Understanding Sales Tax Nexus: A Complete Guide for Online Sellers

"Nexus" might sound like a sci-fi term, but for online sellers, it's one of the most important tax concepts to understand. Nexus determines where you need to collect sales tax—and getting it wrong can lead to serious penalties.

This guide explains everything you need to know about sales tax nexus.

Tax Documents

What Is Sales Tax Nexus?

Nexus is the connection between your business and a state that requires you to collect and remit sales tax there.

Think of it this way: States can only require you to collect their sales tax if you have a sufficient "presence" in their state. That presence is nexus.

Before 2018: Physical Presence Only

Before the landmark Supreme Court case South Dakota v. Wayfair (2018), nexus required physical presence:

• Office or store
• Warehouse or inventory
• Employees
• Sales reps traveling to the state

After 2018: Economic Nexus

The Wayfair decision changed everything. Now states can require sales tax collection based on economic activity alone—no physical presence needed.

This means if you sell enough to customers in a state, you have nexus there even if you've never set foot in that state.

Types of Nexus

1. Physical Nexus

Traditional nexus based on physical presence:

2. Economic Nexus

Nexus based on sales volume:

Important: Thresholds apply to sales INTO a state, not where you're located.

3. Affiliate Nexus

Created by relationships with entities in the state:

• Affiliate marketers
• Referral agreements
• Related companies

4. Click-Through Nexus

Created by online referral arrangements:

• Commission-based referrals
• Links from in-state websites
• Affiliate networks

5. Marketplace Nexus

For sellers on marketplaces:

• The marketplace (Amazon, eBay) usually has nexus
• They collect as "marketplace facilitator"
• Your direct sales may still create your own nexus

Economic Nexus Thresholds by State

Most states have adopted economic nexus. Here are common thresholds:

$100,000 OR 200 Transactions

Most states use this threshold:

• Alabama, Arizona, Arkansas
• Colorado, Connecticut, Georgia
• Hawaii, Idaho, Illinois
• And many others

$100,000 Only (No Transaction Test)

Some states eliminated the transaction test:

• California ($500,000)
• New York ($500,000)
• Texas ($500,000)
• Massachusetts ($100,000)
• And others

$500,000 Threshold

Larger thresholds in some states:

• California: $500,000
• New York: $500,000
• Texas: $500,000

No Sales Tax

Five states have no general sales tax:

• Alaska (but local taxes may apply)
• Delaware
• Montana
• New Hampshire
• Oregon

How to Track Your Nexus Exposure

Step 1: Know Your Home State

You always have nexus in your home state. Register there first.

Step 2: Identify Physical Presence

Map where you have:

• Employees (even remote)
• Inventory storage (including 3PL, FBA)
• Business property
• Regular in-person activities

Step 3: Track Sales by State

Monitor your sales to each state:

Step 4: Register When Thresholds Approach

Don't wait until you exceed thresholds. Register proactively when you're getting close.

Practical Scenarios

Scenario 1: Pure E-commerce Seller

Situation: You sell from your home in Ohio, shipping to customers nationwide.

Nexus analysis:

• Ohio: Physical nexus (home state)
• Other states: Economic nexus when thresholds met

Action items:

1. Register in Ohio
2. Track sales to each state
3. Register in states as thresholds are met

Scenario 2: Amazon FBA Seller

Situation: You send inventory to Amazon FBA, which stores it in warehouses across the country.

Nexus analysis:

• Home state: Physical nexus
• FBA warehouse states: Inventory nexus (physical)
• Other states: Economic nexus

Action items:

1. Register in home state
2. Identify all FBA warehouse states
3. Register in warehouse states
4. Track economic nexus in remaining states

Note: Amazon collects as marketplace facilitator, but you may still need to register for your records.

Scenario 3: Using a 3PL Provider

Situation: You use a 3PL like 3PLGuys for fulfillment.

Nexus analysis:

• Home state: Physical nexus
• 3PL location: Potentially inventory nexus
• Other states: Economic nexus

Action items:

1. Understand where your 3PL stores inventory
2. Consider if that creates nexus
3. Register accordingly

Tip: A good 3PL can help you understand the tax implications of where they store your inventory.

Scenario 4: Multi-Channel Seller

Situation: You sell on Amazon, eBay, Shopify, and Walmart.

Nexus analysis:

• Each channel may have different collection rules
• Marketplaces usually collect (facilitator)
• Your own site—you collect

Action items:

1. Track sales by channel AND by state
2. Know what each marketplace handles
3. Manage your direct website sales separately

Tools like Raidframe can help you track sales across channels and by state.

What Happens When You Have Nexus

Once you have nexus in a state:

1. Register for Sales Tax Permit

Apply for a seller's permit/sales tax license in that state.

2. Begin Collecting Sales Tax

Start charging sales tax on sales to customers in that state.

3. File Sales Tax Returns

Submit returns according to the state's schedule:

• Monthly (high volume)
• Quarterly (medium volume)
• Annually (low volume)

4. Remit Collected Tax

Pay the tax you've collected to the state.

Common Nexus Mistakes

Mistake 1: Ignoring Economic Nexus

"I don't have a warehouse there, so I don't have nexus."

Reality: Economic nexus means sales alone can trigger registration requirements.

Mistake 2: Not Tracking Sales by State

"I'll figure it out at tax time."

Reality: By then, you may have exceeded thresholds and owe back taxes.

Mistake 3: Waiting Too Long to Register

"I'll register once I definitely exceed the threshold."

Reality: Register when you're approaching the threshold to avoid playing catch-up.

Mistake 4: Assuming Marketplaces Handle Everything

"Amazon collects tax, so I don't need to do anything."

Reality: You may still need to register, file returns, and handle your own site sales.

Tools for Nexus Tracking

Sales Tax Software

Built-In Platform Tools

• Shopify: Basic tax reports
• Amazon: Sales tax reports by state
• eBay: Transaction reports

Spreadsheet Tracking

For smaller businesses, a simple spreadsheet can work:

• Track sales by state monthly
• Compare to thresholds
• Flag when approaching limits

When to Get Help

Consider professional help if:

• You're selling in many states
• You're approaching multiple thresholds
• You've been ignoring nexus
• You received a notice from a state
• Your business is complex

A tax professional can:

• Assess your current exposure
• Help with voluntary disclosure
• Set up proper systems
• Handle registration

Key Takeaways

1. Nexus = where you collect tax - Know your obligations
2. Economic nexus changed everything - Sales volume creates nexus
3. Track sales by state - Monitor thresholds continuously
4. Register proactively - Don't wait until you're behind
5. Marketplaces help but don't cover everything - You're still responsible

Get Started With Compliance

Proper sales tax compliance starts with getting registered. Begin with your resale certificate and sales tax permit.

Apply for Your Resale Certificate →

Need help understanding your nexus obligations? Contact us for guidance.