US Sales Tax Nexus for Ecommerce Sellers: Where You Owe and Why

Nexus is the connection between a seller and a state that lets the state require the seller to collect its sales tax. Before 2018 it needed physical presence. Since South Dakota v. Wayfair, economic activity alone is enough. Every state with a sales tax, which is 45 states plus the District of Columbia, now has an economic nexus rule, and a seller anywhere in the world can have nexus in a state it has never visited.

The typical threshold is $100,000 of sales into the state in the current or previous calendar year. Some states set it higher: California, Texas and New York at $500,000. Most states have now dropped the alternative 200-transaction test that caught low-value sellers, though a handful keep it. Sales through marketplaces usually count towards the threshold even though the marketplace collects the tax on them, which means a seller can have nexus in a state through Amazon sales alone and then owe tax on its own Shopify sales there.

Physical presence still creates nexus and still has no threshold. Inventory in a warehouse is physical presence. Fulfilment by Amazon moves stock between dozens of fulfilment centres across the country, so an FBA seller typically has physical nexus in fifteen to twenty-five states without doing anything. Amazon's inventory reports show where stock has been held. Employees, contractors, offices and trade-show attendance also count in most states.

Every state with a sales tax has a marketplace facilitator law requiring Amazon, Walmart, eBay, Etsy and similar platforms to collect and remit sales tax on sales made through them. For marketplace sales, the seller does not collect. However, in some states a seller with nexus must still register and file returns showing the marketplace sales as exempt, and in all states the seller remains responsible for direct sales.

Sales through your own Shopify, WooCommerce or BigCommerce store are your responsibility in every state where you have nexus, whether from economic thresholds or from FBA inventory. That means registering, configuring the store's tax engine to charge the right combined state and local rate by address, filing returns on the state's cadence, and remitting. Digital products and SaaS are taxable in roughly half of states, with definitions that vary.

1. Run a nexus study. Sales by state from every channel, and inventory locations from Amazon's reports, against each state's current threshold.
2. Quantify the exposure. Direct sales in nexus states, times the rate, times the years. Marketplace sales are usually excluded because the platform collected.
3. Use voluntary disclosure where it is material. Most states limit look-back to three or four years and waive penalties for sellers who come forward before being contacted.
4. Register prospectively elsewhere. Where exposure is small, register from today and move on.
5. Automate collection. Native Shopify tax for a few states; TaxJar or Avalara for many.