If you sell online, one of the most common questions is: which states do I need to collect sales tax in? The answer depends on where you have nexus, the connection with a state that gives it the right to require you to collect its sales tax.
Physical nexus and economic nexus
Physical nexus comes from having a presence in a state, such as an office, employees, or inventory in a warehouse. Since the Supreme Court’s 2018 decision in South Dakota v. Wayfair, states can also require remote sellers to collect tax based on economic nexus: your sales into the state alone.
How economic nexus thresholds work
Each state sets its own threshold. A common threshold is $100,000 in annual sales into the state, and some states also count the number of transactions. Some states use a higher dollar amount, and states differ on which sales count toward the total. Because the rules vary, the only reliable answer comes from checking your actual sales by state against each state’s current rules.
Marketplace facilitator laws
If you sell on Amazon, Etsy, eBay, or Walmart Marketplace, the marketplace is generally required to collect and remit sales tax on those marketplace sales. That helps, but it does not always cover everything:
- Sales through your own website, for example on Shopify, are usually your responsibility.
- Some states still expect sellers to register or file even when a marketplace collects the tax.
- Inventory stored in a marketplace warehouse can create physical nexus in that state.
A simple plan for online sellers
- Export sales by state for the last 12 months from each sales channel.
- Separate marketplace sales from direct sales.
- Compare against each state’s threshold to see where you have nexus.
- Register before you collect. Do not charge sales tax in a state until you hold a permit there.
- File on each state’s schedule, which may be monthly, quarterly, or annual.
Already behind?
If you find you should have been collecting tax in a state, there are options, including voluntary disclosure agreements that can limit penalties and look-back periods. Address it early.
Our sales tax services include nexus reviews, state registrations, and ongoing filing for online sellers. If you have questions about your situation, contact us.
This article is general information, not tax advice for your specific situation.