When Online Sellers Owe Sales Tax: Nexus Explained

Once your online sales into a state cross that state's own dollar-sales or transaction-count threshold, that state can legally require you to register, collect its sales tax, and remit it — even if you have never set foot there, hold no inventory there, and have no employees there. This is called economic nexus, and it's the rule that came out of a 2018 U.S. Supreme Court case, South Dakota v. Wayfair, Inc. Before you panic: the exact number that trips this duty is different in every state, changes over time, and some of your sales may already be handled for you by the marketplace you sell on. Here's how to think about it.

What "nexus" actually means

"Nexus" is just the legal word for a connection between your business and a state that's strong enough for that state to require you to collect its sales tax on sales you make to its residents. Every state (and Washington, D.C.) that charges a general sales tax gets to set its own nexus rules, and a state can only reach as far as the U.S. Constitution allows. There are two basic ways a state can get nexus over your business:

• Physical nexus. You have a real-world presence in the state — an office, a store, a warehouse, an employee or contractor working there, or inventory stored there. This is the older, more familiar kind of nexus, and it still applies today.
• Economic nexus. You have no physical presence at all, but your sales into that state — measured in dollars, number of transactions, or both — pass a threshold the state has set by statute.

A single business can have physical nexus in one state and economic nexus in a dozen others, all at the same time, and the rules for each are separate.

Physical nexus and fulfillment warehouses

Physical nexus catches many online sellers off guard. If you use a fulfillment service that stores your inventory in warehouses around the country — common with large marketplaces — your goods can sit in a state you've never visited, and some states treat that stored inventory as physical presence creating nexus there. Whether a particular fulfillment arrangement creates nexus in a particular state is fact-specific, so check with that state's tax agency or a tax professional who has actually looked at your fulfillment network rather than assuming either way.

The Wayfair decision, in plain English

For decades, a state could only require a business to collect its sales tax if the business had a physical presence there — a 1992 Supreme Court precedent. That let growing numbers of catalog and then internet sellers sell into a state without ever collecting that state's tax, while local, physically-present competitors had to collect it on every sale. In South Dakota v. Wayfair, Inc. (decided June 21, 2018), the Supreme Court overturned the physical-presence requirement. It upheld a South Dakota law that reached out-of-state sellers once their sales into South Dakota passed a threshold set in the statute — a combination of a dollar-sales amount and a separate transaction-count, measured annually. The Court held that requiring a seller doing substantial, ongoing business in a state to collect that state's tax does not violate the Constitution, even without a store or warehouse there.

After Wayfair, the large majority of states that charge a general sales tax adopted their own economic nexus laws modeled on South Dakota's approach — a sales-dollar threshold, a transaction-count threshold, or both. A handful of states (commonly grouped by the acronym "NOMAD": New Hampshire, Oregon, Montana, Alaska, and Delaware) don't impose a general statewide sales tax at all, so economic nexus isn't a live issue there, though Alaska allows local sales taxes in some areas.

Why you cannot rely on one state's numbers for another state

This is the part that trips up a lot of online sellers: every state writes its own economic nexus statute, and the numbers are not the same from state to state. One state may count only dollar sales; another may count transactions too; some have dropped the transaction-count prong over time; measuring periods differ too. States also change these thresholds through their own legislatures, so a number accurate a couple of years ago may no longer be current.

Because of that, this guide deliberately does not print specific state thresholds — any number here would risk being wrong for your state, or wrong by the time you read it. The only way to know the current threshold for a state where you have real sales volume is to check that state's own tax agency (often called the Department of Revenue, Department of Taxation, or similar) directly, or confirm the current figure with a CPA who tracks multistate sales tax.

Marketplace-facilitator relief: when the platform collects for you

If you sell through a large online marketplace, you may get significant relief from this. Nearly every state that has a sales tax has also passed a marketplace facilitator law. Under these laws, the marketplace itself — not you, the individual seller — is legally responsible for calculating, collecting, and remitting sales tax on the sales it facilitates for you in that state. In practice, this means the platform charges the buyer, collects the tax, and pays it to the state, without you having to register or file a return for those particular sales.

Marketplace-facilitator relief is not unlimited, though:

• It generally only covers sales actually made through that marketplace. If you also sell through your own website, a different marketplace, at craft fairs, or wholesale, those channels are your own responsibility, separately.
• If you are physically located in a state (your home office, your inventory, an employee), that state may still require you to register and file there even if a marketplace is collecting tax on your marketplace sales, because you have your own nexus in your home state independent of the marketplace's collection.
• Whether and how marketplace sales count toward your own economic-nexus threshold in a state also varies — some states exclude marketplace-facilitated sales from your own threshold count, others don't.

Because these details differ by state and by platform, check the current rule with each state tax agency where you have meaningful sales, and don't assume a marketplace has you fully covered everywhere you sell.

What to do: registering before you collect

Sales tax registration duties have a strict order to them, and getting the order backward creates real problems.

1. Track your sales by state. Most accounting or e-commerce platforms can break out sales by destination state. Watch states where your dollar volume or order count is growing, since that's where you're most likely to cross a threshold.
2. Check that specific state's current economic nexus threshold and rules once you have meaningful sales there — through that state's tax agency website, not a national estimate. Note whether the state counts marketplace-facilitated sales toward your threshold.
3. Register with the state before you start collecting its tax. Most states require you to hold a valid sales tax permit (sometimes called a seller's permit, sales and use tax permit, or similar) before you begin charging customers that state's tax. Collecting a state's tax without being registered to do so can create its own compliance problems, and charging tax you're not authorized to collect is not a shortcut worth taking.
4. Set up collection correctly at checkout once registered, applying that state's rate and any local add-ons to sales you make directly (not through a marketplace already handling it).
5. File and remit on the schedule the state assigns you — monthly, quarterly, or annually depending on your volume and that state's rules — and keep records of what you collected and where.
6. Re-check periodically. Thresholds, rates, and which of your channels count can all change. Many sellers review their multistate exposure at least once a year, or whenever they add a new sales channel or a fulfillment location changes.

Flag this clearly: the deadline for registering is not "whenever it's convenient" — most states expect you to register at or shortly after the point you cross their threshold, and the exact grace period (if any) and the threshold itself both vary by state and can change. Confirm the current rule directly with each state's tax agency before you cross into meaningful sales there, rather than relying on this article or any general guide for a specific state's current number.

Two mistaken assumptions to avoid

First: a single, one-time sale to a customer in a state you've never sold into before typically doesn't, by itself, create a collection duty there. Nexus is about a sustained connection — physical presence or crossing an economic threshold — not one isolated order.

Second: don't assume that because a marketplace collects tax on your behalf, you have no state filing obligations anywhere. That's often untrue if you have physical nexus in your own home state, or if you also sell through channels the marketplace doesn't cover. Marketplace collection can lull sellers into skipping registration where they're actually located.

Related situations

If you haven't yet applied for a seller's permit, or want to understand marketplace facilitator collection in more depth, those topics are covered in their own dedicated guides. If your business is struggling under back sales tax debt, that's a business-debt question separate from nexus itself, and a bankruptcy or debt-relief specialist can walk through the options if it comes to that. None of this substitutes for talking with a CPA who handles multistate sales tax if your selling volume is meaningful — professional guidance usually costs far less than getting registration timing wrong across several states.

This article provides general information, not legal, tax, or financial advice.