Sales Tax Nexus: When Online Sellers Must Collect Tax

Since the landmark 2018 Supreme Court ruling in South Dakota v. Wayfair, online sellers can be required to collect sales tax in states where they have no physical presence. This concept of economic nexus means that reaching a threshold of sales volume or transaction count in a state creates an obligation to register, collect, and remit sales tax there. For e-commerce sellers, understanding nexus rules is essential to staying compliant and avoiding penalties.

Physical vs Economic Nexus

Physical nexus exists when you have a tangible presence in a state such as an office, warehouse, employee, or inventory. Economic nexus is triggered purely by sales activity. Most states set their economic nexus threshold at 100,000 dollars in sales or 200 transactions within the state during the current or prior calendar year. Some states use only the dollar threshold while others use both. Five states have no state sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.

Common State Thresholds

• Most states: 100,000 dollars in sales or 200 transactions
• California, New York, Texas: 500,000 dollars in sales
• Some states measure on a rolling 12-month basis rather than calendar year
• Thresholds may include or exclude marketplace sales depending on the state

Marketplace Facilitator Laws

If you sell through Amazon, Etsy, eBay, or similar marketplaces, the marketplace is generally responsible for collecting and remitting sales tax on your behalf. Nearly all states with sales tax have enacted marketplace facilitator laws. However, you may still need to register in some states and you remain responsible for sales made through your own website. Understanding which sales the marketplace handles and which are your responsibility is critical.

Getting and Staying Compliant

Start by determining where you have nexus using your sales data broken down by state. Register for a sales tax permit in each nexus state before you begin collecting. Use tax automation software like TaxJar, Avalara, or the built-in tools on platforms like Shopify to calculate the correct rate for each transaction. File returns on time in each registered state because late filing penalties apply even when the amount due is zero.

Economic Nexus Thresholds After South Dakota v. Wayfair

The 2018 Supreme Court decision in South Dakota v. Wayfair (138 S.Ct. 2080) overturned the physical-presence requirement of Quill Corp. v. North Dakota and authorized states to require sales tax collection from out-of-state sellers based purely on economic activity. Within three years every state with a sales tax had enacted economic nexus legislation. The standard threshold, following the South Dakota template, is $100,000 in gross sales OR 200 separate transactions into the state in a calendar year — but two dozen states have diverged from that standard.

Threshold Variations That Trip Up Sellers

• California, Texas, New York: $500,000 in gross sales (higher threshold, no transaction count)
• Tennessee: $100,000 gross only (no transaction count trigger)
• Kansas: $100,000 gross only, following 2021 reform that dropped the 200-transaction trigger
• Several states count 'retail sales' only; others count gross including exempt sales — Alabama includes exempt wholesale in the threshold
• Some states use a rolling 12-month period; others use prior-or-current calendar year
• Thresholds are evaluated per state, not aggregate — $90,000 into each of 40 states is zero nexus, zero collection obligation

Marketplace Facilitator Laws

Forty-six states plus DC now require marketplace facilitators (Amazon, eBay, Etsy, Walmart Marketplace) to collect and remit sales tax on behalf of third-party sellers. A seller's sales through Amazon FBA in a marketplace-facilitator state do not count toward the seller's own nexus threshold in most states — Amazon handles the collection. But sales through the seller's own website (Shopify, WooCommerce) DO count toward the economic nexus threshold. A seller with $300,000 of Amazon FBA sales to Texas and $50,000 of Shopify direct sales to Texas has zero personal Texas nexus — Amazon collects on $300,000 and the $50,000 direct is under the $500,000 threshold.

Registration, Collection, and the SSUTA Shortcut

Once nexus triggers in a state, the seller must register for a sales tax permit, collect tax at the correct rate (state + local + special district) on every taxable sale, file returns on the state's schedule (monthly, quarterly, or annually depending on volume), and remit collected tax. The Streamlined Sales and Use Tax Agreement (SSUTA) offers one-registration-for-24-states simplification through the Streamlined Sales Tax Registration System (SSTRS). Non-SSUTA states require individual state registration. Tools like TaxJar, Avalara, and Stripe Tax automate rate calculation and filing — typical cost $50-$500/month depending on transaction volume.

References

• Sales Tax Institute: Economic Nexus State Guide (salestaxinstitute.com/resources/economic-nexus-state-guide)
• Supreme Court: South Dakota v. Wayfair Inc., 585 U.S. (2018)

Key Takeaways

• Economic nexus thresholds trigger sales-tax registration when an online seller crosses a state-specific revenue or transaction count.
• Most states use $100,000 gross revenue OR 200 transactions; some (California, Texas, NY) use $500,000 revenue only.
• Physical nexus still applies — inventory in an Amazon FBA warehouse creates nexus even without economic thresholds.
• Marketplace Facilitator laws shift collection responsibility to platforms (Amazon, Etsy, eBay) in 45+ states.
• Once registered, sellers owe periodic returns even in months with zero sales — missing returns trigger late-filing penalties.

Common Mistakes to Avoid

• Ignoring FBA inventory location reports — Amazon stores goods in 20+ states, each creating physical nexus.
• Registering in every state defensively instead of reviewing actual sales thresholds — overhead kills small-seller margins.
• Collecting sales tax in a state without a valid permit — that's unauthorized collection, a separate violation.
• Forgetting the sourcing rule (origin vs destination) for each state when calculating the rate to charge.
• Failing to file a final 'zero' return after closing a store, leaving the account open and accruing minimum-tax liens.

Quinn's Shopify Store: The Day She Crossed Nexus in 12 States

Quinn R. is a single filer in Florida who runs an online home-goods store on Shopify. 2025 revenue hit $92,000 across customers in all 50 states. She discovered mid-year that she had crossed economic nexus thresholds in 12 states, triggering sales-tax-collection obligations she had been ignoring — and back-taxes owed in at least four of them for the first six months of the year.

• Gross revenue 2025: $92,000 across ~3,800 orders
• States with $100K OR 200-transaction threshold (most common): crossed in CA, TX, NY, PA, IL, OH, GA, MI, NJ, VA, WA, MA
• California nexus triggered by transaction count (>200) even though revenue was only $8,200 there
• Sales tax rates: range from 6% (PA, MI) to 9.25%+ (TN combined) — weighted average ~7.3%
• Back-tax owed (Jan–June, uncollected): ~$2,840 — must come from Quinn's pocket since customers already paid tax-exclusive prices
• Registration in each state: $0 to $50 one-time fee + monthly or quarterly return
• Automation cost: TaxJar/Avalara subscription $1,200/year to handle ongoing compliance

Economic nexus post South Dakota v. Wayfair (2018) is triggered by either dollar revenue or transaction count in most states — and the rules vary state by state. Small online sellers routinely underestimate how quickly the thresholds are crossed. The remediation playbook: register retroactively in states where nexus was crossed, file Voluntary Disclosure Agreements (VDAs) which often waive penalties for volunteers, and automate collection going forward so every outbound order is already tax-compliant.

Worked Example: Juniper D.'s Etsy Shop Triggers Wayfair Nexus

Juniper D. (MFS, Kentucky, $95,000 combined with a small shop) sells handmade goods to all 50 states through Etsy. Post-Wayfair (South Dakota v. Wayfair, 2018), states can require sales tax collection from remote sellers who cross economic-nexus thresholds - typically $100,000 in sales or 200 transactions in a state per year.

• Juniper's 2024 sales: $180,000 gross across all states combined.
• Most states use either $100,000 in sales or 200 transactions as the trigger; some use combined AND or OR tests.
• Her direct-to-consumer sales cross only a handful of state thresholds - she registers in those states.
• Etsy collects and remits sales tax as a marketplace facilitator in nearly every state with sales tax.
• Registration costs: typically $0 to $100 per state; compliance complexity is the real cost.

Juniper's direct-to-consumer sales off Etsy still need nexus tracking where thresholds are crossed. Marketplace facilitator laws (in force in nearly every state with sales tax by 2024) shift collection to the platform - the taxpayer still may owe registration depending on state rules. Streamlined Sales Tax Project resources and each state DOR site are where thresholds live. The Wayfair decision did not change income tax nexus, only sales tax.