Sales Tax Nexus for Small Businesses: When You Must Collect and Remit
Sales tax is a state and local obligation, not a federal one, but it is one of the highest-risk compliance areas for small businesses that sell across state lines. Before 2018, a business only had to collect sales tax in states where it had physical presence (an office, warehouse, employee, or inventory). The Supreme Court’s decision in South Dakota v. Wayfair (2018) changed this by allowing states to impose sales tax collection obligations based on economic nexus, meaning the volume of sales into a state, not physical presence.
Sales tax nexus types:
Physical nexus (traditional):
- An office, store, warehouse, or other physical location in the state
- Employees working in the state (including remote employees)
- Inventory stored in the state (including Amazon FBA inventory)
- Employees exhibiting products at trade shows (Texas counts this; rules vary by state)
- Delivery by company-owned vehicles
Economic nexus (post-Wayfair):
- Several states use a threshold of $100,000 in sales into the state (such as Florida and Pennsylvania); Ohio also counts 200 transactions, and California, Texas and New York use $500,000
- Some states have removed the transaction count and use only the dollar threshold
- Thresholds are measured on a trailing 12-month or calendar-year basis
- Once the threshold is met, the business must register, collect, and remit sales tax in that state
Marketplace facilitator rules:
- Many states, including California, Florida, Georgia, New York, Pennsylvania and Texas, require marketplace facilitators to collect and remit sales tax on behalf of third-party sellers
- If all sales in a state go through a marketplace that collects tax, the seller may not need to register separately
- If the seller also sells through their own website or in-person, they must collect tax on those non-marketplace sales
What is taxable (varies by state):
- Tangible personal property: taxable in most states
- Digital products (software, downloads, streaming): taxable in many but not all states
- SaaS (cloud-based software): taxable in approximately 20 states, exempt in others
- Services: varies widely (some states tax all services, most tax only specific categories)
- Food: grocery food is exempt in most states; prepared food is taxable in most
Lower thresholds and timing:
- Thresholds and measuring periods differ by state, so check each state’s own rule
- Once the threshold is met, the obligation to collect begins going forward (not retroactively, in most states)
- The marketplace’s collections may count toward your economic nexus threshold in some states (varies by state)
Sales tax registration:
- Register with the state’s Department of Revenue BEFORE collecting tax
- You need a sales tax permit/license (free in most states, small fee in some)
- Collecting sales tax without a permit is illegal in some states
- Once registered, you must file returns even if you had zero sales in that period
Filing frequency (assigned by the state based on volume):
- Annual: low-volume sellers (under $1,000-$2,000/year in a state)
- Quarterly: moderate-volume sellers
- Monthly: high-volume sellers
States with no sales tax: Alaska (but local municipalities can levy sales tax), Delaware, Montana, New Hampshire, Oregon
How does a small e-commerce business handle sales tax?
How do I know if I need to collect sales tax?
Sales tax obligations depend on nexus, a connection between your business and a state that triggers a collection requirement. Physical nexus comes from having a location, employee, or inventory in a state. Economic nexus, established after the 2018 Supreme Court decision in South Dakota v. Wayfair, triggers when you exceed a state’s revenue or transaction threshold (each state sets its own figure and period; Florida and Pennsylvania use $100,000 of sales, for example, while California and Texas use $500,000). Each state sets its own rules, rates, and exemptions. If you sell online and ship to multiple states, you likely have economic nexus in several states and must register, collect, and remit sales tax in each.
What is the difference between sales tax and use tax?
Sales tax is collected by the seller at the point of sale and remitted to the state. Use tax is owed by the buyer when sales tax was not collected, typically on out-of-state purchases or items withdrawn from inventory for personal use. As a business, you owe use tax on equipment, supplies, or inventory purchased from vendors who did not charge sales tax. Many states combine sales and use tax on a single return. Failing to self-assess use tax can result in back-tax assessments for the full statute of limitations period, typically three to four years, plus interest and penalties.
Related guides:
Do a handmade seller’s Etsy sales count toward nexus?
It depends on the state. California counts sales made through a marketplace facilitator toward your own $500,000 threshold, and New York includes marketplace sales in its $500,000 and 100-sale test. Pennsylvania goes the other way: a marketplace seller with no physical presence there tests its $100,000 line on direct sales plus any marketplace sales where the facilitator doesn’t collect for it.
Florida, the example’s home state, has you leave certified marketplace sales off your own return. California and Texas don’t require registration from sellers who sell only through a qualifying marketplace, but that stops helping once you also run your own website, like the seller in the example.
Ohio deserves a second look. Its statute presumes nexus at more than $100,000 of gross receipts or 200 or more separate transactions in the current or preceding calendar year, and the presumption can be rebutted. At the example’s $50 average order, $15,000 of Ohio sales is about 300 orders. If Ohio orders split like the whole business, half through Etsy, the website share is about 150, under 200 on its own, but Ohio’s statute doesn’t say whether Etsy orders count toward a seller’s own 200. Count your direct Ohio orders separately before deciding.
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Yarik Yarosh, CPA. "Sales Tax Nexus for Small Businesses: When You Must Collect and Remit." Blue Cloud CPA, September 5, 2026, updated September 23, 2026. https://bluecloudcpa.com/guides/small-business-sales-tax-nexus-compliance
This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.