Quick overview

Service-based businesses often assume “services are exempt,” but state rules vary widely. Since the Supreme Court’s decision in South Dakota v. Wayfair, Inc. (2018), states can require out-of-state sellers and service providers to register and collect sales tax if they meet economic presence tests. That ruling shifted the landscape for remote and digital service providers and made understanding registration triggers essential for compliance (South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018)).

The rest of this article breaks down the common triggers, how to check whether they apply to your business, registration steps, recordkeeping needs, and practical strategies to reduce risk. This is educational information and not individualized tax advice—consult a tax professional or state department of revenue for your facts and circumstances.

Key state registration triggers (at a glance)

  • Economic nexus (sales or transaction thresholds in a state).
  • Physical presence (office, employees, inventory, or sales representatives).
  • Taxable services (states that specifically tax certain service categories).
  • Selling tangible goods or bundled taxable goods with services.
  • Marketplace facilitator rules (the platform collects tax for you in many states).
  • Click-through, affiliate, or marketplace nexus (some states still have these rules).

Each state writes its own rules and many use a combination of triggers.

1) Economic nexus (remote/economic presence)

What it is: Economic nexus means you can create a sales tax obligation without any physical presence simply by making enough sales into a state. Most states adopted economic nexus tests after Wayfair.

Typical thresholds: Many states set a threshold such as $100,000 in sales or 200 separate transactions in a 12-month period, but thresholds and measuring periods vary. Some states use only a dollar threshold; others add transaction-count triggers. Always check the specific state law and effective date.

How to determine exposure:

  • Aggregate all your remote sales into the state (including digital services, where taxable).
  • Use a rolling 12-month period if the state requires it (common).
  • Include sales made through third-party marketplaces in states where marketplace sales are counted toward your threshold, unless the marketplace law shifts collection to the platform.

Source: state department of revenue sites and compilations such as the Tax Policy Center provide state-by-state summaries (see Tax Policy Center: state nexus resources).

2) Physical presence and traditional nexus

Forms of physical presence that still trigger registration:

  • Office, storefront, warehouse, or storage of inventory.
  • Employees, contractors, or sales agents working in the state.
  • Regular in‑state trade shows, repair visits, or installation services.
  • Ownership of tangible personal property located in-state (e.g., samples).

Even occasional activity can create nexus in some states. For example, sending an employee to do training or installation may create a registration obligation if frequent or ongoing.

3) Taxable service categories and state-specific rules

States vary about which services are taxable. Examples:

  • Frequently taxable: repair services, cleaning services, landscaping in some states, admissions and hotel services.
  • Frequently exempt: professional services (legal, accounting) in many states, but not universally.

If your service is taxable where the customer is located, that typically creates the need to register and collect sales tax on those transactions.

Tip: Review your primary service offerings and check state taxable services lists (department of revenue websites) before assuming exemption.

4) Selling goods, bundling, or delivering tangible items

If you sell tangible products as part of your service bundle (e.g., a salon that provides products, a consultant who sells printed workbooks, a web designer who sells hosting and physical media), those sales can trigger registration. States often tax the tangible portion, and some apply tax to bundled sales under specific sourcing rules.

When you bundle taxable goods with non-taxable services, you must determine if the state treats the sale as a single taxable transaction or separates components for tax purposes. That treatment affects registration and collection.

5) Marketplace facilitator laws and platforms

Many states now require marketplace platforms (Amazon, Etsy, Fiverr, etc.) to collect and remit sales tax on behalf of third-party sellers. If you sell through a facilitator, the platform may already collect tax, reducing your registration obligations in that state—but not always for service sales.

Check both the marketplace’s collection policies and the state’s facilitator law. Even when a marketplace collects tax, you may still need to register for reporting in some states.

6) Affiliate/click-through and agent nexus

Some states assess nexus if you have affiliates or independent contractors who refer customers or maintain an online presence that links to your services. These affiliate or agent nexus rules are less common after widespread economic nexus adoption, but they still exist in some jurisdictions.

Practical steps to determine if you must register

  1. Map where your customers are located. Break down revenue and transactions by state (use your accounting software or payment processor reports).
  2. Review each state’s nexus and taxable services rules (state department of revenue websites provide guidance and registration portals).
  3. Add marketplace sales and any third-party platforms to your totals when states include them in nexus tests.
  4. Track a rolling 12-month sales total if required by the state.
  5. If you have employees, inventory, or contractors in a state, assume a potential physical presence nexus and verify state thresholds.
  6. When in doubt, register early. Some states offer voluntary disclosure programs to limit penalties for late registration; registration often costs very little but reduces audit exposure.

Internal resources on our site:

How to register and what to expect after registration

  • Registration: Use the state department of revenue website to register for a sales and use tax permit. Many states allow online registration and immediate permit numbers.
  • Filing frequency: States assign a filing frequency (monthly, quarterly, annual) based on your tax liability. Late or missed filings attract penalties and interest.
  • Collecting tax: Once registered, you must collect the correct sales tax rate for the customer’s location using state and local rates. Rates and sourcing rules differ by state.
  • Remittances and returns: File returns and remit collected tax on schedule. Keep clear records tying collections to customer invoices.

Recordkeeping and systems

  • Maintain customer invoices with location, service description, tangible good line items (if any), and tax collected.
  • Use accounting software that supports multistate tax calculations or a sales tax automation tool—this reduces errors and simplifies rate sourcing at the local level.
  • Keep backup documentation for exemptions (resale certificates, exempt organization letters).

Common mistakes and how to avoid them

  • Assuming all services are exempt: Always check state-specific taxable services lists.
  • Ignoring marketplace rules: Platforms may or may not cover service transactions—confirm with your marketplace and state law.
  • Poor recordkeeping: Without clear records you’ll face difficulty defending tax positions during audits.
  • Failing to include marketplace or marketplace-facilitated sales in threshold calculations where required.

Real-world examples (brief)

  • A marketing firm that started selling printed materials and promotional products reached a state economic threshold and was required to register—after reviewing receipts and marketplace activity, they corrected filings and enrolled in a voluntary disclosure to limit penalties.
  • An IT consultant with an out-of-state contractor who installed hardware triggered nexus in the contractor’s state because of regular installation visits; once aware, the firm registered and collected sales tax on taxable installation services.

Penalties and audits

Consequences for failure to register can include back taxes, penalties, interest, and in some states, criminal sanctions for willful noncompliance. States are increasingly using data-sharing and marketplace records to identify noncompliant sellers. If you receive a notice, respond promptly and seek tax professional help.

When to consult a professional

  • You sell in many states or through multiple marketplaces.
  • Your services cross the line between exempt and taxable (bundles, digital products, SaaS).
  • You’ve received a state audit notice or a demand for back taxes.

A CPA or sales-tax specialist can perform a nexus study, recommend registration timing, and assist with voluntary disclosure agreements.

Useful authoritative sources

  • South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018) (U.S. Supreme Court decision allowing economic nexus).
  • State Department of Revenue websites (search the specific state for current nexus and taxable services guidance).
  • IRS — general business guidance (https://www.irs.gov) for business tax structure and federal filing.
  • Tax Policy Center — state sales tax summaries and analysis (https://www.taxpolicycenter.org).

Professional disclaimer

This content is educational and general in nature. It does not constitute tax or legal advice for any individual or business. For guidance tailored to your facts, consult a licensed CPA, tax attorney, or the state department of revenue.

Need help choosing the right next step? Start by running a 12-month sales and transaction report from your payment processor, compare totals against the states where you sell, and consult a sales-tax specialist if you cross any state threshold.