Quick overview

State sales tax nexus determines when a remote seller must collect and remit state (and local) sales tax. After the U.S. Supreme Court’s South Dakota v. Wayfair, Inc. decision (2018), states gained authority to set economic thresholds that create nexus without a physical presence (South Dakota v. Wayfair, 2018). The practical outcome: many remote sellers who never set foot in a state still must register, collect, and remit sales tax once thresholds are met.

How nexus works in plain language

Nexus is a legal connection between your business and a state that gives the state the right to tax your sales. For remote sellers, the two most common paths are:

  • Economic nexus: Triggered by a dollar-sales threshold, a transactions-count threshold, or both. Many states use thresholds such as $100,000 in sales or 200 transactions over the prior 12 months, but thresholds differ by state and change over time (Avalara; state tax departments).
  • Physical nexus: Triggered by a tangible presence such as inventory stored in a third-party warehouse (including fulfillment by Amazon), employees or contractors working in the state, an office, or attending regular trade shows.

Both paths can exist simultaneously; once nexus exists you generally must register for a sales tax permit, collect applicable tax on taxable sales, file periodic returns, and remit the tax.

Practical, step-by-step compliance process (what I use with clients)

Below are repeatable steps to evaluate nexus and stay compliant. In my practice advising small and mid-sized e-commerce businesses, following this checklist upfront prevented costly back tax assessments and simplified bookkeeping.

  1. Build a state-by-state nexus profile
  • Start with a list of states where you ship goods or provide taxable services.
  • For each state, record the current economic nexus rules (dollar threshold, transaction threshold) and physical presence triggers. State rules change, so check the state revenue department site quarterly.
  1. Track sales and transactions continuously
  • Use your payment processor, shopping cart reports, or accounting software to log gross sales and transaction counts by state on a rolling 12-month basis.
  • If you use marketplaces (Amazon, eBay), determine whether the marketplace or you are responsible for collection under the state’s marketplace facilitator law.
  1. Determine the exact date nexus is met
  • Calculate the point when your rolling totals cross a state’s threshold. That date usually determines when you must start collecting sales tax and when registration is required.
  1. Register for a sales tax permit
  • Register with the state’s Department of Revenue / Taxation or business portal to obtain a seller’s permit or sales tax account number. Most states allow online registration; processing times vary from immediate to several weeks.
  1. Collect sales tax correctly
  • Apply the correct tax rate for the sale location — this may mean state rate plus county/city/local rates. Use a tax engine or certified rate table to calculate the combined rate at the delivery address.
  1. File returns and remit on schedule
  • Returns may be monthly, quarterly, or annual depending on volumes and state rules. File timely, even if you had zero taxable sales in a period, if the state requires a return.
  1. Maintain records and exemption documents
  • Keep invoices, transactional logs, resale certificates, exemption certificates, and shipping evidence for at least three to seven years as required by state law.
  1. Address nexus created by inventory and third-party fulfillment
  • Inventory stored in a third-party warehouse or a third-party logistics (3PL) provider in another state commonly creates nexus. Identify which warehouses your inventory touches and register accordingly.
  1. Consider voluntary disclosures for past noncompliance
  • If you discover past unregistered nexus and unpaid tax, many states offer voluntary disclosure agreements (VDAs) to limit lookback periods and reduce penalties. Consult a tax advisor before filing.

Examples and common state thresholds (illustrative only)

Thresholds vary and change often. Examples frequently cited across states include:

  • California: $500,000 in annual sales (check CA Dept. of Tax and Fee Administration for current guidance).
  • Texas: $500,000 in annual sales (Texas Comptroller website).
  • New York: economic-nexus criteria may include a sales threshold and transactional tests depending on the product/service and period (check NY Department of Taxation and Finance).
  • Florida: implemented economic nexus rules effective in recent years with a lower threshold in some cases.

Note: These figures are examples to illustrate variation; always verify current thresholds directly on the state’s revenue website or a trusted tax compliance source such as Avalara or the Streamlined Sales Tax Governing Board.

Marketplace facilitators and remote sellers

Most states now have marketplace facilitator laws that require large marketplaces (Amazon, Etsy, etc.) to collect and remit sales tax on behalf of third-party sellers for marketplace sales. That shifts collection responsibility, but you must still monitor whether the marketplace or you are collecting and whether the marketplace’s collection covers all taxable sales in that state. See FinHelp’s guide on Marketplace Facilitator Rules for further details: Marketplace Facilitator Rules: Who Collects and Remits Sales Tax?.

Tools, automation, and practical software tips

  • Use a tax engine that integrates with your shopping cart and shipping addresses to calculate rates at the point of sale. This avoids under- or over-collecting tax.
  • Reconcile sales tax collections monthly to identify discrepancies quickly.
  • Track inventory locations inside your accounting system so you can spot nexus events caused by stock movements.
  • For multi-state operations, follow our practical guide on maintaining compliance nationwide: How to Maintain Sales Tax Compliance When Selling Online Nationwide.

In my experience, automation plus a quarterly nexus review reduces audit risk and saves hours during tax season.

Common mistakes I see

  • Relying on gross gateway data without identifying ship-to addresses; nexus is based on destination states.
  • Assuming marketplace facilitator coverage applies to all channels or product types.
  • Forgetting to register in a state after inventory moves to a new warehouse or when a remote employee starts supporting orders.
  • Not keeping resale certificates and exemption documentation organized — states audit these closely.

Handling audits and voluntary disclosures

If a state contacts you about uncollected sales tax, respond promptly and consult a specialist. Many businesses reduce exposure through voluntary disclosure agreements (VDAs) that cap the lookback period and may reduce penalties. The specifics differ by state, and acceptance is not guaranteed.

Quick checklist to implement this week

  • Pull a rolling 12-month sales by ship-to state report.
  • Identify any marketplace sales and whether the marketplace collects tax.
  • Confirm the physical location of inventory and any in-state personnel.
  • If any state threshold was met, register immediately and begin collecting from the effective date.
  • Set up automated sales-tax calculation and monthly reconciliation.

Further reading and related FinHelp articles

Frequently asked questions

Q: Do I owe tax in states where a marketplace collected on my behalf?
A: Generally, if a marketplace facilitator collected and remitted tax, you won’t need to collect it again for those marketplace sales. Confirm the marketplace’s reporting and whether it covers all taxable items for that state.

Q: If I missed registering last year, can I be charged for back taxes?
A: Yes. States can assess back taxes, interest, and penalties. Many states offer VDAs to limit exposure; contact a tax advisor to evaluate options.

Q: Are services taxed the same as goods?
A: No. Taxability of services varies dramatically by state. Some states tax certain digital and professional services; others do not. Consult state rules.

Authoritative sources and where to verify rules

  • South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018).
  • State Departments of Revenue / Taxation websites (for current nexus thresholds and registration portals).
  • Avalara, sales tax guides and state summaries (regularly updated).

This article is an educational guide based on industry practice and my experience advising remote sellers and e-commerce businesses. It is not legal or tax advice. For a tailored analysis of your situation, consult a licensed tax professional or state revenue department.

Professional disclaimer

I am a financial content editor and tax practitioner with over 15 years working with small businesses and e-commerce sellers. This article is for general educational purposes and does not constitute legal, tax, or accounting advice. Always confirm thresholds and filing requirements directly with the relevant state revenue agency or a qualified tax professional.