Your Guide to Ecommerce Sales Tax Nexus by State

Your business may owe sales tax to a state even if you don’t have a physical presence there. Learn more about sales tax nexus by state and how it impacts your business.

Ecommerce Sales Tax Nexus by State

Life can be full of unpleasant surprises. A fly in your morning coffee, a best-forgotten ex calling out of the blue – or an unexpected sales tax bill from a state you didn’t even know you were doing business in.

Many remote ecommerce sellers are surprised to find out their business may owe sales tax to a state, even if they don’t have a physical presence there. Welcome to the world of sales tax nexus! While in the past, ecommerce retailers had to have a physical presence in a state (aka physical nexus) for their nexus sales tax requirements to be triggered, now ‘economic nexus’ sales tax obligations come into effect when you  achieve certain sales volumes or order amounts in a state. With different nexus laws by state determining sales tax nexus, your ecommerce store could trigger sales tax in one state – or many – without you even realizing it.

This guide was created to answer all your sales tax nexus questions and simplify how your business navigates the more than 13,000 sales tax jurisdictions in the U.S. From teaching you how to determine sales tax nexus by state to introducing you to handy resources like our interactive sales tax nexus by state’ chart showing all sales tax nexus thresholds – and our simpler state nexus chart included below – we’ve got you covered.

What is Sales Tax Nexus?

Sales tax ‘nexus’ is the term used to describe the connection a business has to a state. If a company has state tax nexus, it will be required to register, collect, and remit sales tax in that state.

There are two types of sales tax nexus:

1. Physical nexus most commonly achieved by having a physical presence in a state like an office or a warehouse.
2. Meanwhile economic nexus is achieved by hitting certain sales volume or amount thresholds for purchases made in that state. Without economic or physical nexus in a state, you have no obligation to collect or pay sales tax there.

Before 2018, companies could only trigger nexus when they had a physical presence in the state. But that all changed after Wayfair vs. South Dakota.

In Wayfair vs. South Dakota, the U.S. Supreme Court ruled that a business doesn’t need to be physically located in a state to have a sales tax connection there. Instead an economic connection or ‘nexus’ could also trigger sales tax obligations in that state. However, states were allowed to make their own laws and thresholds to register for sales tax resulting in a confusing number of different nexus rules. Trying to keep track of sales tax thresholds by state and economic nexus laws by state has, therefore, added significant complexity for ecommerce businesses.

What does this mean for your company? You may never have stepped foot in California, but if your products or services suddenly get popular there and you ring up more than $500,000 in sales, you’ll need to collect and pay sales tax to the state because you’ve achieved nexus for sales tax in California.

How to Determine Sales Tax Nexus by State

Economic nexus thresholds vary by state and are typically determined when a business reaches a specific amount of sales and/or number of sales transactions.

For example, in Arizona, you achieve economic nexus for sales tax when your gross sales exceed $100,000 in the current or previous calendar year. Meanwhile, in Illinois, achieving economic nexus requires $100,000 in gross receipts or 200 or more transactions within the preceding 12-month period.

It’s your responsibility to keep track of sales tax thresholds by state, as well as changes in nexus laws by state  but we have an interactive Sales Tax Nexus by State Chart (see our State Nexus Chart) to help you understand nexus thresholds.

Here’s a quick list of thresholds for achieving sales tax nexus by state to get you started.

Sales Tax Nexus by State Chart 2024

States with a $100,000 sales tax nexus threshold

States with sales tax nexus thresholds above $100,000

States without sales tax and no nexus thresholds

Determining Economic Nexus Sales Tax by State

You might think, based on the above sales tax nexus by state chart, that all you have to do is add up your sales for each state. However, with different laws determining economic nexus for sales tax by state, it’s not that easy. States calculate the sales that go towards economic nexus differently – so it’s important to look up and read the nexus laws by state.

Here are some differences in determining economic nexus for sales tax by state:

• Marketplace sales: Some states require that you include transaction numbers and dollar amounts from Marketplace facilitated sales in your threshold calculation. Typically in marketplace sales, a marketplace facilitator is collecting and remitting sales tax on your behalf for all sales on their platform. However, certain states count these sales towards your sales tax threshold even if you have no tax liability for them. .
• Gross sales vs. taxable sales: Some states count the sale of tax exempt items towards their nexus sales tax threshold and other states only count taxable sales towards their sales tax nexus threshold.

Surprising Physical Nexus Laws by State

We’ve covered things that can trigger economic ecommerce sales tax by state but some companies achieve physical sales tax nexus despite having minimal or no physical presence in a state. Whether these circumstances trigger sales tax nexus for your ecommerce business varies with nexus laws by state due to the different ways they determine physical nexus for sales tax by state.

• Remote employees can trigger sales tax nexus: That’s right! If you have a remote employee in another state that could be seen as a physical connection to that state. So could employees who travel across states for work.
• Trade show and event attendees: Before you book that trade show, make sure to see how it could impact your physical nexus sales tax obligations. Some states like Michigan have very strict rules around physical nexus for sales tax.
• Affiliate ads could trigger sales tax nexus: Affiliate marketing is a great way to increase your store’s sales but some states consider it enough to establish physical nexus in certain states.
• Fulfillment centers could trigger nexus: Whether you own a fulfillment center or contract it out, that could be enough to trigger physical nexus sales tax obligations in certain states. You don’t even need to own the warehouse.

Registration for Sales Tax Nexus by State?

If you’ve racked up enough sales or transactions in a state to achieve economic nexus for sales tax purposes in that state you now need to register for a sales tax number, collect taxes, and remit taxes in that state.

However, the exact steps you’ll need to take and exactly when you’ll have to register will vary with nexus laws by state.

For example, some states require that you register and start collecting sales tax immediately after you achieve economic nexus while others require that you register at the beginning of the next year.

Here’s a general breakdown of your next steps once you determine your nexus sales tax obligations:

1. Register for sales tax: Once you achieve sales tax nexus in a state, you need to go to the state’s tax authority website (or fill out paperwork at their office) to register for sales tax either immediately or by the start of the next tax law. You’ll need information like your corporate name, corporate number, state where you’re incorporated, and date incorporated. You’ll also need your business’ contact information, bank information, North American Industry Classification System (NAICS) code, and more, depending on what state you’re registering for sales tax in.
2. Collect sales tax: Once you’re registered for sales tax, you’ll need to collect your sales tax on sales made to that state.
3. Remit your sales tax: You’ll next need to file your sales tax return and remit your sales tax. How often you’ll need to file your sales tax return and remit your taxes will depend on the state and the size of your business. Some businesses are required to file monthly whereas others are only required to file quarterly or annually.

How Do You Calculate Sales Tax Nexus by State?

You could crunch the numbers and determine your sales tax nexus in each state with help from our handy sales tax nexus by state chart. Just tap on the state you’re curious about and see the sales or transaction threshold that will trigger nexus. You can even click on each state’s guide to learn more about that state’s sales tax rate to know what you’d need to charge in that state once you achieve sales tax nexus in that state.

After that, you’ll have to track every transaction and sale towards your sales tax nexus thresholds by state to determine when you meet each state’s nexus sales tax threshold and then ensure you register for sales tax and start charging it after you do.

However, keeping such careful tabs on your obligations around nexus sales tax by state can be extremely time consuming and risky. Luckily, there are sales tax software like TaxCloud that will do that monitoring for you.

A Simple Solution for Managing Ecommerce Sales Tax By State

TaxCloud’s sales tax software is your partner in tracking your economic nexus for sales tax by state. We stay up-to-date on nexus laws by state so you don’t have to. We then track your progress towards sales tax nexus thresholds by state and alert you when you’re approaching sales tax nexus thresholds in that state.

We’ll then register for sales tax on your behalf and collect tax for you if you. Come filing time, we can even remit and file your tax returns!

Nexus shouldn’t keep you up at night and you shouldn’t need to be an expert in ecommerce sales tax by state just to run your business.

Contact us today to learn more about what TaxCloud can do to automate your sales tax compliance – so you can get back to running your business.