Economic Nexus Explained: State by State

How Economic Nexus Works

Before the Supreme Court's 2018 South Dakota v. Wayfair decision, states could only require sales tax collection from sellers with a physical presence within their borders. Wayfair changed that by ruling that states can impose collection obligations based on economic activity alone. The practical effect is that every online seller in the US now has potential sales tax obligations in up to 45 states plus the District of Columbia, depending on where their customers are located and how much they sell into each state.

Economic nexus is measured using one of two metrics: total gross sales into a state or total number of individual transactions shipped to a state within a defined measurement period. Most states use an "or" test, meaning you trigger nexus by crossing either the dollar threshold or the transaction threshold, whichever comes first. A few states like New York and Connecticut use an "and" test, requiring you to cross both thresholds simultaneously. The "and" test is more seller-friendly because it prevents small-dollar, high-transaction sellers (like those selling $5 stickers) from triggering nexus based on transaction count alone.

The measurement period for economic nexus is the current calendar year and the prior calendar year in most states. If you crossed the threshold at any point during either period, you have nexus. This look-back means that nexus established in the prior year carries forward into the current year even if your current-year sales are below the threshold. Some states use a trailing 12-month period instead of calendar years, which creates slightly different calculation timing. Always verify the specific measurement period for each state where you are tracking thresholds.

States With the Standard $100,000 / 200 Transaction Threshold

The majority of sales tax states adopted South Dakota's threshold of $100,000 in gross sales or 200 transactions. As of 2026, states using this standard threshold or a close variation include Alabama, Arizona, Arkansas, Colorado, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.

However, a growing number of these states have eliminated the 200 transaction test in recent years, keeping only the $100,000 sales threshold. This trend reflects legislative recognition that the transaction count test unfairly targets small sellers with high-volume, low-value transactions. States that have dropped the transaction count test include Colorado, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Virginia, Washington, West Virginia, and Wisconsin, among others. Check each state's current rules because this list continues to change as legislatures update their laws.

States With Higher Thresholds

California sets its economic nexus threshold at $500,000 in total combined sales of tangible personal property in the current or prior calendar year, with no transaction count test. California's higher threshold means that a seller needs to do substantial business in the state before triggering a collection obligation. Given California's large population and consumer spending, many sellers cross this threshold faster than they might expect.

Texas also uses a $500,000 threshold, measuring total revenue from sales of tangible personal property in the state during the preceding 12 calendar months. Texas does not use a transaction count test. As the second-largest state by population and GDP, Texas represents significant revenue for most national ecommerce sellers, and the $500,000 threshold is crossed by mid-sized sellers relatively quickly.

New York requires both $500,000 in gross sales and 100 or more transactions in the preceding four sales tax quarters. Because New York uses an "and" test (both conditions must be met), small sellers with fewer than 100 transactions are not captured even if their sales exceed $500,000. This protects sellers of high-value, low-volume products like industrial equipment or luxury goods from triggering nexus based on a handful of large orders.

Connecticut uses a $100,000 threshold with a 200 transaction requirement, structured as an "and" test similar to New York. Both conditions must be met to establish economic nexus.

When Economic Nexus Takes Effect

The date on which your collection obligation begins after crossing a threshold varies by state. The most common approaches are requiring collection to begin on the first transaction after the threshold is crossed, on the first day of the month following the month in which the threshold was crossed, or on the first day of the next calendar quarter. Some states give sellers 60 or 90 days after crossing the threshold to register and begin collecting.

A few states apply economic nexus retroactively to the beginning of the calendar year in which the threshold was crossed. This means if you cross the threshold in July, you technically owed tax on all sales in that state from January through June. In practice, states with retroactive effective dates typically do not aggressively pursue the pre-trigger tax, especially through voluntary registration, but the theoretical liability exists.

Once you have established economic nexus in a state, your obligation continues until your sales drop below the threshold for the relevant measurement period. If you had nexus in State X based on 2025 sales of $120,000 but your 2026 sales to State X are only $40,000, your nexus obligation typically ends at the close of 2026 (since 2025 sales are no longer in the look-back window as of January 2027). However, you must continue collecting and filing through the end of the period, and you should formally close your sales tax account in that state rather than simply stopping collection.

What Counts Toward the Threshold

Most states measure economic nexus based on gross sales, meaning total sales revenue before deductions for returns, shipping charges, or exempt sales. If you sell $110,000 worth of products into a state but $15,000 of those were returned, your gross sales are still $110,000 for nexus calculation purposes in most states. A few states allow you to use net sales (after returns) for the threshold calculation, but the majority use gross.

Whether exempt sales count toward the threshold also varies by state. In most states, all sales count, including sales of exempt products. If you sell $90,000 of taxable products and $20,000 of exempt products (like groceries or clothing in states where those are exempt), your total for nexus purposes is $110,000. This can create situations where you must register and file in a state even though a significant portion of your sales there are non-taxable.

Wholesale sales and sales for resale typically count toward the threshold as well. Even if every sale you make in a state is a wholesale transaction where the buyer provides a resale certificate and no tax is collected, those sales still count toward the nexus threshold. Once you cross the threshold, you must register. You will file returns showing taxable sales of zero (since all sales are exempt wholesale), but you are still required to file.

How to Track Your Thresholds

Manual tracking works for sellers with sales in a small number of states. Pull a sales report from your ecommerce platform grouped by ship-to state for the current year to date and the prior full year. Compare each state's total against its threshold. Flag any state where you are at 75% or more of the threshold, as you are likely to cross before year end at your current trajectory.

Sales tax software like TaxJar and Avalara automates this tracking by pulling transaction data from all your selling channels (Shopify, Amazon, eBay, Etsy, WooCommerce) and monitoring your sales against every state's current threshold in real time. Both platforms send alerts when you approach or cross a threshold, which eliminates the risk of missing a trigger date. For sellers on 3 or more selling channels, automated threshold monitoring is significantly more reliable than manual tracking.

If you sell on multiple platforms, remember that your threshold calculation includes sales from all channels combined. Your Shopify sales, Amazon sales, Etsy sales, and eBay sales to customers in a given state all add up toward that state's threshold. Tracking each platform separately and then forgetting to combine them is a common error that leads to late discovery of nexus obligations.

What to Do When You Cross a Threshold

When you identify that you have crossed or are about to cross an economic nexus threshold in a new state, take these steps promptly. Register for a sales tax permit in that state through the state's department of revenue website or through the Streamlined Sales Tax Registration System if the state is a member. Enable sales tax collection for that state in your ecommerce platform settings. Verify that your tax rates and product taxability settings are correct for the state. Begin filing returns according to the filing frequency the state assigns to you (monthly, quarterly, or annually). Update your internal tracking to include the new state.

If you discover that you crossed a threshold months ago without realizing it, consider whether to file a voluntary disclosure agreement with the state to address the period between the trigger date and when you started collecting. Voluntary disclosure typically results in reduced penalties and a shorter look-back period compared to waiting for the state to discover your non-compliance. Consult with a sales tax professional for states with significant back-tax exposure.