2018) overturned that rule and allowed states to adopt economic nexus laws tied to sales dollars or transaction counts. The ruling does not set a single nationwide threshold; instead, it permits states to define nexus standards through legislation or regulation (South Dakota v. Wayfair, 585 U.S. ___ (2018)).

States responded quickly. Many established economic thresholds such as $100,000 in sales or 200 transactions (or higher), while others set different dollar limits. Because thresholds vary and change, check reliable trackers such as the National Conference of State Legislatures (NCSL) for current rules (NCSL — Sales Tax Overview).

Common types of nexus remote sellers should watch

• Economic nexus: Triggered when a seller’s sales into a state exceed a specific dollar amount or number of transactions during a defined period (usually a 12‑month lookback).
• Marketplace facilitator rules: Many states now require the marketplace platform (Amazon, Etsy, eBay, etc.) to collect and remit sales tax on behalf of third‑party sellers. Even so, sellers should confirm whether their sales are covered by marketplace treatment or whether some sales still require separate registration.
• Affiliate (or click‑through) nexus: When in‑state affiliates or referral links cause sufficient business activity for the state to assert nexus.
• Physical presence: Having inventory stored in a state (including third‑party fulfillment centers, e.g., Amazon FBA), employees, or a storefront still creates traditional nexus.
• Economic-presence variations: Some states use subscription or service‑specific rules, or require marketplace sellers to register under separate statutes.

State thresholds — examples (subject to change)

State rules evolve; use this table as illustrative rather than definitive. Verify with state agencies or NCSL.

(Confirm exact current thresholds at NCSL or each state revenue department; thresholds change.)

How nexus and sales tax collection actually work for a remote seller

1. Monitor sales into each state on a rolling 12‑month basis. Many states use a lookback period to determine whether you passed their economic threshold.
2. When you meet a threshold, register for a sales tax permit with that state’s department of revenue. Registration timelines vary but typically require you to begin collecting tax from the date you meet nexus (some states allow retroactive collection and reporting).
3. Collect the correct tax rate at the time of sale. Rates can vary by state, county, and city — and by product or service category (exemptions apply for certain goods and services).
4. File periodic returns and remit collected tax according to the state’s schedule (monthly, quarterly, annual).
5. Keep records of sales, exemptions, nexus determinations, and filings for audits (retain for at least three to seven years depending on state rules).

Marketplace facilitators and why they simplify — but don’t eliminate — risk

Most states passed marketplace facilitator laws after Wayfair. These laws direct the marketplace to collect and remit sales tax for sales the platform facilitates. That reduces the tax collection burden on individual sellers for marketplace transactions. However:

• Not all sales on a marketplace are always covered (e.g., some states have carveouts or threshold-based exceptions).
• Sellers still need to track nexus for non‑marketplace sales, direct sales on their own website, or taxable services sold outside the platform.

Check the marketplace’s seller reports and reconcile them to your books. Don’t assume the marketplace handled exemptions or correctly classified every sale.

Practical compliance checklist (step‑by‑step)

• Set up automated sales tracking by state and by transaction. Sales tax software (Avalara, TaxJar, etc.) can automate thresholds and rate calculations.
• Reconcile marketplace‑collected tax vs. your sales records monthly.
• Register proactively in states where you exceed thresholds. Consider the timing of registration and effective date for collection.
• Understand product taxability by state: some states tax digital goods or certain services differently.
• Use a voluntary disclosure agreement (VDA) if you discover uncollected tax from past periods; VDAs can limit penalties and the lookback period.
• Maintain clear nexus documentation: where you store inventory, where employees or contractors work, and marketing or affiliate arrangements.

In my practice, clients who implement automated tracking and reconcile monthly avoid most surprise audits. I also recommend budgeting for compliance (registration fees, software subscriptions, and occasional professional help) as a normal operating expense for multistate sellers.

Common mistakes and how to avoid them

• Assuming marketplace sales are always covered. Reconcile and confirm.
• Ignoring small or infrequent sales into a state. Thresholds can be transaction‑based as well as dollar‑based.
• Failing to track inventory in third‑party warehouses. Fulfillment centers create nexus.
• Waiting for an audit before registering. Voluntary registration or a VDA often reduces fines.

Audits, penalties, and voluntary programs

States can audit for uncollected sales tax, assess back taxes, interest, and penalties. Penalties differ by state and by whether the failure was negligent or willful. Many states offer voluntary disclosure agreements that limit the lookback period (commonly 3 years) and reduce penalties if you come forward voluntarily. Consult a tax professional before, during, or after a nexus determination to evaluate VDA options.

Tools and resources

• NCSL keeps a state-by-state summary of sales tax laws and marketplace facilitator statutes (NCSL — Sales Tax Overview).
• Consult state revenue departments for registration forms and rate lookups.
• Consider sales tax automation tools (Avalara, TaxJar, Vertex) to track nexus thresholds, calculate tax, and file returns.

Internal FinHelp.io links to learn more:

• Read our primer on Sales Tax Basics for Online Sellers and Small Businesses for foundational rules and rate basics.
• If you’re approaching multiple state thresholds, our guide on Multi‑State Sales Tax Registration: When You Need to Register explains registration timing and procedures.
• For a deeper look at statutory triggers and nexus concepts, see State Nexus Rules: When Your Business Owes State Taxes.

Practical example (concise)

A small retailer with a primary warehouse in Ohio sells nationwide via its website and through a major marketplace. After a growth year they exceeded $500,000 of sales into California and $150,000 into Texas. The marketplace collected tax on sales through its platform in many states, but direct website sales required registration. The retailer registered in CA and TX, started collecting on direct sales, and used a voluntary disclosure to address limited historic non‑compliance where necessary.

Final checklist before you sell across state lines

• Track sales by state in real time.
• Confirm marketplace facilitator coverage for each transaction.
• Register where thresholds are met and begin collecting.
• Keep detailed records and consult a tax professional for audits or VDAs.

Professional disclaimer
This article is educational and reflects typical state practices after South Dakota v. Wayfair (2018). It is not legal or tax advice for your specific facts. Consult a licensed tax professional or state revenue department for advice tailored to your business.

Authoritative sources

• South Dakota v. Wayfair, Inc., 585 U.S. ___ (2018).
• National Conference of State Legislatures (NCSL), “Sales Tax” resource page: https://www.ncsl.org/research/fiscal-policy/sales-tax.aspx
• State department of revenue websites and marketplace facilitator statutes (individual states).