Economic Nexus and Sales Tax: When Your Business Owes Tax in States Where You Have No Office

By Yarik Yarosh, CPA ·September 5, 2026 ·6 min read

Written by Yarik Yarosh, CPA (US & Canada) September 5, 2026 · FL CPA license AC61704 · CPA Ontario

Before 2018, a business only had to collect sales tax in states where it had a physical presence (office, warehouse, employee, or inventory). The Supreme Court’s decision in South Dakota v. Wayfair (2018) changed that permanently. Now, states can require any business that exceeds an economic nexus threshold (typically $100,000 in sales or 200 transactions) to collect and remit sales tax, regardless of physical presence. For e-commerce businesses, service businesses with remote clients, and SaaS companies, this means potential sales tax obligations in dozens of states. The compliance burden is real: each state has different rates, different rules about what is taxable, different filing frequencies, and different exemption certificates. Marketplace facilitator laws have shifted the collection obligation to platforms like Amazon, Etsy, and eBay for sales through their marketplaces, but direct sales (through your own website or invoices) remain the seller’s responsibility.

✓Key takeaway

Economic nexus basics (post-Wayfair):

Element	Standard Rule
Threshold (most states)	$100,000 in gross sales OR 200 transactions in the state
Measurement period	Current or prior calendar year (varies by state)
Physical presence no longer required	Economic activity alone can create nexus
Applies to	Remote sellers (e-commerce, online services, SaaS)
Does NOT apply to	States with no sales tax (AK, DE, MT, NH, OR)

States with different thresholds:

State	Threshold	Notes
Most states (40+)	$100,000 sales OR 200 transactions	Standard Wayfair threshold
California	$500,000 sales (no transaction test)	Higher threshold
New York	$500,000 sales AND 100 transactions	Both tests must be met
Texas	$500,000 sales (no transaction test)	Higher threshold
Several states	$100,000 only (dropped the 200 transaction test)	Trend toward sales-only

What is and is NOT taxable (general rules, varies by state):

Category	Taxable? (General Rule)
Physical products (tangible personal property)	Yes (in almost all states)
Digital products (ebooks, music, software downloads)	Varies widely by state
SaaS (cloud software subscriptions)	Varies widely (taxable in ~25 states)
Professional services (consulting, accounting, legal)	Generally not taxable (some states tax specific services)
Construction and installation	Varies (often contractor is the consumer, not the end client)
Food and groceries	Exempt or reduced rate in most states; restaurant food usually taxable
Clothing	Exempt in some states (PA, NJ, NY under $110); taxable in most

What does sales tax compliance actually look like?

Hypothetical example

Round numbers. An e-commerce business sells physical products nationwide through its own website and through Amazon. Annual revenue: $2,000,000 (60% through own website, 40% through Amazon).

Sales distribution by state (top states):

State	Own Website Sales	Amazon Sales	Total Sales	Over $100K Threshold?
California	$150,000	$100,000	$250,000	Yes
Texas	$120,000	$80,000	$200,000	Yes
New York	$100,000	$70,000	$170,000	Yes
Florida	$90,000	$60,000	$150,000	Yes
Illinois	$60,000	$40,000	$100,000	Yes (at threshold)
Pennsylvania	$50,000	$35,000	$85,000	No (under $100K)
Other states (35 states)	$630,000	$415,000	$1,045,000	Varies

Marketplace facilitator impact:

Channel	Who Collects Sales Tax
Amazon sales ($800,000)	Amazon collects and remits in ALL states with marketplace facilitator laws (all 45 sales-tax states + DC)
Own website sales ($1,200,000)	Seller must collect and remit in states where nexus is established

The seller’s actual obligation:

State	Own Website Sales	Need to Register?	Tax Rate	Annual Tax to Collect
California	$150,000	Yes	~8.68% avg	$13,020
Texas	$120,000	Yes	~8.20% avg	$9,840
New York	$100,000	Yes	~8.52% avg	$8,520
Florida	$90,000	Yes (if over $100K total including Amazon)	~7.01% avg	$6,309
10-15 other states over threshold	Varies	Yes	Varies	~$30,000-$50,000
Total sales tax to collect and remit				~$67,689-$87,689

Note: The seller does NOT keep this money. Sales tax is collected from customers and passed through to the state. The burden is compliance, not the tax itself.

Compliance costs:

Item	Annual Cost
Sales tax software (TaxJar, Avalara, Vertex)	$2,000-$10,000
State registrations (one-time per state, ~$50-$100 each)	$500-$1,500 (one-time)
Filing frequency (monthly in high-volume states, quarterly in others)	100-200 filings per year
Professional assistance (sales tax consultant or CPA)	$1,000-$5,000
Total annual compliance cost	$3,000-$15,000

What happens if you DON’T comply:

Risk	Consequence
State audit	States actively audit remote sellers; typically look back 3-7 years
Back taxes owed	Tax calculated on ALL taxable sales in the state since nexus was established
Interest	6-12% per year on unpaid tax (varies by state)
Penalties	10-25% of tax owed (varies by state)
Personal liability	Owner/officer may be personally liable for uncollected sales tax (trust fund tax)

Example back-tax assessment (California, 3 years of non-compliance):

Year	Taxable Sales	Tax Rate	Tax Owed
Year 1	$100,000	8.68%	$8,680
Year 2	$125,000	8.68%	$10,850
Year 3	$150,000	8.68%	$13,020
Subtotal			$32,550
Penalty (10%)			$3,255
Interest (~8%/year)			~$5,200
Total assessment			~$41,005

And the business cannot go back and collect the tax from its customers after the fact.

Voluntary Disclosure Agreements (VDA): Most states offer VDAs for businesses that have nexus but haven’t been collecting. Benefits:

VDA Benefit	Details
Reduced lookback period	Often 3-4 years instead of full statute
Penalty waiver	Most states waive penalties under a VDA
Interest may be reduced	Some states reduce interest
Anonymous filing	Many states allow anonymous initial inquiry
Proactive vs. audit	Much better outcome than waiting to be caught

SaaS and digital services (the evolving frontier):

State	SaaS Taxable?	Digital Products Taxable?
Texas	Yes	Yes
New York	Yes	Yes
California	No (SaaS generally not tangible property)	No (custom digital content)
Florida	No	No (most digital goods)
Pennsylvania	Yes	Yes
Washington	Yes (B&O tax, not sales tax structure)	Yes
Illinois	No (but “electronically delivered” rules apply)	Depends

For SaaS companies, the taxability analysis is state-by-state and constantly changing. Professional guidance is essential.

Illustrative numbers only, not a real client and not advice for your facts.

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Cite this page

Yarik Yarosh, CPA. "Economic Nexus and Sales Tax: When Your Business Owes Tax in States Where You Have No Office." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-economic-nexus-sales-tax-multistate-obligations

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