What Is Sales Tax Nexus for Online Sellers

Physical Nexus: The Traditional Standard

Physical nexus is the original standard for sales tax obligations, rooted in the principle that a state can tax businesses that use its infrastructure, services, and economic environment. Any tangible presence in a state creates physical nexus, and unlike economic nexus, there is no minimum threshold. A single employee, a single pallet of inventory, or a single day at a trade show can trigger it.

The most common physical nexus triggers for ecommerce sellers are storing inventory in a state (including in a third-party warehouse or fulfillment center), having employees or independent contractors performing services in a state, maintaining an office or business location, and using drop shippers or fulfillment partners located in a state. Amazon FBA sellers are particularly affected because Amazon distributes inventory across its nationwide fulfillment network, potentially creating physical nexus in every state where Amazon has a warehouse that holds your products. At any given time, your FBA inventory might be stored in 10 to 20 different states, each of which represents a physical nexus connection.

Temporary physical nexus can also be triggered by activities like attending trade shows, craft fairs, or pop-up events in a state. Most states have a threshold for temporary presence, often 15 to 30 days per year, beyond which nexus is established. Some states trigger nexus from the very first day of physical presence for selling activities. If you regularly attend shows or markets in other states, check each state's rules for temporary sellers.

Economic Nexus: The Post-Wayfair Standard

Economic nexus became the law of the land after the Supreme Court's June 2018 decision in South Dakota v. Wayfair, Inc. The Court ruled that states can require out-of-state sellers to collect sales tax based on their economic activity in the state, even without any physical presence. By the end of 2019, every state with a sales tax had enacted an economic nexus law.

The standard economic nexus threshold, modeled on South Dakota's law, is $100,000 in sales or 200 transactions in a state within the current or prior calendar year. Crossing either threshold triggers nexus. However, several high-population states set higher dollar thresholds: California and Texas both use $500,000 in sales, while New York requires both $500,000 in sales and 100 transactions (both conditions must be met, not just one). A number of states have eliminated the transaction count test entirely, keeping only the dollar threshold, which significantly reduces the number of small sellers who trigger nexus.

Measuring economic nexus requires tracking your sales into each state on a rolling basis. Most states use a calendar year measurement period, looking at either the current year to date or the prior full calendar year. If you crossed the threshold in either period, you have nexus. Some states use a trailing 12-month period instead of a calendar year. This tracking is manageable with 5 to 10 states but becomes a significant administrative burden as you approach 20+ states, which is where sales tax software becomes essential for monitoring thresholds automatically.

Click-Through Nexus

Click-through nexus, sometimes called affiliate nexus, is created when an in-state person or business refers customers to your website through a link, and you pay them a commission on resulting sales. New York pioneered this concept in 2008 with its so-called "Amazon tax" law, and approximately 20 states have enacted similar click-through nexus provisions.

The typical click-through nexus threshold requires that referrals from in-state affiliates generate over $10,000 in sales in a 12-month period. If your affiliate program has partners in a state who collectively drive more than $10,000 in referred sales, you may have click-through nexus in that state regardless of your other presence or economic activity there. Since the adoption of economic nexus laws, click-through nexus has become less relevant for most sellers because economic nexus thresholds tend to be triggered first, but it still matters for sellers with active affiliate programs and lower overall sales volumes.

Marketplace Nexus

Marketplace nexus, also called marketplace facilitator nexus, arises when you sell through a marketplace like Amazon, Etsy, or eBay. In most states, the marketplace is considered the seller for sales tax purposes and handles collection and remittance on your behalf under marketplace facilitator laws. This means the marketplace's sales, not yours, determine whether the marketplace has nexus. Since Amazon, Etsy, and eBay have nexus everywhere, they collect tax on all orders regardless of whether you as an individual seller have nexus in a given state.

The complication is how marketplace sales affect your direct-sales nexus calculation. In most states, marketplace sales count toward your economic nexus threshold for direct sales. If you sell $80,000 through Amazon and $30,000 through your own Shopify store in Pennsylvania, your total is $110,000, which crosses Pennsylvania's $100,000 threshold. You now have economic nexus for your Shopify sales even though your direct sales alone were below the threshold. A few states exclude marketplace sales from the nexus calculation for direct sales, but this is the minority approach.

How to Determine Where You Have Nexus

Start by listing every state where you have a physical presence of any kind: your home state, states where you store inventory, states where you have employees or contractors, and states where you attend shows or events. You have physical nexus in all of these states, and you need to be registered and collecting in each one.

Next, pull your sales data by state for the current year to date and the prior full calendar year. Compare your sales totals against each state's economic nexus threshold. Any state where you crossed the threshold in either period is a state where you have economic nexus. This analysis needs to happen at least quarterly, because you can trigger nexus mid-year as your sales accumulate.

For states where you are approaching but have not yet crossed the threshold, monitor your sales trajectory. If you did $70,000 in a state by June and your sales are growing, you will likely cross $100,000 before year end. Proactively registering and starting to collect before you technically cross the threshold avoids the scramble of retroactive registration and the risk of owing tax on sales you did not collect on. Our guide to when to start collecting covers the timing considerations in detail.

States With No Sales Tax

Five states have no state-level sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. You never need to collect state sales tax on sales to customers in these states. However, Alaska is a special case: while the state imposes no sales tax, it allows local jurisdictions (boroughs and cities) to impose their own local sales taxes, with rates typically between 1% and 7.5%. Approximately 100 Alaska localities impose a local sales tax. Remote sellers are generally not required to collect Alaska local taxes unless they voluntarily register with the Alaska Remote Seller Sales Tax Commission, but this area of law continues to develop.

Delaware, Montana, New Hampshire, and Oregon have no state or local general sales tax, making them truly tax-free states for sales tax purposes. If a customer's shipping address is in one of these states, no sales tax applies to the transaction.

What Happens If You Ignore Nexus

Selling into a state where you have nexus without collecting sales tax creates a growing liability. The tax you should have collected from customers becomes your personal obligation to the state. Interest accrues from the date each transaction occurred, and penalties for non-filing and non-payment stack on top. A seller who has been ignoring nexus in a state for three years at $200,000 per year in sales could owe $30,000 to $50,000 in back taxes, plus penalties and interest, depending on the state's tax rate and penalty structure.

States are actively identifying non-compliant sellers through data sharing agreements, marketplace transaction data, and audit programs targeting ecommerce businesses. The risk of discovery increases every year as states invest in enforcement technology. Most states offer voluntary disclosure agreements that reduce or eliminate penalties if you come forward proactively, which is almost always the better path compared to waiting for a notice from the state.