You list a product on Shopify or Amazon, ship it to a customer three states away, and think nothing more of it — until a letter arrives from that state’s department of revenue asking why you haven’t registered to collect sales tax. This scenario plays out for thousands of online sellers every year, and it usually comes down to one concept most small business owners have never heard of: sales tax nexus.
If you sell online, understanding nexus isn’t optional. Getting it wrong can mean back taxes, penalties, and interest across multiple states — even if you never intended to break any rules. Here’s what nexus actually means, how it’s triggered, and what to do once you have it.
What Is Sales Tax Nexus?
Sales tax nexus is the connection between your business and a state that’s significant enough to require you to register, collect, and remit sales tax on sales made to customers in that state. Before 2018, nexus was almost always based on physical presence — an office, warehouse, employee, or inventory located in a state. That changed with the Supreme Court’s decision in South Dakota v. Wayfair, Inc., which allowed states to require out-of-state sellers to collect tax based on sales volume alone, even without a physical footprint.
Today, nexus comes in two main flavors, and most online sellers eventually deal with both.
Physical Nexus vs. Economic Nexus
Physical Nexus
Physical nexus is triggered by a tangible presence in a state, such as:
- An office, storefront, or warehouse
- Employees or contractors working in the state
- Inventory stored in the state — including inventory held in a third-party fulfillment center like an Amazon FBA warehouse
- Attending trade shows or craft fairs on a regular basis
That FBA point trips up a lot of sellers. Amazon distributes inventory across fulfillment centers in multiple states without much input from you, which can create physical nexus in states you never actively chose to do business in.
Economic Nexus
Economic nexus is based purely on sales activity — no physical presence required. Most states set a threshold, commonly around $100,000 in annual sales or 200 separate transactions into that state (exact thresholds and rules vary by state and change over time, so always verify current figures on the state’s department of revenue website before relying on them). Once you cross that threshold, you’re generally required to register and start collecting tax on future sales into that state.
This means a home-based business with zero employees and no warehouse can still owe sales tax registration in a dozen states just by selling enough product to customers there.
How to Know If You Have Nexus in a State
Since thresholds and rules differ state by state, figuring out where you owe tax takes a bit of legwork:
- Pull a sales report by state. Most ecommerce platforms and marketplaces (Shopify, Amazon, Etsy) let you export sales by ship-to state.
- Check each state’s current economic nexus threshold. Thresholds and the look-back period (calendar year vs. rolling 12 months) vary, so check the specific state’s revenue department site.
- Account for marketplace facilitator laws. Most states now require marketplaces like Amazon and Etsy to collect and remit sales tax on your behalf for sales made through their platform. This can reduce — but doesn’t always eliminate — your own registration and filing obligations, especially if you also sell direct through your own website.
- Flag states where you store inventory. If you use FBA, pull your inventory location report to identify physical nexus states.
This is exactly the kind of multi-state tracking that gets messy fast without clean books. If your bookkeeping isn’t broken out by state and sales channel, this analysis becomes a spreadsheet nightmare.
What to Do Once You Have Nexus
Once you’ve determined you have nexus in a state, there’s a standard sequence to follow:
- Register for a sales tax permit with that state’s department of revenue before you start collecting. Collecting tax without a permit is a violation in most states.
- Set up tax collection on your sales channels. Shopify, Amazon, and most platforms have built-in tax settings, but you still need to configure them correctly for each state.
- File returns on schedule. Filing frequency (monthly, quarterly, or annually) is usually assigned based on your sales volume in that state.
- Remit what you collected. Sales tax is trust fund money — it belongs to the state, not your business, from the moment you collect it.
Software like QuickBooks and Xero can integrate with tax automation tools to help track what’s owed where, but the setup and reconciliation still needs a human eye, especially in your first year of multi-state selling.
Common Mistakes Online Sellers Make
- Assuming marketplace collection covers everything. Marketplace facilitator laws cover marketplace sales, not sales through your own Shopify store or website.
- Ignoring FBA inventory locations. Physical nexus from stored inventory catches sellers who’ve never even shipped an order there themselves.
- Waiting for a notice before registering. States are increasingly using data-sharing agreements and marketplace reporting to identify unregistered sellers.
- Treating collected sales tax as revenue. Spending it instead of setting it aside for remittance is one of the most common ways sellers end up with a cash flow crisis at filing time.
Getting Help With Multi-State Sales Tax
Sales tax nexus is a genuinely complicated area, and the rules shift often enough that even attentive business owners fall behind. This article covers the general framework, but it isn’t a substitute for a nexus study or state-specific tax advice — if you’re unsure where you have obligations, it’s worth having a professional review your sales data. Ask For CPA’s accounting services and full bookkeeping and accounting services include the kind of clean, state-level sales tracking that makes nexus analysis and multi-state filing manageable instead of overwhelming.
Frequently Asked Questions
Do I owe sales tax in every state my customers live in?
No. You only owe sales tax in states where you’ve established nexus — either through physical presence or by crossing that state’s economic nexus threshold. States without a sales tax, like Oregon, Montana, and Delaware, don’t require collection at all.
Does Amazon collect sales tax for me automatically?
For sales made through the Amazon marketplace, Amazon generally collects and remits sales tax as a marketplace facilitator in states that have such laws. However, this typically doesn’t cover sales made through your own website or other channels, and you may still have registration or filing obligations depending on the state.
What happens if I don’t register in a state where I have nexus?
States can assess back taxes, penalties, and interest, sometimes going back several years. Many states also offer voluntary disclosure agreements that can reduce penalties if you come forward before being contacted, which is generally a better position than waiting for a notice.
How often do nexus thresholds change?
Thresholds and rules are set individually by each state and can change through new legislation. Because of this, sellers who do business in multiple states should re-check their nexus footprint at least once a year, or any time sales volume grows significantly in a new state.
Multi-state sales tax doesn’t have to be something you untangle alone. Contact Ask For CPA to talk through your sales channels and get a clear picture of where you may have nexus obligations.
