The 2018 U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. fundamentally changed how states enforce sales tax collection for online commerce. Before this ruling, states could only require sellers with a physical presence, such as a store or warehouse, to collect sales tax within their borders. This allowed many online sellers without operations in a given state to avoid sales tax collection there.
Understanding Wayfair Nexus
Wayfair Nexus refers to the new standard states use to establish sales tax obligations on remote sellers based on “economic nexus.” This means a seller must collect and remit sales tax if they exceed certain sales or transaction volumes in that state, regardless of having a physical presence. These thresholds typically include dollar amount of sales and/or a number of transactions within a state annually.
How Economic Nexus Thresholds Work
States have enacted economic nexus laws that vary but commonly include thresholds such as $100,000 in sales or 200 separate transactions per year in the state. Once a seller surpasses such thresholds, they must register with the state tax department, collect appropriate sales tax from customers, file returns, and remit payments accordingly.
For example, if an online retailer based in Texas sells $150,000 worth of products to customers in California—which has a $500,000 sales threshold—they are below California’s threshold and do not need to collect sales tax there. However, if they exceed $500,000 in sales to California customers in a calendar year, they must comply with California sales tax collection requirements.
Who Must Comply?
- Online Sellers: Any business selling taxable goods or services online may trigger nexus obligations in multiple states.
- Marketplace Facilitators: Platforms like Amazon, Etsy, and eBay often handle sales tax collection on behalf of sellers using their sites, as states generally require marketplace facilitators to collect and remit sales tax.
- Buyers: Consumers may notice increased sales tax charges at checkout when sellers comply with nexus laws, affecting purchase prices.
Common Misunderstandings
- Physical presence is no longer the sole factor: Sellers without physical locations in a state may still have sales tax obligations due to economic nexus.
- Small sellers still need to monitor thresholds carefully: Some states have relatively low thresholds, and cumulative sales across multiple states can trigger multiple registrations.
- Non-collection risks: States increasingly use data sharing and audits to enforce compliance, so ignoring Wayfair Nexus rules can lead to penalties.
Managing Compliance
Sellers should:
- Use accounting or sales tax automation tools to track sales by state. Services like Avalara or TaxJar streamline compliance for multi-state sellers. Our glossary includes an entry on Online Sales Tax Management Software Deduction.
- Proactively register for sales tax permits before exceeding thresholds.
- Understand marketplace rules if selling via platforms.
Economic Nexus Thresholds Sample Table
| State | Sales Threshold | Transaction Threshold |
|---|---|---|
| California | $500,000 | N/A |
| Texas | $500,000 | N/A |
| New York | $500,000 AND 100 sales | 100 sales |
| Florida | $100,000 | N/A |
| Illinois | $100,000 OR 200 sales | 200 sales |
Note: These thresholds are subject to change. Always verify with state tax authorities for the most current rules.
Additional Resources
For detailed state-specific requirements, refer to state revenue department websites or IRS guidance on sales tax collection after Wayfair (see IRS State Sales Tax Collection Guidelines).
Understanding Wayfair Nexus is essential for any online seller navigating multi-state sales tax compliance in 2025 and beyond. Staying informed, organized, and using modern tax tools reduces audit risks and helps avoid costly penalties.
