Ecommerce sales tax nexus: when you have to collect in another state
Short answer: After South Dakota v. Wayfair, Inc. (2018), a state can require an out-of-state seller to collect its sales tax even if you have no physical presence there, once you meet that state’s economic-nexus rules. A physical presence, like inventory, employees or an office, can also create nexus. Thresholds and definitions differ by state and change over time, so check each state’s department of revenue.
What nexus means
Nexus is the connection with a state that lets it require you to register, collect its sales tax from buyers and file returns. If you sell online into many states, you can have nexus in some and not others.
Economic nexus
Before 2018, states generally needed a physical presence to make a remote seller collect. In Wayfair, the Supreme Court upheld a South Dakota law that applied to sellers with more than $100,000 of sales or 200 or more separate transactions into the state in a year. That was South Dakota’s law in that case. It is not the rule in every state today, and each state sets and updates its own test.
Physical presence still counts
- Inventory stored in a state, including inventory held in a third-party fulfillment warehouse
- Employees or contractors working in the state
- An office, store or other location
Any of these can create nexus on its own, whatever your sales into that state.
Marketplace sales
Many states have marketplace facilitator rules that put the collection duty on the marketplace for sales made through it. Whether those sales count toward your own threshold, and whether you still need to register, depends on the state.
How I’d check a state
- Pull your sales and transaction counts by state, and note where your inventory sits.
- Look up that state’s remote-seller guidance on its official tax site. A few examples: California (CDTFA), Texas Comptroller, New York sales tax.
- Register before you start collecting, then file on the schedule the state gives you.
The IRS does not run state sales tax. Each state, and sometimes a city or county, handles its own.
Firms on Sam’s List
If you want help with a nexus review or registrations, you can look at CPA on Fire and Purewater Financial, or browse sales tax accountants and ecommerce accountants.
Frequently asked questions
What is sales tax nexus?
It is the connection with a state that lets the state require you to collect its sales tax and file returns there.
Do I need a physical presence to have nexus?
No. Since South Dakota v. Wayfair (2018), a state can base nexus on your sales into the state. A physical presence such as inventory, employees or an office can also create it.
Is there one threshold for every state?
No. The South Dakota law in Wayfair used $100,000 in sales or 200 transactions, but each state sets and changes its own rules. Check the state’s department of revenue.
Does inventory in a fulfillment warehouse count?
It can. Inventory stored in a state is a common physical-presence trigger. Check that state’s guidance.
Is this tax advice?
No. This is general information, not tax or legal advice. Talk to a tax professional about your situation.
Related reading: ecommerce accountants, ecommerce bookkeepers, sales tax bookkeepers.
This page is general information, not tax or legal advice. State rules change; check the state’s official guidance or a tax professional.