Quick overview

State sales tax nexus for online sellers means a state has the authority to require your business to collect and remit sales tax. Since the U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc., states can assert nexus based on economic activity, not just physical presence (South Dakota v. Wayfair, Inc., 2018). The practical effect: online sellers must track where they sell, how much they sell, and which activities create tax obligations.

How nexus is typically created

States use several tests to establish nexus. The most common are:

  • Physical presence: A store, office, warehouse, employees, contractors, or in-state inventory create nexus. Remote employees or inventory stored with third-party fulfillment providers (like Amazon FBA) often create nexus.
  • Economic nexus: A dollar-sales threshold or transaction-count threshold set by individual states. Many states use thresholds in the neighborhood of $100,000 in sales or 200 transactions, but thresholds vary—always confirm with the specific state (Tax Foundation; individual state tax websites).
  • Click-through and affiliate nexus: Referral arrangements, affiliate links, or in-state agents that generate sales may create nexus in some states.
  • Marketplace facilitator rules: Many states shift the collection obligation to marketplace platforms (e.g., Amazon, Etsy) for sales they facilitate. That doesn’t always absolve sellers from registration in every state—check state rules and marketplace policies.

Note: States also apply other tests for specific goods and services (digital goods, subscriptions, services). Confirm sourcing and taxability rules by state, because what’s taxable in one state may not be in another (see state tax departments and the Tax Foundation).

Practical steps to establish and manage nexus compliance

Below is a step-by-step compliance checklist I use with clients. In practice, early tracking and automation prevent the bulk of headaches and audits.

  1. Map where you sell and why
  • Export sales by shipping/delivery address and by state at least monthly. Identify growing states where you approach common thresholds.
  • Search for inventory locations—warehouses, 3PLs, and fulfillment centers—as they can create physical presence nexus.
  1. Track both dollars and transactions
  • Record total sales and transaction counts by state. States may trigger nexus on either metric.
  • Include marketplace sales in your counts when required by state law; some states count marketplace sales toward seller thresholds.
  1. Review marketplace facilitator rules
  • If you sell via marketplaces, confirm whether the marketplace collects/remits tax on your behalf. Even when it does, you may still need to register for reporting or the state may require separate filings.
  1. Register promptly when nexus is reached
  • Once a state’s nexus threshold is met, register for a sales tax permit with that state’s department of revenue. Registration timelines and retroactivity vary by state.
  • Use the state’s online registration systems where available; many are straightforward.
  1. Choose collection and remittance cadence
  • States assign filing frequency (monthly, quarterly, annual) based on your liability. File and remit on time to avoid interest and penalties.
  1. Keep clear records and be audit-ready
  • Maintain invoices, shipping records, exemption certificates, marketplace reporting, and carrier records for at least the state-prescribed period (commonly 3–7 years).
  1. Consider voluntary disclosure programs
  • If you discover unregistered historical nexus, many states offer voluntary disclosure agreements that limit penalties and provide a defined lookback period. Consult a tax professional to evaluate these programs.
  1. Use automation tools and professional help
  • Sales tax automation software (Avalara, TaxJar, Vertex) can calculate taxes by jurisdiction, file returns, and integrate with shopping carts and ERP systems. I routinely recommend automation to clients experiencing multi-state complexity.

Examples that show the rules in action

  • Example 1: Inventory in a 3PL warehouse

  • A clothing seller stores inventory in a third-party fulfillment center in New Jersey. New Jersey considers inventory in-state as a physical presence, so the seller established nexus and must register in NJ.

  • Example 2: Economic nexus under Wayfair

  • A Texas-based seller hits $150,000 of sales in California and exceeds California’s transaction threshold. California’s economic nexus rules require the seller to collect and remit California sales tax on taxable sales shipped to California residents.

  • Example 3: Marketplace facilitator

  • An Etsy seller’s sales in several states are collected and remitted by Etsy under marketplace rules. Although Etsy remits tax, the seller should confirm whether they still must register for reporting or exemption certificates in those states.

Common mistakes and how to avoid them

  • Assuming physical presence is the only trigger: Wayfair changed that. Economic nexus is now widespread.
  • Ignoring third-party logistics: Inventory in a state often creates nexus.
  • Forgetting marketplace sales: States may include marketplace-facilitated transactions toward thresholds.
  • Not keeping exemption certificates: If you make tax-exempt sales, maintain valid exemption certificates; they’re your evidence in an audit.

Record-keeping checklist (minimum)

  • Sales by state and date
  • Shipping and delivery records (carrier tracking numbers)
  • Exemption certificates (state-specific forms)
  • Marketplace transaction reports
  • Sales tax returns and payment confirmations

How to handle past noncompliance

If you discover you should have been registered in a state:

  • Don’t ignore it. Contact the state’s voluntary disclosure or amnesty program first—these programs reduce penalties if you come forward voluntarily. State websites and the Tax Foundation describe many of these options.
  • Work with a tax professional to estimate potential liabilities and to negotiate lookback periods.

Practical tips from experience

  • Automate early. When you begin selling into multiple states, automation saves time and reduces mistakes.
  • Build nexus monitoring into your accounting close process. Add a simple report that flags states where you exceed $50k or 100 transactions as an early warning.
  • Maintain a central document with your sales tax permit numbers, filing frequencies, and last-filed dates.
  • For high-growth sellers, plan for nexus reviews quarterly—not annually.

State-by-state differences to watch

  • Thresholds vary widely. Many states set $100,000 or $200,000 in sales, or use a transaction-count metric; others use different thresholds or include marketplace facilitator sales in unique ways. Always confirm with the state revenue department.
  • Taxability rules differ by product: clothing, digital goods, and services are taxed differently across states.
  • Sourcing rules (origin vs. destination) determine which jurisdiction gets the tax; most states use destination-based sourcing for sales tax, but verify the state’s rule.

Useful resources

  • IRS: Sales and Use Tax—overview of federal posture and links to state resources (IRS.gov).
  • Tax Foundation: state-by-state guides and summaries of economic nexus rules (taxfoundation.org).
  • U.S. Small Business Administration: resources for registering and managing state requirements (sba.gov).

Internal resources on FinHelp

Frequently asked questions

Q: What triggers nexus after Wayfair?
A: Economic activity (sales dollars or transaction counts), physical presence, affiliate relationships, or inventory presence can each trigger nexus. The Wayfair decision allows states to assert nexus based on economic presence.

Q: Do marketplaces collect sales tax for me?
A: Many states require marketplace facilitators to collect and remit sales tax on sales made through their platforms, but sellers should confirm marketplace policy and state requirements; sellers may still need to register for certain reporting or exemption documentation.

Q: Can I be held retroactively responsible?
A: States can assess liability for prior periods, but many offer voluntary disclosure programs that limit penalties. The lookback period and penalty relief depend on state policy.

Professional disclaimer

This article is educational and does not constitute legal, tax, or accounting advice for your specific circumstances. Rules change frequently and state-specific facts matter. Consult a qualified tax professional or state department of revenue for guidance tailored to your business.

Sources and further reading

Author note: In my practice advising online sellers for over a decade, early monitoring and automation consistently reduce audit exposure and administrative cost. If you’re approaching nexus thresholds in multiple states, consider a short consultation with a sales tax specialist to scope registration and filing requirements.