Sales Tax Nexus Explained: When You Must Collect Sales Tax

Your business has to collect sales tax in a state once it has “nexus” there, meaning a connection strong enough for the state to require it, and since 2018 that connection no longer requires a physical presence. You can owe sales tax obligations in a state you have never set foot in, purely based on how much you sell to customers there. This is the rule that catches growing online businesses by surprise, and the penalties for ignoring it add up fast.

What “nexus” means

Nexus is the link between your business and a state that lets the state require you to collect and remit sales tax. There are two kinds:

• Physical nexus: the traditional kind, created by a physical presence such as an office, employees, inventory stored in the state, or sometimes attending trade shows there.
• Economic nexus: the newer kind, created by your volume of sales into a state, with no physical presence required at all.

Our sales tax and economic nexus compliance service exists specifically because the second type catches so many businesses off guard.

The 2018 change that rewrote the rules: South Dakota v. Wayfair

For decades, a business only had to collect sales tax where it had a physical presence. In June 2018, the Supreme Court’s decision in South Dakota v. Wayfair overturned that rule. States can now require out-of-state sellers to collect sales tax based on economic activity alone. Today every state that has a sales tax has adopted some form of economic nexus.

How economic nexus thresholds work

Each state sets a threshold. Once your sales into that state cross it, you have nexus and must register, collect, and remit. The most common threshold, modeled on the original South Dakota law, is more than $100,000 in sales, or 200 separate transactions, in the current or prior year. But the details vary by state, and they are changing: as of January 1, 2026, a growing number of states (16 and counting, including South Dakota itself) have dropped the 200-transaction test and now use the dollar amount only.

The practical takeaway: do not assume one number applies everywhere. Where you cross a threshold depends on each state’s specific rule, and those rules move.

What about selling on Amazon, Etsy, or other marketplaces?

Most states now have marketplace facilitator laws, which require the marketplace itself (Amazon, Etsy, eBay, and similar) to collect and remit sales tax on your behalf for sales made through their platform. That is genuinely helpful, but it does not let you off the hook entirely. If you also sell through your own website, those direct sales still count toward your nexus, and you may still need to register and file in states where the marketplace handles some, but not all, of your sales. The recordkeeping is where it gets complicated.

What to actually do about it

A sane approach for a growing business:

• Track your sales by state. You cannot manage thresholds you are not measuring. This is one more reason clean books matter, see our bookkeeping guide.
• Identify where you have nexus. Compare your state-by-state sales against each state’s current threshold, including physical presence like stored inventory.
• Register before you collect. You must register with a state before collecting its sales tax, collecting without registering is its own problem.
• Collect, file, and remit on schedule. Each state has its own filing frequency and due dates.

If your business operates across state lines, sales tax usually is not your only multi-state issue, our multi-state tax guide covers the income-tax side. And if you are setting up a new business, handle this from the start using our business formation guide.

Why this matters more than it seems

Sales tax is a trust-fund tax: you collect it from customers and hold it for the state. States enforce it aggressively, and uncollected sales tax becomes your liability, plus penalties and interest, even though you never kept the money. Catching nexus early is far cheaper than discovering years of uncollected tax during due diligence or an audit.

Frequently asked questions

When does my business have to collect sales tax in another state?

Once you have nexus there, either a physical presence or enough economic activity to cross the state’s threshold. Since the 2018 Wayfair decision, sales volume alone can create that obligation without any physical presence.

What is the most common economic nexus threshold?

More than $100,000 in sales, or 200 separate transactions, in the current or prior year, modeled on South Dakota’s law. However, many states are dropping the transaction count and using the dollar threshold only, and the exact rule varies by state.

If I only sell on Amazon, do I need to worry about sales tax?

Marketplace facilitator laws usually make the marketplace collect and remit for sales on its platform. But sales through your own website still count toward nexus, and you may still need to register and file in some states. It depends on your full sales picture.

Can you figure out where my business owes sales tax?

Yes. We review your sales by state, identify where you have nexus, and get you registered and filing correctly. Schedule a free intro consultation to get a clear picture before it becomes a liability.