Sales Tax Nexus Explained: What Every E-Commerce Seller Needs to Know

Sales tax used to be simple: if you had a physical presence in a state, you collected sales tax there. The 2018 Wayfair decision changed that, and e-commerce sellers now face a patchwork of state-by-state rules that can create obligations far from home.

The key concept is nexus — a connection between a seller and a state that creates a duty to collect sales tax. Physical nexus arises from offices, employees, inventory, or warehouses. Economic nexus arises from a threshold of sales or transactions into a state, even with no physical presence.

Most states have established economic nexus thresholds, commonly $100,000 in annual sales or 200 separate transactions into the state. Once you cross a state's threshold, you are generally required to register, collect, and remit sales tax there — even if you have never set foot in the state.

The compliance burden is real. Each state has its own registration process, tax rates, filing frequency, and product taxability rules. Some tax groceries; some exempt clothing; digital goods are treated differently everywhere.

Marketplace facilitator laws shift the collection responsibility to platforms like Amazon and Etsy for sales made through them, which can simplify matters for some sellers — but sales made through your own site remain your responsibility.

The practical approach is to monitor your sales by state, register when you approach a threshold, and use sales tax automation software to track rates and file returns. Ignoring nexus does not make it go away; it converts a manageable compliance task into a back-tax liability with interest and penalties.

If you sell across state lines, treat sales tax as a year-round compliance discipline, not an afterthought at filing time.