State Sales Tax Nexus: When Remote Sales Require Registration

Overview

Remote sellers must register for sales tax in a state once they have established “nexus” there — a legal connection that creates an obligation to collect and remit the state’s sales tax. Nexus can come from physical activities (employees, inventory, offices) or from economic activity (sales revenue or number of transactions) after the Supreme Court’s South Dakota v. Wayfair decision (2018). States have different thresholds and rules, so many remote sellers that never had a physical presence now face multistate registration responsibilities (South Dakota v. Wayfair, 138 S.Ct. 2080 (2018); National Conference of State Legislatures).

How do states establish nexus for remote sellers?

States generally rely on several common nexus triggers. A single state may use more than one trigger to determine whether you must register.

• Physical presence: Employees, independent contractors, sales reps, inventory in a warehouse, a retail location, or even a temporary trade show can create nexus.
• Economic nexus: Most states adopted rules after Wayfair that require sellers to register when sales in the state exceed a dollar threshold (commonly $100,000 or $500,000) or a transaction-count threshold (commonly 200 transactions). Exact numbers vary by state and can change; confirm with each state’s department of revenue or via the NCSL nexus summaries.
• Marketplace facilitator rules: Many states require online marketplaces (Amazon, Etsy, etc.) to collect and remit sales tax on behalf of sellers. That may relieve marketplace sellers from collecting tax, but you must confirm liability and reporting requirements in each state (see marketplace facilitator rules).
• Affiliate, click-through, and agent nexus: Having affiliates or agents in a state who drive sales to you can create nexus under affiliate or click-through statutes.
• Economic presence via digital goods or services: States differ on taxing digital products and SaaS; nexus can apply depending on where customers are located and how states tax those items.

(Authoritative sources: NCSL, state departments of revenue, South Dakota v. Wayfair.)

Practical signs you’ve crossed a nexus threshold

• Your gross sales (not net profit) into the state exceeded the state’s published dollar threshold or transaction threshold for the look-back period.
• You store inventory in a third-party fulfillment center (e.g., FBA warehouses) located in the state.
• You regularly send employees or contractors to the state for work or meetings.
• You advertise heavily or have affiliates/partners in the state that drive sales.
• You received a notice from the state asking you to register or to provide sales information.

In my practice working with e-commerce clients, the most common surprises are inventory in out-of-state warehouses and marketplace sales. Businesses often assume a marketplace collects all taxes — but reporting, exemptions, or seller notification rules can still create obligations on the seller’s side.

Steps to confirm and comply with nexus obligations

1. Map sales by state and the number of transactions. Use your payment processor, platform exports, or accounting software to get gross sales and transaction counts by state for the last 12 months.
2. Compare those totals to each state’s economic nexus thresholds. Because thresholds and definitions differ, check the state’s department of revenue website or a current NCSL summary.
3. Identify physical presence triggers (warehouses, employees, trade shows, brick-and-mortar activity) and any affiliate arrangements.
4. Confirm whether the state requires marketplace facilitators to collect tax. If a marketplace collects tax on your behalf, you may still need to register for reporting or exemption reasons.
5. If nexus exists, register with the state’s tax authority and begin collecting tax on taxable sales from the registration date or the state-specified start date.
6. File returns and remit collected tax according to the state’s filing frequency.
7. If you believe you have unreported nexus in prior periods, evaluate voluntary disclosure agreements (VDAs) with the state to limit look-back liability.

Voluntary disclosure agreements (VDAs) and look-back periods

If you discover past nexus that triggered uncollected tax, look into a voluntary disclosure agreement. Many states offer VDAs that reduce or eliminate penalties and limit the number of years they will assess back taxes — often to three or four years, depending on the state. Without a VDA, states may pursue longer look-back periods and full penalties. Always consult a state-specific resource and a tax professional before applying (see your state’s department of revenue).

Marketplace facilitators and who actually collects tax

A major practical change since Wayfair is the rise of marketplace facilitator laws. Over 40 states require marketplaces to collect and remit sales tax for sales made through their platforms. If your sales run through a marketplace that collects tax on your behalf, you may not need to collect sales tax directly — but you still need to determine registration and reporting obligations, especially when marketplaces provide gross sales reports or when you sell off-platform.

For a deeper look at how marketplaces affect collection duties, see our guide: Marketplace Facilitator Rules: Who Collects and Remits Sales Tax?.

Sample compliance timeline after crossing a threshold

• Day 1–30: Confirm sales and transactions that triggered nexus. Document your method and source data.
• Day 31–60: Check state rules; register for a sales tax permit where required. Decide whether to file a VDA for past periods.
• Month 2–3: Implement collection in your shopping cart and accounting system. Update invoices and tax collection settings.
• Ongoing: File returns, reconcile collected tax, and schedule quarterly nexus reviews.

Common mistakes and how to avoid them

• Mistaking marketplace coverage for full compliance. Verify whether the marketplace’s collection relieves your registration duty.
• Relying on blanket thresholds without checking recent state changes. States update rules; use authoritative sources such as NCSL and state departments of revenue.
• Forgetting inventory in third-party warehouses. Fulfillment centers commonly trigger nexus.
• Waiting to register until you get a state notice. Proactive registration or a VDA is usually cheaper than waiting for an audit.

Practical tools and professional strategies

• Use automated sales-tax engines (Avalara, TaxJar, Vertex) to calculate taxes and flag nexus triggers.
• Schedule quarterly nexus reviews with your bookkeeper or CPA.
• Maintain clean, auditable records of sales by state and proof of shipping destination for each order.
• Consider a VDA if you have significant back-tax exposure and want to control the look-back period.

For more on multistate registration processes, see: Multi-State Sales Tax Registration: When You Need to Register.

Examples (illustrative)

• An online seller uses a national fulfillment network and stores inventory in a warehouse in Ohio. Even though the seller has no employees in Ohio, the inventory location creates nexus; the seller must register, collect Ohio sales tax, and file returns.
• A digital service provider sells subscriptions nationally and exceeds $100,000 in gross sales in State X during a 12-month period. State X’s economic nexus rule requires registration once that threshold is crossed.

These illustrations are simplified — each state’s statute and administrative rules determine the outcome.

Resources and authoritative references

• South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018) — Supreme Court decision that allowed states to require sales-tax collection based on economic activity.
• National Conference of State Legislatures (NCSL) — State summaries on economic nexus and marketplace facilitator laws (https://www.ncsl.org/).
• Your state department of revenue website — for exact thresholds, registration procedures, and filing frequencies.

Final takeaways

State sales tax nexus determines when a remote seller must register, collect, and remit sales tax. After Wayfair, economic activity alone can create nexus, so remote sellers should track gross sales and transaction counts by state, monitor physical-presence triggers (inventory, employees, contractors), and confirm marketplace facilitator rules. In my practice, clients who run automated nexus scans, keep clean state-level sales records, and consult a tax professional save the most on penalties and surprises.

Professional disclaimer: This article is educational and not a substitute for personalized tax or legal advice. Consult a CPA or tax attorney for guidance on your specific facts and state law.