Sales Tax Nexus: When Do You Owe Tax in Another State?

You sell to customers in twenty states. Do you owe sales tax in all twenty? Some of them? None of them? The answer hinges on a single, unglamorous word: nexus. Get it right and multi-state selling is just a compliance checklist. Get it wrong and you can quietly rack up years of uncollected tax that a state will eventually come asking for — with penalties and interest on top. Here's how nexus actually works after the 2018 Wayfair decision, why the rules differ in every state, and how to figure out where you're actually on the hook.

What "nexus" actually means

Nexus is simply the connection between your business and a state that's strong enough to give that state the legal right to make you collect and remit its sales tax. No nexus, no obligation. Enough nexus, and you're required to register with that state's tax authority, charge the correct rate to customers there, file returns, and hand the money over — even if you've never set foot in the state.

The critical thing to understand up front: sales tax is a consumer tax, not a business tax. Your customer owes it. Your job is to collect it at checkout and pass it through to the state. When people say a business "owes sales tax in another state," what they really mean is the business is obligated to collect and remit it. If you have nexus and fail to collect, though, the liability doesn't disappear — it lands on you. You end up paying tax you never charged your customers out of your own pocket. That's what makes nexus worth getting right.

There are two ways to create nexus: the old-fashioned kind (physical nexus) and the newer kind that reshaped the whole landscape in 2018 (economic nexus). Most growing businesses eventually trip over both.

Physical nexus: the original rule

For decades, the rule was simple: you owed sales tax in a state only if you had a physical presence there. Physical nexus still exists and still counts. You have it in a state when you have any of the following:

• An office, store, warehouse, or other location in the state.
• Employees working there — including remote workers who live in the state.
• Inventory stored in the state. This is the big one for online sellers, and we'll come back to it: goods sitting in a third-party warehouse (including an Amazon fulfillment center) generally create physical nexus, even if you've never chosen or seen that warehouse.
• Owned or leased property — equipment, a delivery vehicle that operates in-state, and so on.
• Traveling salespeople, contractors, or reps who solicit business in the state, and in some states even attending a trade show for more than a few days.

Physical nexus has no dollar threshold. One employee, one pallet of inventory, one leased machine, and you have nexus in that state from day one — whether you sell $50 or $5 million there.

The 2018 Wayfair decision changed everything

Before June 2018, an online seller with no physical footprint in a state simply didn't have to collect that state's sales tax. A retailer in South Carolina could ship to a customer in California, collect nothing, and be fully compliant. States hated this — they watched billions in sales tax go uncollected as e-commerce grew — but their hands were tied by a 1992 Supreme Court case (Quill) that made physical presence the constitutional line.

Then came South Dakota v. Wayfair, Inc. In 2018 the Supreme Court overturned the physical-presence rule and held that a state may require out-of-state sellers to collect sales tax based purely on their economic activity in the state — enough sales, or enough transactions, even with zero physical presence. South Dakota's law, which the Court blessed, used a threshold of $100,000 in sales or 200 separate transactions per year. That specific pair of numbers became the template nearly every state copied.

The result: within a couple of years, essentially every state with a sales tax enacted an "economic nexus" law. For a small business or online seller, this was a sea change. Suddenly your sales volume alone — with no office, no employee, no inventory in a state — could obligate you to collect its tax.

Economic nexus thresholds — and why they vary by state

Here's where it gets messy, and where a lot of well-meaning owners get tripped up. There is no single national threshold. Each state wrote its own law, and while many started from South Dakota's $100,000-or-200-transactions template, the rules have drifted apart ever since. As of 2026, the differences that matter are:

The common baseline: $100,000 or 200 transactions

A large group of states still uses roughly the original formula — you establish economic nexus once you exceed $100,000 in sales OR 200 separate transactions into the state in the measurement period. If either number is crossed, you're in. For a low-price, high-volume seller, the 200-transaction test can bite well before the dollar test: 200 orders at $20 each is only $4,000 of sales, yet in a strict "or" state that's enough to require registration.

Many states have dropped the 200-transaction test

Because the transaction count punished small-dollar sellers so harshly, states have been steadily repealing it. By the start of 2026, more than a dozen states had eliminated the 200-transaction trigger and now look only at revenue — usually $100,000. Recent examples worth knowing: Alaska repealed its transaction threshold effective January 1, 2025; Utah dropped it effective July 1, 2025; Illinois removed it effective January 1, 2026; and Kentucky is scheduled to eliminate it effective August 1, 2026. The trend is clearly toward revenue-only tests, but you can't assume — some states still count transactions, so you have to check each one.

The big states set the bar higher: $500,000

Several of the largest markets deliberately set a much higher threshold so they only capture serious sellers. California, Texas, and New York all use a $500,000 sales threshold rather than $100,000. That's good news for a smaller seller — you can do a meaningful amount of business in California before you have to register — but it also means you can't apply one number nationwide. The state where you have the most customers may well have the highest bar.

"And" tests vs. "or" tests

Most states use an "or" test: cross either the dollar figure or the transaction count and you have nexus. A couple of states use an "and" test, which is friendlier because you must cross both. New York requires more than $500,000 in sales and more than 100 transactions; Connecticut requires $100,000 and 200 transactions. In an "and" state, a seller with high revenue but very few large transactions — or many tiny transactions but low revenue — might not trigger nexus at all.

The fine print that changes the math

Even two states with an identical "$100,000 or 200 transactions" headline can measure it differently:

• What sales count. Some states measure gross sales (everything you ship in), others measure only retail sales or only taxable sales, excluding wholesale or exempt items. A wholesaler can blow past $100,000 in gross shipments while having almost no taxable retail sales.
• The measurement window. Some states look at the current or previous calendar year; others use a rolling twelve months. The date you cross the line — and the date you must start collecting — depends on which window applies.
• Whether marketplace sales count toward your threshold. This one catches sellers off guard, and it's worth its own section below.

And a handful of states have no statewide sales tax at all — New Hampshire, Oregon, Montana, and Delaware — so there's no economic-nexus threshold to worry about there. (Alaska has no statewide sales tax either, but many Alaskan localities impose one and administer a shared remote-seller threshold, so it's not a free pass.) The takeaway is blunt: every state is its own puzzle. There is no shortcut around checking the specific rule for each state you sell into.

Marketplace-facilitator laws: what Amazon and Etsy handle (and what they don't)

If you sell through Amazon, Etsy, eBay, Walmart Marketplace, or a similar platform, there's a second layer of law you need to understand: marketplace-facilitator statutes. As of 2026, every state with a general sales tax — 45 states plus Washington, D.C. — has one. These laws shift the duty to collect and remit sales tax on marketplace sales from you to the platform. When a customer in Ohio buys your product on Amazon, Amazon calculates, collects, and remits the Ohio sales tax. You don't touch it.

This is genuinely helpful, and it's why a lot of Amazon sellers assume sales tax is "handled." But that assumption hides three traps:

• It only covers the marketplace channel. Sales through your own Shopify store, your website, or wholesale orders are not covered. You collect and remit those yourself in every state where you have nexus. A seller doing half their volume on Amazon and half on Shopify still has to handle the Shopify half state by state.
• Marketplace sales may still count toward your economic-nexus threshold. Several states require you to include marketplace-facilitated sales when measuring whether you've crossed the threshold — even though the marketplace is remitting the tax on those sales. California, for example, counts marketplace sales toward the $500,000 figure. So $300,000 of your own Shopify sales plus $250,000 of Amazon sales into California can push you over the line and force you to register — even though Amazon is already handling the tax on its portion. Once registered, you may owe filings (sometimes reporting the marketplace sales as a deduction) even if your own direct sales in the state are small.
• It only covers sales tax. Marketplace laws do nothing for state income tax, franchise tax, or annual registration fees you might owe in a state where you have nexus. Those obligations are still entirely yours.

So the honest summary is: marketplace facilitators removed a huge chunk of the day-to-day collection burden, but they didn't remove your responsibility to know where you have nexus and to stay registered and compliant where you do.

The FBA / inventory trap

This deserves special attention because it snares so many online sellers. If you use Amazon FBA (Fulfillment by Amazon) — or any third-party logistics service that spreads your inventory across multiple warehouses — you have almost certainly created physical nexus in states you never chose.

Here's the mechanism. When you send inventory into Amazon's network, Amazon decides where to store it to optimize shipping. Your products can end up in fulfillment centers across a dozen or more states. In most states, storing inventory in the state creates physical nexus — full stop, no revenue threshold required. Even a single unit of your product sitting in a California warehouse can make California treat you as an in-state business with a sales tax collection obligation, regardless of how little you sell there.

This is the part that makes sellers uneasy, and rightly so: physical nexus from inventory can arise below the economic-nexus dollar thresholds. The $100,000 or $500,000 test is irrelevant if a pallet of your goods is physically in the state. And because the marketplace now remits the sales tax on your Amazon orders, you might not owe much (or any) sales tax on those specific transactions — but you may still be expected to register in the state, and the inventory can create exposure for other taxes and filings. The only way to know where your FBA inventory has been is to pull Amazon's inventory-placement and warehouse reports and map them to states. Most sellers have never looked.

How to figure out where you actually owe

You don't need to guess, and you shouldn't. The process is methodical:

1. Map your physical footprint. List every state where you have an office, an employee (including remote staff), owned or leased property, and — critically — stored inventory, including every FBA warehouse your goods have touched. Each one is a physical-nexus state.
2. Pull sales by state. For a rolling twelve months and by calendar year, total your sales and transaction counts into each state, separating your direct sales from marketplace sales. This is the single most important report for nexus, and it's exactly the kind of thing clean books should produce on demand.
3. Compare against each state's threshold. For every state where you have meaningful volume, look up the current dollar and transaction thresholds, whether it's an "and" or "or" test, what sales count, and whether marketplace sales are included. Flag any state where you're over — or close.
4. Watch the "approaching" states. A state where you're at $80,000 and growing is a state you'll register in soon. Knowing that in advance beats discovering it after you've blown past the line and missed months of filings.
5. Document your conclusions. Keep a simple nexus schedule showing, per state, the basis (physical or economic), the date nexus began, and your registration status. If a state ever questions you, that schedule is gold.

Run this exercise at least once a year, and any time your business changes shape — new warehouse, new remote hire, a viral product that spikes sales into a new state. Nexus is not a one-time determination; it moves as your business moves.

Registration and remittance basics

Once you determine you have nexus in a state, the compliance path is fairly standard, even if the details differ:

• Register first, then collect. Apply for a sales tax permit with the state's Department of Revenue before you start charging tax. Collecting tax without a permit is itself a problem in most states. Registration is usually free or low-cost and can be done online.
• Charge the right rate. Many states are "destination-based," meaning you charge the combined state-plus-local rate at the customer's shipping address. Rates vary by city and county, so accurate rate lookup (built into most e-commerce and tax-automation tools) matters.
• File on the state's schedule. The state assigns a filing frequency — monthly, quarterly, or annually — usually based on your volume. You must file every period once registered, even a "zero return" for periods with no tax due. Missing zero returns is a common and avoidable penalty.
• Keep marketplace and direct sales separate on the return. Where marketplace sales are reported, they're often listed and then deducted, so you remit only on your own direct sales. Getting this line right prevents double-paying.
• Consider automation early. Tools like Avalara, TaxJar, or your platform's native tax engine can calculate rates and even auto-file. They're worth it once you're registered in more than a couple of states — the manual approach doesn't scale.

If you discover you should have registered in a state years ago and didn't, don't just quietly start collecting going forward and hope the past stays buried. Most states offer a Voluntary Disclosure Agreement (VDA) — you come forward, they typically limit the look-back period (often three to four years instead of the full history) and waive or reduce penalties. Coming forward voluntarily almost always costs far less than being found.

Why bookkeeping is the foundation of nexus compliance

Notice what every step above depends on: knowing your sales and transaction counts by state. You cannot answer "do I have economic nexus in Georgia?" without a reliable total of your Georgia sales. You cannot spot a state you're approaching without a running tally. You cannot separate marketplace from direct sales on a return if your books lump all your revenue into one bucket. Nexus compliance is, at its core, a data problem — and the data comes from your books.

This is exactly where good bookkeeping earns its keep. When your accounts are set up to tag revenue by state and by channel, the annual nexus review stops being a scramble through spreadsheets and becomes a report you can run in minutes. You see, at a glance, which states you're registered in, which you've crossed the threshold in, and which are creeping up. That visibility is the difference between managing nexus proactively and getting a surprise assessment letter.

At Tides Bookkeeping, this is bread-and-butter work. We serve small businesses across every industry, and because we're a remote firm supporting clients in areas across the country, multi-state sales are the norm, not the exception. For online sellers in particular, our e-commerce and retail bookkeeping keeps sales split by state and channel, reconciles marketplace payouts against the gross sales that drive your thresholds, and produces the by-state reporting your tax preparer needs to make the nexus call. Our monthly bookkeeping keeps that data current all year, and clean financial reporting turns it into the schedules you actually use. If you want to understand how the timing of those sales flows into your books, our guide to cash vs. accrual accounting is a useful companion read.

To be clear about scope: we're bookkeepers, not tax attorneys, and the final nexus determination and any registration should be made with a sales tax professional or your CPA. But the reason those advisors can give you a fast, accurate answer is that the underlying numbers are clean. Messy books make nexus impossible to assess; organized books make it routine.

The bottom line

Nexus is the connection that gives a state the right to make you collect its sales tax. You create it two ways: physically, through an office, an employee, or (most commonly for online sellers) inventory stored in the state — with no dollar threshold; and economically, by crossing that state's sales or transaction threshold after the 2018 Wayfair decision opened the door. Those economic thresholds vary widely — $100,000 in many states, $500,000 in the biggest ones, some with a transaction count and some without, measured differently in each — so there's no single number to memorize. Marketplace-facilitator laws take collection off your plate for Amazon and Etsy sales but don't eliminate your obligation to know where you have nexus, and FBA inventory can create physical nexus below any economic threshold.

The practical defense against all of this is boring and reliable: books that track your sales by state and channel, reviewed at least once a year. Get that right and multi-state selling is manageable. Ignore it and the bill compounds silently until a state comes calling. If you're not confident your books can tell you where you owe, that's the gap worth closing before your next growth spurt puts you over a threshold you didn't know existed.