You run a business in one state, but you sell to customers all over the country. Do you owe sales tax in states where you have no office, no warehouse, and no employees? Since a landmark 2018 Supreme Court decision, the answer for many businesses is yes — and misunderstanding this rule is one of the most common and costly compliance mistakes small businesses make. Here is how sales-tax nexus works and how to know where you owe.
This is general information, not individual tax advice — sales-tax rules vary by state and situation.
What "Nexus" Means
Nexus is simply the connection between your business and a state that is strong enough to require you to collect and remit that state's sales tax. Traditionally, nexus required a physical presence — an office, a store, a warehouse, inventory, or employees in the state. If you had none of those, you generally didn't have to collect that state's sales tax. That was the entire rulebook for decades.
How Wayfair Changed Everything
In its 2018 decision South Dakota v. Wayfair, the Supreme Court overturned the physical-presence rule and allowed states to require remote sellers to collect sales tax based purely on their economic activity in the state — even with no physical footprint. This created a second kind of nexus: economic nexus. Today, essentially every state with a sales tax has adopted it, which means an online or interstate seller can owe sales tax in dozens of states at once.
The Economic-Nexus Thresholds
The South Dakota law the Court upheld set the template: economic nexus kicks in once a seller exceeds $100,000 in sales or 200 separate transactions into the state in a year. Many states copied that standard — but not all. Some use only a dollar threshold (California, for example, uses $500,000 and no transaction count), some set higher dollar figures, and several have dropped the 200-transaction test entirely. The practical takeaway: there is no single national number. You must check each state where you sell.
Physical Nexus Still Counts — and Is Easy to Trigger
Economic nexus didn't replace physical nexus; it added to it. And physical nexus is easier to trigger than many owners realize. Storing inventory in a fulfillment warehouse (including Amazon FBA), sending an employee or contractor to work in another state, or attending a trade show can all create physical nexus — sometimes from a single instance. If you sell through a marketplace, note that many states now require the marketplace to collect on your behalf, which can change your obligations.
Why This Matters So Much for Small Businesses
Sales tax is a trust tax — money you're supposed to collect from customers and pass to the state. If you cross a threshold and fail to register, the liability doesn't disappear; it grows, and states can pursue years of uncollected tax plus penalties and interest — often out of your own pocket, since you never collected it. For a growing e-commerce business, an unaddressed nexus problem can quietly become a five- or six-figure surprise.
What to Do About It
Start by mapping where you sell: pull your sales by state and compare against each state's thresholds. Where you have nexus, register, set up your systems to collect the correct rates, and file on schedule. Where you're approaching a threshold, watch it. Sales-tax automation tools help, but they still need someone who understands your footprint to configure them correctly.
How VarStan Helps
Sales-tax nexus is exactly the kind of issue that's invisible until it's expensive. As a CPA-led firm, we help growing and e-commerce businesses map their multistate footprint, determine where they've crossed nexus thresholds, register and set up collection correctly, and stay compliant as they expand. If you sell across state lines and aren't sure where you owe, that's a question worth answering before a state answers it for you.