Sales tax nexus is the legal connection between your business and a state that triggers an obligation to register, collect, and remit sales tax there. Since South Dakota v. Wayfair in 2018, that connection no longer requires a warehouse or an employee in the state. Selling products exceeding typical economic thresholds to customers there, working with an inventory partner, or simply crossing transaction counts can be enough.
Before you do anything else, check three things:
- Physical presence: Do you have an office, employee, contractor, or stored inventory in any state?
- Sales volume by state: Are your rolling 12-month sales or transaction counts approaching a state’s threshold?
- Marketplace and inventory activity: Are you selling through Amazon FBA, Walmart Marketplace, or a similar platform that stores your goods across state lines?
If you answered yes to any of these, you likely have nexus somewhere, and your state’s revenue department can confirm exactly what’s owed.
Key Takeaways
Sales tax nexus obligations follow economic activity, not just physical location, and tracking sales by state on a rolling 12-month basis is the most reliable way to avoid retroactive back taxes.
| Point | Details |
|---|---|
| Nexus is now activity-based | Wayfair (2018) allows states to tax remote sellers who cross economic thresholds, no office required. |
| Thresholds vary by state | Most use $100,000/200 transactions, but California, Texas, New York, Alabama, and Mississippi differ. |
| Marketplace sales don’t erase duties | Facilitator laws shift collection to platforms, but registration and reporting duties can remain with sellers. |
| Track rolling, not calendar | A 12-month rolling window catches threshold crossings that calendar-year tracking misses. |
| KelliWorks monitors and registers for you | Kelliworks handles state-by-state threshold tracking, registration timing, and ongoing filing for multistate sellers. |
Table of Contents
- What Is Sales Tax Nexus and What Are the Main Types?
- Why Did South Dakota v. Wayfair Change Nexus Law?
- What Business Activities Commonly Trigger Nexus?
- How Do States Set Economic Nexus Thresholds?
- What’s the Difference Between Origin and Destination Sourcing?
- How Do You Calculate Whether You’ve Crossed a State’s Threshold?
- What Happens After You Establish Nexus in a State?
- How Do Marketplace Facilitator Laws Affect Your Obligations?
- What Penalties and Mistakes Should You Watch For?
- How Do State Nexus Thresholds Compare?
- How Does an Accountant Evaluate Your Nexus Risk?
- A Small-Business Accounting View on Nexus
- Let KelliWorks Handle Your Multistate Sales Tax Exposure
- Authoritative Resources to Check Now
- Frequently Asked Questions
- Sources
What Is Sales Tax Nexus and What Are the Main Types?
Nexus comes in more than one flavor, and knowing which type applies to you determines what you need to do next.
Physical nexus is the original standard: an office, a warehouse, employees, contractors, or even a booth at a trade show in a state. Economic nexus is newer and now the more common trigger for online sellers. It’s based on dollar sales or transaction counts within a state, regardless of whether you’ve ever set foot there.
Two other categories matter for smaller sellers:
- Affiliate nexus applies when an in-state business or individual refers customers to you for a commission, creating a connection through that relationship.
- Click-through nexus is a variation where an in-state website links to your store and you pay for the referral.
- Marketplace facilitator nexus shifts collection duties to platforms like Amazon or Etsy, but doesn’t always eliminate your own registration or reporting obligations.
A seller with no office and no employees can still owe tax in multiple states purely through economic or marketplace-driven nexus.
Why Did South Dakota v. Wayfair Change Nexus Law?
Before 2018, the rule was simple and outdated: a state could only require sales tax collection from businesses with a physical presence there. South Dakota v. Wayfair overturned that standard, allowing states to tax remote sellers based on economic activity alone.
The practical fallout was immediate. States rushed to pass economic nexus laws, most modeled on South Dakota’s own rule with common sales or transaction thresholds within the state in a calendar year. Cross those numbers, and you owe tax there, even if you’ve never shipped a product from within its borders.
Picture an online furniture seller in Ohio with no employees outside the state. If that seller ships goods exceeding economic thresholds to Florida customers in a year, Florida can require registration and collection, purely because of the sales figure. The U.S. Chamber of Commerce frames this shift plainly: nexus now follows the sale, not the seller’s location.
What Business Activities Commonly Trigger Nexus?
Nexus often shows up in places business owners don’t expect. Here are the triggers we see most often with clients.
- Third-party warehouses. Amazon FBA and similar 3PL arrangements physically move your inventory across state lines without your direct involvement, and that stored inventory alone can create physical nexus in states you’ve never visited.
- Remote employees and contractors. A single remote salesperson, customer service rep, or even a contracted developer working from another state can establish nexus there.
- Temporary physical presence. Trade shows, pop-up shops, and seasonal kiosks count, even for just a few days a year in some states.
- Affiliate and referral relationships. Paying an in-state blogger or influencer a commission for sales can trigger affiliate nexus depending on the state’s rules.
Pro Tip: Track your sales on a rolling 12-month basis, not a calendar year. States can assess back taxes retroactively to the date you crossed the threshold, so waiting until January 1 to check your numbers can leave months of exposure you didn’t know about.
How Do States Set Economic Nexus Thresholds?
Most states settled on the South Dakota model with typical economic thresholds in sales or transactions in the current or prior calendar year. But “most” isn’t “all,” and the exceptions matter.
Some states set higher or different thresholds. For example, California and Texas use higher sales thresholds without transaction counts; New York requires both a higher sales figure and transaction count; and Alabama and Mississippi use different flat sales thresholds without transaction tests. According to Avalara’s state-by-state nexus guide, these variations are common enough that assuming every state follows the $100,000/200-transaction pattern is one of the fastest ways to miss an obligation.
A few details trip up otherwise careful sellers:
- Exempt sales sometimes still count. A state may count a wholesale or resale-exempt transaction toward your threshold even though no tax was collected on it.
- Marketplace sales often count too, even when the marketplace itself handles collection and remittance.
- Measurement windows vary. Some states use the current calendar year, others use the prior calendar year, and some use a rolling 12-month look-back.
Track your numbers on a rolling basis and you’ll rarely be caught off guard by a sudden retroactive assessment.
What’s the Difference Between Origin and Destination Sourcing?
Once you know where you owe tax, you need to know which rate applies, and that depends on whether the state uses origin-based or destination-based sourcing.
Origin-based states tax sales at the rate where the seller is located. Destination-based states, which make up the majority, tax based on where the buyer receives the goods. That means the same $80 sale might carry a 6% rate for one customer and an 8.75% rate for another, depending entirely on their ZIP code, not yours.
- A Texas seller shipping within Texas (origin-based) charges the same rate to every in-state buyer.
- That same seller shipping to California (destination-based) must apply the buyer’s local combined rate, which can include city, county, and district add-ons.
Pro Tip: If you sell into more than a handful of destination-based states, an automated rate calculation tool that works at the address level, not just the ZIP code level, will save you from misapplied local rates that can accumulate into real liability over time.
How Do You Calculate Whether You’ve Crossed a State’s Threshold?
Figuring out your exposure isn’t complicated, but it does require pulling the right numbers in the right order.
- Pull sales by ship-to state, not by billing address or business location.
- Include marketplace sales if the state counts them toward your threshold, even when the marketplace collects the tax.
- Include exempt sales if that state’s rule counts them (check before assuming they don’t).
- Choose your measurement window, ideally rolling 12 months rather than calendar year, to catch mid-year crossings.
Here’s how it plays out: say you sell $8,500 a month into Georgia through your own site and Amazon combined. By month 12, you’re at $102,000, over Georgia’s $100,000 threshold, even though no single month looked alarming. If your transaction count also passed 200 orders somewhere around month 10, you crossed two triggers at once.
Keep records of gross sales by state, transaction counts, exemption certificates, and marketplace remittance reports. These are commonly requested by auditors.
What Happens After You Establish Nexus in a State?
Crossing a threshold starts a clock. Most states expect registration within a timeframe after exceeding their limit, often between 30 to 60 days, though windows vary and you should check the specific state’s rule.
- Register for a sales tax permit with that state’s department of revenue.
- Determine the correct rate for each sale, factoring in origin versus destination sourcing.
- Begin collecting tax at checkout, updating your shopping cart or point-of-sale system.
- File on the assigned schedule, which could be monthly, quarterly, or annually depending on your sales volume in that state.
On recordkeeping: retain sales records, exemption certificates, and remittance confirmations for at least the state’s statute of limitations, typically three to four years, though some states go longer. Document how you calculated marketplace-sourced sales separately from direct sales. Our guide on sales tax for new business owners walks through registration and filing in more detail if you’re setting this up for the first time.
How Do Marketplace Facilitator Laws Affect Your Obligations?
Marketplace facilitator laws require platforms like Amazon, Etsy, and Walmart Marketplace to collect and remit sales tax on behalf of sellers, and most states now have such laws in effect. That sounds like it removes your burden entirely. It doesn’t, always.
You may still need to register in a state even when a marketplace handles collection, particularly if your direct sales plus marketplace sales together cross the threshold. Some states also require you to report marketplace-collected sales even though you’re not the one remitting the tax on them.
State handling varies enough that you can’t assume uniform treatment. A few states exclude marketplace sales from your own threshold calculation entirely; others count every dollar. Confirm the rule for each state where you have meaningful marketplace volume rather than guessing.
What Penalties and Mistakes Should You Watch For?
The most common compliance failures we see aren’t exotic. They’re simple tracking gaps that compound over time.
- Failing to count marketplace sales toward economic thresholds when the state requires it.
- Ignoring inventory sitting in third-party warehouses, which creates physical nexus you may not realize exists.
- Tracking by calendar year instead of rolling 12 months, missing a mid-year threshold crossing.
- Missing registration windows after you’ve already crossed a threshold.
States respond to these gaps with back taxes owed from the date the threshold was exceeded, interest, and penalty percentages that stack on top of the original liability. Audit risk increases sharply once a state notices marketplace or 3PL data that doesn’t match your registration status.
Pro Tip: A voluntary disclosure agreement can limit your look-back period and often waive penalties if you come forward before a state finds you first. It’s worth having an accountant evaluate whether a VDA makes sense before you register cold in a state where you’ve had unreported exposure for years.
How Do State Nexus Thresholds Compare?
Threshold rules follow recognizable patterns, but the outliers are exactly where sellers get tripped up.
| State Pattern | Threshold Details |
|---|---|
| Common standard | Typical economic thresholds in sales or transactions (most states) |
| California | Higher sales threshold, no transaction count requirement |
| Texas | Higher sales threshold, no transaction count requirement |
| New York | Higher sales and transaction thresholds, both required |
| Alabama / Mississippi | Moderate sales threshold, no transaction count requirement |
Several states including Alaska, Delaware, Montana, New Hampshire, and Oregon, have no statewide sales tax. Alaska is the exception worth watching: it has no state-level tax, but certain municipalities impose their own local sales taxes, so a seller shipping into Anchorage versus a smaller borough can face very different rules. Because thresholds and definitions change, always confirm the current rule directly. The New York Department of Taxation and Finance’s nexus guidance is a solid model of what to look for on any state’s official site: registration timelines, filing frequency, and threshold specifics.
How Does an Accountant Evaluate Your Nexus Risk?
When a client asks us to review their exposure, we don’t guess. We follow a sequence.
- Pull sales data by ship-to state across every channel, direct site, marketplaces, wholesale.
- Reconcile channels so marketplace and direct sales aren’t double-counted or missed.
- Map warehouse locations, especially FBA inventory placement, which shifts without notice.
- Aggregate marketplace sales against each state’s rule for whether they count toward your threshold.
- Calculate exposure against each state’s specific dollar and transaction figures.
- Time registration to match the state’s window once a threshold is crossed.
You should bring in help once you’re selling into multiple states, storing inventory with a 3PL, running meaningful marketplace volume, or dealing with product categories that carry inconsistent exemption rules state to state. A tool like CoeusX’s tax research platform can help professionals stay current on fast-changing state rules, but the judgment calls on registration timing and VDA strategy still benefit from a dedicated accountant who knows your full sales picture.
Pro Tip: Connecting your accounting platform directly to your sales channels cuts down the manual data-pulling that causes most missed thresholds. Automated monitoring catches a state approaching its limit weeks before a manual quarterly review would.
A Small-Business Accounting View on Nexus
Every costly nexus problem we’ve reviewed with clients started the same way: nobody was watching the numbers until a state notice arrived. Early monitoring is cheaper than remediation, every time. A client who checks their state-by-state totals monthly can register proactively and never owes a dollar of back tax. A client who waits until an audit letter arrives is often looking at years of liability plus interest.
We built our approach around catching this early. Sales tax nexus doesn’t have to be a crisis if someone’s actually tracking it.
Let KelliWorks Handle Your Multistate Sales Tax Exposure
Kelliworks is the alternative to hiring a full-time tax hire or piecing together spreadsheets across a dozen state portals. We track your sales by state, flag when you’re approaching a threshold, and handle registration, filing, and ongoing remittance so you’re never guessing whether you owe money in a state you’ve never visited.
If you’ve read this far and suspect you might already have exposure in a few states, that’s common, and it’s fixable. Our team handles new business registrations, voluntary disclosure evaluations for past unreported liability, and month-to-month monitoring so a threshold crossing never turns into a surprise notice. Start with our sales tax guidance for new business owners or explore our virtual accounting department services to see how ongoing monitoring fits into your books. Ready to find out where you stand? Reach out for an assessment and we’ll walk through your sales data together.
Authoritative Resources to Check Now
If you suspect nexus in a specific state, start with that state’s own department of revenue page, using New York’s nexus guidance as a model of what to expect. For threshold comparisons across all states, Avalara’s nexus guide is a reliable reference point. If your question centers on rate calculation across jurisdictions, Stripe’s sourcing explainer breaks down origin versus destination rules clearly. And for marketplace-specific questions, Utah’s marketplace facilitator page shows how one state structures the obligation split.
Frequently Asked Questions
What is sales tax nexus in simple terms?
Sales tax nexus is the connection between your business and a state significant enough that the state can require you to register, collect, and remit sales tax there. That connection can come from physical presence or, since Wayfair, from economic activity alone.
Do I owe sales tax if I only sell through Amazon?
Possibly. Marketplace facilitator laws require Amazon to collect and remit tax on your behalf in most states, but some states still require you to register or count marketplace sales toward your own economic threshold.
How do I know which states I have nexus in?
Pull your sales by ship-to state over a rolling 12-month period, including marketplace sales, and compare each state’s total against its specific threshold, since figures range from $100,000 to $500,000 depending on the state.
What happens if I’ve had nexus for years without registering?
You may owe back taxes plus interest and penalties from the date you crossed the threshold. A voluntary disclosure agreement can often limit the look-back period and reduce penalties if you come forward before the state finds you.
This article is general information, not a substitute for advice from a qualified financial advisor. Consult a qualified financial professional about your own circumstances before acting on anything here.
Sources
- South Dakota v. Wayfair — Tax Foundation
- Sales Tax Nexus Laws: A State-by-State Guide — Avalara
- Marketplace facilitators — Utah State Tax Commission
- Sales Tax Nexus explained — U.S. Chamber of Commerce
- Nexus — New York State Department of Taxation and Finance
