Background and why it matters

The U.S. approach to sales-tax nexus changed dramatically after the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. (2018), which allowed states to require out-of-state sellers to collect sales tax based on economic activity alone. Since Wayfair, most states have adopted economic-nexus rules, so remote sellers must track where they sell to avoid registration, collection, and potential back taxes.

How nexus works for remote sellers

Physical presence nexus

  • What creates it: a retail location, warehouse, inventory stored with a fulfillment partner, employees or sales reps performing activities in-state, or even regular attendance at trade shows. States vary in specific tests and thresholds. If a seller has physical presence, registration and collection obligations typically follow immediately.
  • Example: A seller with inventory in a California fulfillment center generally has California nexus and must collect California sales tax on taxable sales to California residents.

Economic nexus

  • What creates it: meeting a state’s sales-dollar or transaction-count threshold within a defined period (usually the previous or current calendar year). Common triggers are $100,000 in sales or 200 transactions, but many states use different or higher thresholds (several use $500,000).
  • Example: After Wayfair, a remote seller with $120,000 in taxable sales to customers in State X that uses a $100,000 threshold would have to register and collect that state’s sales tax even with no physical presence.

Practical examples and typical thresholds (examples only — check current state rules)

State (example) Physical nexus examples Common economic threshold (example)
California Office, employees, inventory $500,000 in sales (annual)
Texas Warehouse, reps $500,000 in sales (annual)
Florida Office, inventory $100,000 in sales or 200 transactions
New York Employees, physical property $500,000 and 100 transactions

Note: State rules change. Use the state Department of Revenue site for the definitive threshold and lookback period.

Who is affected

  • Small and large online retailers, marketplace sellers, subscription services, and sellers using third-party logistics (3PL) or marketplace facilitators. Sellers using Amazon FBA, other fulfillment centers, or remote sales teams should pay particular attention.
  • Digital goods and services can be taxable in some states—check product-level rules.

In-practice insight

In my work advising e-commerce clients, the most common surprises come from fulfillment and marketplace models: inventory stored by a 3PL or using a marketplace program (e.g., fulfillment-by-others) often creates physical nexus for the seller even if the seller never visits the state. Regularly reviewing where inventory sits and where employees work allowed clients to avoid late registrations and sizeable notices.

Practical compliance steps (quick checklist)

  1. Map sales by state and count transactions over the prior 12 months.
  2. Inventory physical footprints (warehouses, 3PL locations, employees, representatives, trade shows).
  3. Compare against each state’s economic and physical nexus tests.
  4. Register promptly when a trigger is met; consider voluntary disclosure agreements if you have past liabilities.
  5. Consider using marketplace registration rules: many marketplaces now collect tax on seller behalf in some states—verify marketplaces and product types.

Tools and resources

  • Check state Department of Revenue websites for current thresholds and guidance.
  • Use marketplace and nexus-management tools or a sales-tax automation provider to track multi-state exposure.

Common mistakes and misconceptions

  • Assuming only a storefront creates nexus. Employee activity, inventory, and even installers or independent contractors can create physical nexus.
  • Ignoring marketplace sales. Some states hold marketplaces responsible; others still require the individual seller to register depending on the law and the marketplace’s role.
  • Relying on outdated thresholds — states adjust rules regularly.

Frequently asked questions

Q: If I use a fulfillment center in another state, do I have nexus there?
A: Often yes. Many states consider inventory stored in a warehouse (including third-party warehouses) to create physical nexus. Confirm with the state revenue department and your 3PL contract.

Q: Do economic thresholds apply to gross or taxable sales?
A: States vary—some use gross sales, others use taxable sales. Always confirm the state’s specific definition.

Professional tips

  • Keep transaction-level records by state and product taxability documentation.
  • Revisit nexus exposure after business model changes (new marketplace, expanding fulfillment network, hiring remote staff).
  • Consider professional tax advice or automation for businesses with multistate exposure.

Internal resources

For related guidance and deeper reads on specific business models, see:

Authoritative sources and further reading

  • South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018) — U.S. Supreme Court decision establishing economic nexus authority.
  • Tax Foundation — state sales tax and nexus summaries (taxfoundation.org).
  • Individual state Department of Revenue websites for current nexus thresholds.

Disclaimer

This content is educational and does not constitute legal or tax advice. Nexus rules are state-specific and change over time; consult a qualified tax advisor or state revenue agency for guidance tailored to your facts.