State Nexus and Sales Tax for Small Businesses: Complete Guide

Sales tax nexus types:

Physical nexus (traditional):

• Office, store, or warehouse in the state
• Employees or sales reps in the state
• Inventory stored in the state (including FBA warehouse inventory)
• Attending trade shows in some states (temporary nexus)
• Owning or leasing tangible property in the state

Economic nexus (post-Wayfair):

• Most common threshold: $100,000 in sales OR 200 transactions in the state during the current or prior calendar year
• Some states use only the dollar threshold (no transaction count)
• Some states have lower thresholds ($50,000 in a few states)
• Thresholds are measured to the specific state, not nationwide
• Once the threshold is met, the obligation to collect begins going forward (not retroactively, in most states)

Marketplace facilitator laws:

• In all states with sales tax, marketplace facilitators (Amazon, Etsy, eBay, Walmart Marketplace) are required to collect and remit sales tax on behalf of third-party sellers
• If you sell exclusively through a marketplace, the marketplace handles sales tax collection
• If you sell through your own website AND a marketplace, you’re responsible for your direct sales
• The marketplace’s collections count toward your economic nexus threshold in some states (varies by state)

States with no sales tax (5): Alaska (no state sales tax, but some local jurisdictions levy it), Delaware, Montana, New Hampshire, Oregon

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:

• Annual: low-volume sellers (under $1,000-$2,000/year in a state)
• Quarterly: moderate-volume sellers
• Monthly: high-volume sellers
• Frequency is assigned by the state based on your projected or actual sales tax liability