E-Commerce Sales Tax Nexus: When Your Online Store Owes Tax in Another State

An online store owes sales tax in a state as soon as it crosses that state’s economic nexus threshold, even if it has no employees, no office, and no inventory there. That is the rule that came out of South Dakota v. Wayfair, Inc. in 2018, and it is the single most consequential sales tax development for online sellers in the last two decades. Before Wayfair, a state could only require a business to collect its sales tax if the business had a physical presence there (a store, an office, an employee, inventory). After Wayfair, physical presence is just one way to trigger a collection obligation. Selling enough dollars or enough transactions into a state, with no physical footprint at all, is now enough on its own. Most states set that bar at $100,000 in sales, though the number and the rules around it vary state by state, and getting it wrong means back taxes, penalties, and interest that the seller (not the customer) ends up paying.

What changed with South Dakota v. Wayfair?

Before June 2018, the controlling rule was Quill Corp. v. North Dakota (1992): a state could not force an out-of-state seller to collect its sales tax unless the seller had a physical presence in that state. Mail-order and, later, e-commerce businesses built entire strategies around staying physical-presence-free in as many states as possible. South Dakota passed a law in 2016 that ignored Quill and imposed a collection duty on any remote seller with more than $100,000 in sales, or 200 or more separate transactions, into the state in a year, with no physical presence required. Wayfair, Overstock, and Newegg challenged the law. The Supreme Court sided with South Dakota, overturning the physical presence rule as “unsound and incorrect” given how commerce actually works today, and holding that a substantial economic presence is enough to satisfy the Constitution’s Commerce Clause.

• Every state with a general sales tax has since adopted some form of economic nexus. The five states with no statewide sales tax at all (Alaska, Delaware, Montana, New Hampshire, Oregon) are not part of this analysis, though Alaska has local jurisdictions that impose their own sales tax and participate in a statewide economic nexus program at the local level.
• South Dakota itself simplified its own law in 2023, dropping the 200-transaction count and leaving just the $100,000 revenue test. That is the direction most states are heading: fewer transaction-count triggers, because a business that ships 250 low-dollar orders into a state is not the kind of seller the rule was aimed at.
• Physical presence nexus never went away. It still exists, and it still triggers a collection obligation on its own regardless of sales volume. Economic nexus is an additional, separate way to trigger the same obligation. A seller can have physical nexus in one state (inventory in a warehouse there) and economic nexus in forty others (sales volume alone).

What are the actual state thresholds?

There is no single number. The most common threshold, used by roughly 41 states, is $100,000 in sales during the current or prior calendar year. A handful of states set the bar higher, and a shrinking group still layers on a transaction count.

• $100,000 revenue only (most states). No transaction count. Cross $100,000 in sales into the state and the obligation starts, regardless of how many separate orders that represents.
• $100,000 with a 200-transaction alternative. Roughly 18 states still keep the original Wayfair-style test: nexus is triggered by $100,000 in sales OR 200 separate transactions, whichever comes first. A seller shipping a high volume of low-dollar items (a $12 phone case sold 250 times) can trip the transaction count long before hitting the dollar threshold.
• Higher revenue thresholds. California and Texas both set their threshold at $500,000 in sales, with no transaction count. Alabama and Mississippi use $250,000.
• The “and” test. New York requires both $500,000 in sales AND more than 100 transactions in the state, in the preceding four sales tax quarters, before nexus is triggered. Connecticut pairs $100,000 with 200 transactions, and requires both prongs to be met.
• The counting period varies. Some states look at the current calendar year, some look back at the prior calendar year, some use a rolling twelve months, and New York uses trailing sales tax quarters. A seller tracking thresholds needs to know each state’s measurement window, not just its dollar figure.

These thresholds change. A handful of states have adjusted their numbers or dropped the transaction count in just the last few years, and more will likely follow South Dakota’s lead. Before registering or concluding you are clear, verify the current-year threshold and measurement period directly with the state’s department of revenue rather than relying on a number from a prior year.

Does storing inventory in a state create nexus too?

Yes, and this is where economic nexus and physical nexus collide for online sellers. Storing inventory in a state, even inventory you do not directly control the location of, is physical presence, and physical presence has always triggered a sales tax collection obligation regardless of sales volume. The clearest example is Fulfillment by Amazon (FBA): once Amazon’s algorithm distributes a seller’s inventory across its fulfillment network, that seller has inventory sitting in warehouses in dozens of states, whether the seller asked for it or not. States have consistently taken the position that inventory stored in a third-party warehouse on the seller’s behalf is physical presence for the owner of the goods. That question, and how it interacts with Amazon’s own marketplace facilitator collection duty, is covered in full in Amazon FBA tax issues.

• A single unit of inventory sitting in a state’s fulfillment center, even for a short time, has been treated by several state revenue departments as sufficient physical presence to require registration, independent of any dollar threshold.
• This is a different question from marketplace facilitator collection (covered below). Physical nexus determines whether the seller has a registration and filing obligation at all. Marketplace facilitator status determines who actually calculates, collects, and remits the tax on marketplace transactions.
• A seller using FBA, a 3PL, or any consignment or drop-ship arrangement that places inventory in a state should assume that state’s registration rules apply and confirm the specific state’s position rather than assuming inventory alone is safe.

What is a marketplace facilitator law, and does it get me off the hook?

A marketplace facilitator law shifts the legal duty to calculate, collect, and remit sales tax to the platform (Amazon, Etsy, Walmart Marketplace, eBay) for sales made through that platform, instead of leaving that duty on the individual third-party seller. Every state with a sales tax has now adopted some version of this rule. It solves the collection problem for marketplace sales. It does not solve the nexus question, and it does not cover a seller’s non-marketplace sales.

• What it covers. Sales made through a covered marketplace. Amazon, for example, collects and remits sales tax on behalf of third-party sellers in every state that has a marketplace facilitator law, which by now is effectively every state that taxes sales at all.
• What it does not cover. A seller’s own direct-to-consumer channel (its own Shopify or WooCommerce store), wholesale sales, and sales through any platform that is not classified as a marketplace facilitator in that state. Those sales remain the seller’s own responsibility to calculate, collect, and remit.
• Registration is still often required. Some states require a seller to register even if all of its in-state sales run through a marketplace facilitator, because the state wants visibility into the seller’s total activity and because economic nexus thresholds in some states are still measured on gross sales, including marketplace sales, even when the marketplace itself remits the tax. A seller can have zero direct collection duty in a state and still owe a registration and informational filing there.
• The practical result for most online sellers today: the marketplace channel (Amazon, Etsy, Walmart) is largely handled by the platform. The direct-to-consumer channel (a seller’s own Shopify store) is not, and that is where a seller’s own nexus tracking and registration work actually matters. The bookkeeping side of tracking this by channel is covered in Shopify bookkeeping.

How do I know when to register, and what happens if I wait too long?

Register in a state once you have crossed its threshold, whether that threshold was hit through economic nexus (sales volume) or physical nexus (inventory, employees, an office, or a trade show presence that meets the state’s specific physical-presence rule). Waiting is the expensive mistake. States can generally assess back taxes for periods before registration, and because sales tax is a trust-fund tax collected from the customer, the state’s position is that the seller was legally obligated to collect it regardless of whether the seller actually did.

• Back liability is not capped the way income tax audits often are. Many states have no statute of limitations for a period in which no return was ever filed, meaning the state can reach back to the first year nexus existed, not just the last three or four years.
• The seller pays even though the customer never paid it. Uncollected sales tax that should have been charged to the customer becomes the seller’s own liability once the state assesses it, because the transaction already happened and the customer is not going back to pay it retroactively.
• Voluntary disclosure agreements limit the damage. Most states offer a voluntary disclosure program: a seller that comes forward before being contacted by the state can typically limit the lookback period (often to three or four years) and get penalties waived, paying only the tax and interest for that shorter window. This only works if the seller comes forward first; once a state initiates contact or an audit, that option is off the table.
• A practical monitoring cadence: review sales by state at least quarterly, register in any state where the threshold was crossed in the current or prior measurement period (per that state’s rule), and treat a state that changes its threshold or measurement window as a trigger to re-check every state, not just that one.

What should I do next?

Pull a full sales-by-state report for the trailing twelve months, broken out by channel (marketplace versus your own site), and check it against each state’s current threshold and measurement window. Register immediately in any state where you have already crossed the line, using a voluntary disclosure agreement where the lookback period would otherwise be costly. Build a quarterly review into your bookkeeping calendar rather than treating this as a once-a-year problem, since thresholds are measured on rolling or annual windows that can quietly close during the year.

• Amazon FBA tax issues: inventory nexus, 1099-K, and what sellers actually owe, the physical nexus side of the FBA fulfillment network
• Shopify bookkeeping: chart of accounts and sales tax tracking, how to track by-channel and by-state sales tax exposure in your books
• E-commerce inventory accounting: COGS and UNICAP, the income tax side of holding inventory across state lines
• Dropshipping tax treatment: sales tax, income, and resale certificates, how nexus rules apply when you never touch the inventory yourself

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.