Quick overview

The 2018 U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. let states require out-of-state sellers to collect sales tax based on economic presence rather than just a physical storefront. That ruling fundamentally shifted tax compliance for online sellers and remote service providers: states now use a mix of economic thresholds, physical-presence rules, and marketplace-facilitator laws to determine when businesses must register, collect, and remit sales tax (NCSL primer) (https://www.ncsl.org/research/fiscal-policy/sales-tax-nexus-a-primer.aspx).

This guide explains how nexus works, common triggers for remote sellers and service providers, practical steps to assess and manage obligations, and resources to stay compliant.

How does nexus actually work for remote sellers and service providers?

Nexus is a legal standard that varies by state. Two broad categories matter most:

  • Economic nexus — states set sales or transaction thresholds (for example, total sales dollars or number of transactions into the state). Crossing a state’s threshold typically creates an obligation to register and collect sales tax.
  • Physical presence nexus — any in-state presence such as an office, employee, contractor, inventory stored at a warehouse, or owned property can create nexus regardless of sales volume.

States also use specific rules for: marketplace facilitators, affiliate/activity nexus (links with related companies), and sourcing rules that determine which state’s tax rate applies. Because definitions and thresholds vary, you must evaluate nexus on a state-by-state basis (Department of Taxation and state revenue sites).

Common nexus triggers

  • Hiring employees or independent contractors who work in a state.
  • Storing inventory in a fulfillment center (including third-party warehouses like Amazon FBA).
  • Reaching a state’s economic threshold for sales in dollars and/or transactions.
  • Having a physical location, showroom, or trade-show presence.
  • Using in-state affiliates or referral arrangements that create a connection.
  • Marketplace facilitator laws where the platform collects tax on your behalf.

Marketplace facilitator laws have changed compliance for many sellers: platforms such as Amazon, Etsy, or Shopify may collect and remit tax for sales they facilitate, but sellers remain responsible for understanding where those platform obligations do — and do not — relieve them of registration duties.

Examples and state thresholds (verify before relying on specific numbers)

State thresholds have evolved since Wayfair. Some commonly referenced rules as of 2025:

  • California: economic nexus generally when a seller has $500,000 or more in sales of tangible personal property into the state (CDTFA) (https://www.cdtfa.ca.gov/taxes-and-fees/sales-and-use-tax.htm).
  • Texas: economic nexus typically at $500,000 in annual sales into the state (Texas Comptroller) (https://comptroller.texas.gov/taxes/sales/).
  • New York: economic nexus usually when a seller has more than $500,000 in sales and over 100 sales transactions of tangible personal property delivered to NY customers (NY Dept. of Taxation and Finance).
  • Florida: economic nexus is often $100,000 in sales of tangible personal property or services into the state (Florida Dept. of Revenue).

Important: thresholds, sourcing rules, and definitions differ by state and by product/service type (tangible goods vs digital goods vs services). Always confirm current thresholds on the state revenue department website before you act.

Who is affected?

  • eCommerce merchants selling products nationwide.
  • Service providers delivering remote or digital services (consulting, design, SaaS, development) — some states tax digital services and SaaS; others do not.
  • Freelancers or contractors working with clients in multiple states.
  • Businesses using marketplaces or third-party logistics (3PL) providers.

In my practice working with small and mid-sized sellers, I frequently see software firms and consultants unaware that state rules treat their offerings differently: one state may tax a software license while another treats it as a service. That difference can create unexpected registration requirements.

Step-by-step: How to determine whether you have nexus

  1. Map your activities: list states where you have customers, employees, inventory, contractors, or advertising/agents.
  2. Pull sales data: review gross receipts and transaction counts by state for the previous 12 months.
  3. Compare to thresholds: check each state’s economic nexus thresholds and physical nexus rules on the official revenue site.
  4. Review marketplace relationships: determine whether platforms are collecting tax on your behalf and whether you still need to register.
  5. Consult your tax advisor: for borderline or complex cases (affiliates, drop-shipping, services), get professional guidance.

Useful internal resources for next steps: Sales Tax Compliance for Online Sellers: A Quick Guide (https://finhelp.io/glossary/sales-tax-compliance-for-online-sellers-a-quick-guide/) and State Sales Tax Nexus for Remote Service Providers (https://finhelp.io/glossary/state-sales-tax-nexus-for-remote-service-providers/).

Registering, collecting, and remitting

If you determine that you have nexus in a state, you typically must:

  1. Register for a sales tax permit with the state revenue department.
  2. Collect the correct sales tax rate at the point of sale (sourcing rules matter).
  3. File periodic returns and remit the tax collected by the due date.
  4. Keep records to support exemptions and resale certificates.

Many states permit retroactive registration and may assess back taxes, interest, and penalties for periods when tax should have been collected. If you discover past noncompliance, most states offer voluntary disclosure agreements (VDAs) that help reduce penalties — consult a tax professional immediately to explore this option.

Exemptions and resale certificates

Not all sales are taxable. Typical exemptions include resale (when a buyer purchases goods for resale), certain B2B transactions, or exempt organizations (charities, government). The rules for digital goods and services vary significantly. Maintain properly completed resale or exemption certificates in your files to support nontaxable sales.

Audit risk and mitigation

States use data matching, marketplace reports, and audit triggers to identify out-of-state sellers. Common audit triggers include large sales into a state without a registration, high-volume marketplace sales, or frequent use of drop-shippers or 3PLs.

Mitigation steps:

  • Implement an internal sales-tax checklist and controls (see FinHelp’s internal control checklist articles such as Building an Internal Control Checklist to Avoid Sales Tax Exposure).
  • Use sales-tax automation tools that track nexus, calculate rates, and support filing.
  • Conduct periodic nexus reviews and retain a record of your analysis and decisions.

Practical tools and software

Tax automation providers (Avalara, TaxJar, Sovos, etc.) and many accounting platforms now include nexus-tracking features. These tools can: monitor thresholds by state, calculate tax down to the correct local rate, generate returns, and file on your behalf. They aren’t a substitute for professional advice but reduce manual workload and lower the risk of calculation errors.

Professional tips for minimizing surprises

  • Start with monthly sales and transaction reporting by state.
  • Treat 12-month rolling totals as your baseline for economic nexus determination — many businesses underestimate growth and cross a threshold mid-year.
  • Keep careful documentation of where you hold inventory or ship property; third-party warehouses can create nexus.
  • Don’t assume marketplace sales eliminate all obligations — you may still need to register for reporting or exemption reasons.

Short FAQs

  • Do services create nexus? It depends. Some states tax services or digital products; others do not. Check state rules.
  • Do marketplace sales create nexus for me? Often marketplaces collect tax, but you may still have reporting obligations or separate nexus triggers.
  • What happens if I miss nexus? States can assess back taxes, interest, and penalties; VDAs can limit exposure if you act proactively.

Compliance checklist (practical next steps)

  1. Export sales and transaction data by state for the past 12 months.
  2. Identify any in-state employees, contractors, inventory, or property.
  3. Review each state revenue site for current economic thresholds and filing rules.
  4. Register and begin collecting where nexus exists; consult a tax advisor for complex positions.
  5. Implement automation and retain exemption/resale certificates.

Internal links and further reading

Authoritative sources and further reading

Disclaimer

This article is educational and does not constitute tax or legal advice. Nexus rules and thresholds change frequently; consult a qualified tax professional or state revenue department for guidance specific to your business and for the latest rules as of 2025.