Before June 2018, a state could only force a business to collect its sales tax if the business had a physical presence there — a store, a warehouse, employees. Then the Supreme Court decided South Dakota v. Wayfair, Inc., throwing out the physical-presence rule and holding that a state may require out-of-state sellers to collect sales tax based on economic activity alone. Within two years, nearly every state with a sales tax had adopted an economic-nexus law. The result is that a business shipping products or delivering taxable services nationwide can be obligated to register, collect, and remit in dozens of states without ever setting foot in them.
The thresholds sound tidy — the South Dakota law the Court upheld used $100,000 in sales or 200 transactions — but the reality is a patchwork. States picked different dollar figures, some kept the transaction count and some scrapped it, and they measure the look-back period differently. Marketplace-facilitator laws add another layer: Amazon, Etsy, and Walmart usually collect on your behalf, but those sales can still push you over a threshold that makes your own website sales taxable. The businesses that get burned are the ones that assumed "we're small" or "the marketplace handles it" and never checked. Because uncollected sales tax becomes the seller's personal liability, the cost of guessing wrong lands squarely on you.
How the Wayfair decision rewrote the rules
The old rule, set by Quill Corp. v. North Dakota in 1992, was that a state could not require a mail-order or online seller to collect sales tax without physical presence. As e-commerce grew, states argued they were losing billions in tax on remote sales. In Wayfair, the Court agreed that the physical-presence rule was "unsound and incorrect," and upheld South Dakota's law as a reasonable substitute.
Before Wayfair (Quill, 1992)
- Collection could only be forced where you had boots on the ground
- Many online-only, out-of-state sellers charged no sales tax at all
- Consumers owed a matching 'use tax' on those purchases, but enforcement was rare
- States watched real tax dollars slip away on remote transactions
- You only carried a compliance burden in states where you had a physical footprint
After Wayfair (2018)
- Hitting a sales threshold alone can trigger a collection duty
- Almost every state that taxes sales wrote an economic-nexus law
- Sellers now must register wherever they cross a qualifying state's threshold
- Marketplace-facilitator statutes moved a lot of the collection work onto platforms
- A single business can face compliance obligations in dozens of states simultaneously
Bottom line: sales-tax nexus today is a function of volume, not location. If your interstate sales are meaningful at all, compliance planning has to extend to states where your business has never had so much as a mailing address.
The thresholds vary — that's the whole problem
There is no single national threshold. States started from the South Dakota model and then diverged. Some kept $100,000, others moved to $500,000; some retained the 200-transaction count, and a growing number repealed it because it swept in tiny sellers with many low-dollar orders. The measurement window also differs — current year, prior calendar year, or a rolling twelve months.
| Threshold model | How it works | Watch-out |
|---|---|---|
| $100,000 or 200 transactions | Crossing either figure creates nexus | A high volume of small orders can trigger nexus long before you reach $100k in revenue |
| $100,000 only | No transaction-count test -- dollars only | Easier to track, but you still need to watch the dollar figure state by state |
| $500,000 in sales | A steeper bar some larger states apply | Do not assume every state's bar is this high -- many sit well below it |
| Prior or current year | Depends on the state: some look back, some look at the year in progress | Crossing the line mid-year can start your obligation immediately |
Because the rules differ state by state, the only reliable approach is to track your sales by ship-to state and compare each running total against that state's specific threshold. A spreadsheet works when you sell into a few states; sales-tax automation software becomes worth it once you cross into many.
Marketplace facilitators — help and a hidden catch
Marketplace-facilitator laws require platforms like Amazon, Etsy, eBay, and Walmart to collect and remit sales tax on the sales they facilitate. For a seller who only sells through those platforms, this removes most of the collection burden. But two catches trip people up.
Even though the marketplace collects the tax, most states count your marketplace sales toward your economic-nexus threshold. So if you sell $90,000 through Amazon and $20,000 through your own Shopify store into a state, your combined $110,000 can put you over the line — meaning you must register and collect on the Shopify sales yourself, even though Amazon already handled its portion. Always confirm whether a state includes or excludes marketplace sales when measuring nexus.
The second catch is direct sales through your own site. The marketplace only covers what it facilitates. Any channel you run yourself — your website, phone orders, wholesale — is entirely your responsibility to track and remit once you have nexus.
Building a compliance process that holds up
There is a logical order to sorting out sales-tax compliance, and following it matters -- collect tax before you are registered and you have created a separate problem, remit to the wrong jurisdiction and you have created another.
Map your nexus exposure
Break down your sales by ship-to state for both the current and prior year, then measure each state's total against its own dollar and transaction thresholds -- factoring marketplace sales in or out depending on that state's specific rule.
Get registered first
Apply for a sales-tax permit in each state where you have nexus. Collecting tax without a valid permit is itself a violation — register first, then turn on collection.
Nail down what is actually taxable
Work out whether what you sell is even taxable in each state -- groceries, clothing, and SaaS are exempt in some places -- and set rates down to the local level, since county and city add-ons are common.
Collect, then remit on time
Charge the right rate at checkout, then file and remit on each state's assigned frequency — monthly, quarterly, or annually depending on your volume.
Resolve past exposure through a VDA
If you have already had unregistered nexus for a while, a voluntary disclosure agreement usually limits how far back the state can look and waives penalties -- a far better outcome than waiting to get caught.
There is one filing almost everyone forgets: once you are registered, many states expect a return even for periods where you had zero taxable sales. Skip that "zero return" and you can still rack up a late-filing penalty, and your permit can fall into bad standing. The fix is simple -- as soon as you register in a state, set a standing reminder for its due dates, whether or not you expect to owe anything that period.
The real price tag of getting this wrong
The defining feature of sales-tax exposure is that the tax you failed to collect becomes your liability. You can't go back and bill customers for a purchase they made two years ago, so the assessment comes out of your margin — plus penalties and interest that compound for every open period.
- You personally owe tax you never actually charged a single customer
- Penalties for late filing and late payment pile up separately on each open period
- Interest keeps accruing from the original due date until the balance is settled
- No statute of limitations on unfiled returns — exposure stays open indefinitely
- Once a state reaches out to you first, voluntary-disclosure relief is off the table
- A messy sales-tax history becomes a red flag buyers uncover during due diligence on a future sale
Wayfair made sales volume — not physical presence — the trigger for sales-tax collection, and nearly every state now enforces its own thresholds. Track your sales by ship-to state, test each running total against that state's specific dollar and transaction rules, and remember that marketplace sales usually count toward the threshold even when the platform collects the tax. Get registered first, file every period including zero returns, and use a voluntary disclosure agreement to close back years before a state finds you. Uncollected sales tax is your liability, and unfiled returns never expire — which makes early, deliberate compliance far cheaper than the cleanup.
Find out where your sales-tax obligations actually stand
Economic nexus rules mean you could owe sales tax in a state you have never physically visited. Let our team review your sales footprint and filing history before an unexpected assessment eats into your margin.
Get a nexus reviewSources
- U.S. Supreme Court — South Dakota v. Wayfair, Inc., 585 U.S. ___ (2018)
- South Dakota Codified Laws § 10-64-2 (the $100,000 / 200-transaction threshold upheld in Wayfair)
- U.S. Supreme Court — Quill Corp. v. North Dakota, 504 U.S. 298 (1992) (overturned by Wayfair)
- Streamlined Sales Tax Governing Board — Remote Seller and Marketplace Facilitator resources
- IRS / State Departments of Revenue — Marketplace Facilitator and Remote Seller registration guidance
Frequently asked questions
Economic nexus means a state can require you to collect and remit its sales tax based on your sales volume into the state alone — no physical presence required. It was made possible by the Supreme Court's 2018 South Dakota v. Wayfair decision, which overturned the old physical-presence rule.
The figure you will see most often is $100,000 in sales or 200 separate transactions into a state within the current or prior year. That said, it is not universal -- some states set the bar at $500,000, others have dropped the transaction-count test altogether, and the time period each one measures is not consistent. You will need to check the specific rule in every state where you have sales.
In most cases, the marketplace itself collects and remits under facilitator laws, so you are not on the hook for tax on those particular sales. But they can still count toward your economic-nexus threshold, and anything you sell through your own website or other channels remains your responsibility to track and pay.
You become personally liable for the uncollected tax — the state can assess it against your business even though you never charged your customers — plus penalties and interest for every open period. Because unfiled sales-tax returns keep the statute of limitations open, the exposure grows until you register and file, often through a voluntary disclosure agreement.
