State Nexus and Sales Tax for Small Businesses: Complete Guide

By Yarik Yarosh, CPA ·September 5, 2026 ·Updated September 23, 2026 ·7 min read

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

Sales tax nexus determines whether a business must collect and remit sales tax in a given state. Before the Supreme Court’s 2018 decision in South Dakota v. Wayfair, nexus required physical presence (an office, warehouse, employee, or inventory) in the state. After Wayfair, states can impose “economic nexus” based solely on sales volume or transaction count, with no physical presence required. This means an online seller in Florida shipping products to customers in 30 states may have sales tax collection obligations in every one of those states, depending on their sales volume in each. The compliance burden is significant, but failing to collect creates even greater exposure: the business owes the uncollected tax out of pocket, plus penalties and interest.

✓Key takeaway

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)
Employees exhibiting products at trade shows in some states (Texas counts this)
Owning or leasing tangible property in the state

Economic nexus (post-Wayfair):

Many states use $100,000 in sales into the state, measured over a period each state sets (Ohio also counts 200 transactions; California, Texas and New York use $500,000)
Some states use only the dollar threshold (no transaction count)
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:

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 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

What happens if you don’t collect sales tax?

Hypothetical example

Round numbers. An e-commerce business based in Texas sells products online to customers in all 50 states. Annual revenue: $500,000. The business has NOT been collecting sales tax in any state other than Texas.

State-by-state nexus check (simplified):

State	Annual Sales	Threshold	Nexus?
California	$60,000	$500,000	No
New York	$40,000	$500,000	No
Florida	$30,000	$100,000	No
Ohio	$25,000	$100,000 or 200 transactions	No, unless 200+ orders
Pennsylvania	$15,000	$100,000	No
20 other states	$330,000	Varies	Check each

At $500,000 total revenue distributed across all states, the business might exceed the $100,000 threshold in 2-3 states (depending on where customers are concentrated).

If the business exceeded the $100,000 threshold in Ohio for 2 years without collecting:

Ohio sales: $110,000/year x 2 years = $220,000
Ohio sales tax rate (average): 7.25%
Uncollected tax: $220,000 x 7.25% = $15,950
Penalty (typically 10-25%): $1,595-$3,988
Interest: approximately $800
Total Ohio exposure: $18,345-$20,738

The $15,950 in tax is owed by the BUSINESS, not the customer. The business cannot go back and collect sales tax from customers retroactively. This is a direct hit to the business’s cash flow and profit.

If the business had similar exposure in 3 states: Total exposure: approximately $50,000-$60,000 in back taxes, penalties, and interest.

Voluntary disclosure: Most states offer voluntary disclosure agreements (VDAs) that reduce the lookback period (typically 3-4 years instead of the full statute of limitations) and waive penalties. VDAs are available BEFORE the state contacts you. Once the state sends a notice, the VDA option is usually off the table.

Compliance cost:

Sales tax automation software (TaxJar, Avalara): $500-$5,000/year depending on volume
Registering in multiple states: time cost, no fee in most states
Filing returns: automated by the software
Annual compliance cost: $500-$5,000, far less than the back-tax exposure

The practical approach for small e-commerce businesses:

Use a nexus analysis tool (TaxJar, Avalara) to identify which states you have nexus in
Register in those states
Set up automated sales tax collection on your e-commerce platform
File returns on the assigned schedule (monthly, quarterly, or annually)
Review nexus annually as sales grow (you may cross thresholds in new states)

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

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:

Can small orders create Ohio nexus under $100,000?

Yes. Ohio’s statute presumes substantial nexus if, in the current or preceding calendar year, a seller has more than $100,000 of gross receipts from goods or services delivered to or benefiting Ohio, or 200 or more separate transactions there. Either one is enough, though the presumption can be rebutted.

That matters for the Texas seller in the example. Ohio shows $25,000 of sales, and at a $50 average order that would be 500 orders, well past 200. The “No” in that row only holds if the average order is above $125.

Other states have moved away from counting orders. South Dakota dropped its 200-transaction test on July 1, 2023, and Illinois did on January 1, 2026. Pennsylvania uses no count at all, only at least $100,000 of gross sales in a calendar year.

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Cite this page

Yarik Yarosh, CPA. "State Nexus and Sales Tax for Small Businesses: Complete Guide." Blue Cloud CPA, September 5, 2026, updated September 23, 2026. https://bluecloudcpa.com/guides/small-business-state-nexus-sales-tax-guide

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