Sales tax nexus: which states you actually owe, and how to find out

Sales tax nexus is the connection that obliges you to collect and remit sales
tax in a state. Since South Dakota v. Wayfair in 2018, that connection no
longer requires an office, an employee or a warehouse. Selling enough into a
state is sufficient, and the thresholds are lower than most sellers expect.

The result is that a business run entirely from one state can owe sales tax
filings in a dozen others without ever having been to any of them.

Nexus is not about where you are. It is about where your customers are, how much they bought, and in some states, how many times.

The two ways you get nexus

Physical nexus

An office, an employee, a contractor, a trade show in some states — and
critically for ecommerce, inventory stored in the state. If you use FBA,
Amazon moves your stock between fulfilment centres at its own discretion. Stock
in a state is physical presence in that state, which means Amazon’s logistics
decisions can create a filing obligation for you without your knowledge or
consent. Your FBA inventory placement report is where you find out.

Economic nexus

Crossing a sales threshold in a state. The common shape is $100,000 in
sales OR 200 separate transactions in a 12-month period, but the detail
varies more than the headline suggests, and several states have moved their
rules since 2018:

• Some states use $100,000; California, Texas and New York use $500,000.
• Several states have dropped the transaction count entirely, so
  sales value alone decides. Others still apply it — and 200
  transactions at a $30 average order is only $6,000 of sales, which is how a
  small seller ends up registered in a state they barely trade in.
• The measurement period differs: the previous calendar year in some states,
  a rolling twelve months in others.
• Whether the threshold counts gross sales, retail sales only, or excludes
  marketplace sales differs by state, and that distinction decides the answer
  for most Amazon sellers.

Marketplace facilitator laws — the part that helps

Every state with a sales tax now requires marketplaces to collect and remit
on behalf of their sellers. If you sell only through Amazon, eBay, Etsy or
Walmart, the marketplace is already handling the tax on those sales.

That is genuinely good news, and it is where sellers relax too early. Three
things survive it:

1. Your own website is not a marketplace. Shopify does not collect and
   remit for you — it calculates tax if you configure it to, and the
   obligation to register, file and remit remains entirely yours.
2. Several states still want a return from you showing marketplace
   sales, even where the marketplace remitted the tax. A zero-liability return
   is still a return, and not filing it is still a failure to file.
3. Marketplace sales may still count toward the threshold in some
   states, which can push your direct sales over the line even when the
   marketplace portion is already handled.

How to work out where you actually stand

1. Pull twelve months of sales by state — from Shopify, from
   your Amazon reports, from every channel, combined. Ship-to state, not
   billing state.
2. Count transactions by state as well as value. The transaction test
   is what catches small sellers, and it is the one nobody checks.
3. Get your FBA inventory placement report if you use FBA, and list
   every state your stock has sat in.
4. Compare against each state’s current threshold — from the
   state’s own department of revenue, because secondary summaries go stale.
5. Note the date you crossed, not just whether you did. Liability
   generally starts shortly after crossing, so the date determines how much
   exposure exists.

If you have already crossed and not registered

This is more common than it sounds and it is not a catastrophe, but the worst
option is to register normally and hope nobody looks at the earlier periods.
Registering usually invites the state to ask how long you have been selling
there.

Most states operate a voluntary disclosure agreement programme: you
approach them before they approach you, and in return the look-back period is
typically limited and penalties are usually reduced or waived. Interest normally
still applies. The programmes are specific and the choice between VDA, ordinary
registration and an amnesty window is a judgement call with real money attached
— that one is worth paying a sales tax specialist for, and we will say so
rather than improvise it.

Questions we get asked