Overview
State nexus decides whether a state can require you to register, collect, and remit sales tax. The Supreme Court’s 2018 decision in South Dakota v. Wayfair allowed states to tax out-of-state sellers on the basis of economic activity, not just physical presence, which is the foundation for today’s economic nexus rules (South Dakota v. Wayfair, 585 U.S. 17 (2018)).

Why this matters
If you have nexus in a state and fail to register, you can face back taxes, penalties, and interest. Many sellers discover nexus after a state contacts them, an audit, or when marketplace platforms begin to report seller activity.

How sellers commonly establish nexus

  • Economic nexus: States set sales- or transaction-based thresholds (for example, the South Dakota model used $100,000 in sales or 200 transactions). Thresholds now vary by state — some use $100K, others $200K or higher — so always check the specific state rule.
  • Physical presence: Inventory stored in a state (third‑party warehouse/fulfillment center), an office, employee, or a trade show can create nexus.
  • Marketplace facilitator rules: Many states require marketplaces (Amazon, Etsy) to collect tax on behalf of third‑party sellers; this affects your obligations and reporting. See our guide on Understanding State Sales Tax on Marketplace Facilitators (https://finhelp.io/glossary/understanding-state-sales-tax-on-marketplace-facilitators/).
  • Agent, affiliate, and click‑through nexus: Referrals, in‑state agents, or affiliate arrangements can create nexus depending on the state.

Practical steps to determine where you owe

  1. Map sales and activity by state. Produce a quarterly or monthly report of gross sales and transaction counts by destination state.
  2. Review each state’s nexus rules. Check the relevant Department of Revenue (for example, California’s CDTFA) and trusted summaries such as Tax Foundation analyses.
  3. Note marketplace facilitator status. If a marketplace collects tax for you, you may not need to register in that state — but you should confirm reporting and exemption details.
  4. Track inventory locations. Fulfillment‑by‑third‑party warehouses (FBA, 3PL) commonly create nexus; update your nexus map whenever inventory locations change.
  5. Register and collect timely. If a state’s threshold is met, register for a sales‑tax permit, collect sales tax at the point of sale, and file returns as required.
  6. Use automation. Sales‑tax software reduces manual errors and calculates tax by jurisdiction; it can also flag states where you approach nexus thresholds.

Examples (brief)

  • A craft seller based in Texas ships directly to customers nationwide. After crossing a state’s economic threshold, a state issues a notice and requires registration.
  • A company uses a fulfillment center in California; that inventory created nexus in California even though the seller has no store there.

Actionable checklist

  • Run a state-by-state sales and transactions report for the last 12 months.
  • Compare results to each state’s economic nexus thresholds (consult the state DOR).
  • Search marketplace facilitator rules for platforms you use.
  • Register where required and begin collecting on future sales.
  • Keep records of registrations, filings, and exemption certificates.

Common mistakes

  • Assuming no physical store equals no nexus. Third‑party inventory and remote employees matter.
  • Treating all states the same. Rules differ widely by state and by product type (tangible goods vs. digital goods/services).
  • Waiting until you get a notice. Proactive tracking avoids back taxes and penalties.

Related resources on FinHelp

Frequently asked questions
Q — If a marketplace collects sales tax for me, do I still have to register?
A — Often the marketplace collects and remits; however, some states still expect sellers to register or file informational returns. Confirm the platform’s role for each state.

Q — Can nexus be retroactive?
A — States may assess tax for prior periods. Some offer limited lookback periods or voluntary disclosure agreements to reduce penalties — consult state DOR guidance and a tax pro.

Q — How often should I reassess nexus?
A — At minimum quarterly, and whenever you change fulfillment providers, add employees, or expand product lines.

Authoritative sources and further reading

  • South Dakota v. Wayfair, Inc., 585 U.S. 17 (2018).
  • State Departments of Revenue (example: California CDTFA) and state tax notices — search your specific state DOR.
  • Tax Foundation summaries of state nexus laws.

Professional disclaimer
This entry is educational and not individualized tax advice. For specific guidance on nexus, registration, and remittance obligations, consult a CPA, state tax counsel, or a licensed tax professional.