Selling online to customers across the country is easy. Knowing where you must collect sales tax is not. Sales tax nexus is the connection with a state that requires a business to register, collect sales tax and file returns there, and getting it wrong can leave an e-commerce seller owing years of uncollected tax, penalties and interest.
Key takeaways
- Nexus is the connection that obliges a seller to collect a state’s sales tax.
- You can create nexus through a physical presence or through sales volume (economic nexus).
- Since South Dakota v. Wayfair (2018), every state with a sales tax has an economic nexus rule for remote sellers.
- Once you have nexus, register with the state revenue department before you start collecting.
What Is Sales Tax Nexus?
Nexus is a legal term for a business’s connection to a state. When that connection is strong enough, the state can require the business to collect its sales tax on sales to customers in the state. Without nexus, a state generally cannot make an out-of-state seller collect its tax.
Nexus is decided state by state. A seller based in Ohio might have nexus in Ohio, Texas and California but not in Vermont, which means it must collect sales tax on orders shipped to the first three states only.
Physical Nexus
The traditional test is physical presence. Common ways to create physical nexus include:
- An office, store, warehouse or other location in the state
- Employees, sales representatives or contractors working in the state
- Inventory stored in the state, including inventory held in a third-party fulfillment warehouse
- Regularly attending trade shows or delivering goods with your own vehicles
Inventory is the one many e-commerce sellers miss. If a fulfillment service stores your products in a warehouse in another state, that inventory can create physical nexus there.
Economic Nexus After South Dakota v. Wayfair
In 2018, the US Supreme Court decided South Dakota v. Wayfair, Inc. and ruled that states can require remote sellers to collect sales tax based on their sales into the state, even with no physical presence. Every state with a statewide sales tax has since adopted an economic nexus threshold.
Thresholds differ by state and change over time. Many states use $100,000 in annual sales into the state; some also count the number of transactions, and others set a higher dollar amount. Examples:
| State | Economic nexus threshold (remote sellers) |
|---|---|
| California | More than $500,000 in sales of tangible goods delivered in California in the current or preceding calendar year, including marketplace sales |
| Texas | $500,000 or more in total Texas revenue in the preceding 12 months, including marketplace, nontaxable and resale sales |
| New York | More than $500,000 in gross receipts and more than 100 sales in the preceding four sales tax quarters |
| Florida | More than $100,000 in taxable remote sales in the previous calendar year |
For every state, see our economic nexus thresholds by state (2026) table.
Always confirm the current threshold, the measurement period and which sales count on the state revenue department’s website before relying on it.
Marketplace Facilitator Laws
If you sell through a marketplace such as Amazon, Etsy or eBay, marketplace facilitator laws usually require the marketplace to collect and remit sales tax on your marketplace sales. That reduces your workload, but it does not always remove your obligations. Sales through your own website still count, and some states include marketplace sales when deciding whether you meet their threshold.
What to Do When You Have Sales Tax Nexus
- Register for a sales tax permit with the state revenue department before collecting tax. See how to get a sales tax permit.
- Charge the correct rate for each order. Most states use destination-based sourcing, so the rate depends on the local tax jurisdiction of the shipping address.
- Know what is taxable in that state, including shipping charges and digital products.
- Collect exemption and resale certificates from customers who buy tax-free.
- File and remit on the schedule the state assigns, even when you owe nothing, if the state requires it.
About two dozen states belong to the Streamlined Sales Tax agreement, which standardizes registration, rate files and definitions and can simplify multistate compliance.
Real-World Example
An online candle shop based in Oregon, a state with no sales tax, sells $120,000 a year to customers in Florida and $300,000 to customers in California through its own website. It stores no inventory outside Oregon. Using the thresholds above, the shop has economic nexus in Florida (over $100,000) but not in California (under $500,000). It must register in Florida and collect Florida sales tax and county surtax on orders shipped there, but it does not yet need to collect California tax.
What Happens If You Ignore Nexus?
States audit remote sellers and can assess the tax you should have collected, plus penalties and interest, often for several years back. Because you did not collect the tax from customers, it usually comes out of your own margin. Many states offer voluntary disclosure programs that can limit back taxes and waive some penalties if you come forward first.
Conclusion
Sales tax nexus determines where an e-commerce business must register, collect and file. Review your physical presence and your sales into each state at least once a year, and when you cross a threshold, register before collecting. Once you are collecting, use our sales tax calculator and rates by state to check the combined rate for your customers’ locations.
Frequently Asked Questions
What creates sales tax nexus?
Nexus can come from a physical presence in a state, such as an office, employees or inventory, or from economic activity, such as exceeding the state’s annual sales threshold for remote sellers.
What is economic nexus?
Economic nexus is an obligation to collect a state’s sales tax based on the amount of sales you make into that state, even if you have no physical presence there. States adopted it after the 2018 South Dakota v. Wayfair decision.
Does storing inventory in an Amazon warehouse create nexus?
Yes, inventory stored in a state, including in a third-party fulfillment center, generally creates physical nexus in that state.
If I sell on a marketplace, do I still need to worry about nexus?
Marketplaces usually collect tax on marketplace sales, but sales through your own website may still require you to register and collect, and some states count marketplace sales toward their thresholds.
What should I do after I discover I have nexus?
Register for a sales tax permit with the state before collecting tax. If you should have been collecting in the past, ask the state about its voluntary disclosure program.