Economic nexus: when do you have to collect sales tax in another state?
Since the Supreme Court's Wayfair decision in 2018, a seller with no office in a state can still have to collect its sales tax once sales into that state pass a threshold. Most states use $100,000 of sales a year; California, Texas and New York use $500,000.
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If you sell to customers across the US, you may owe sales tax in several states. Which ones depends on economic nexus: once your sales into a state pass its threshold, you register there and collect its tax, even if you have never set foot in it.
What changed with Wayfair?
Before 2018, a state could only require a seller to collect sales tax if the seller had a physical presence there, such as an office, staff or a warehouse. In South Dakota v. Wayfair, the Supreme Court overruled that rule and allowed states to use economic presence instead. Every state with a statewide sales tax now has an economic nexus law.
What are the thresholds?
Most states use a dollar threshold, measured over the current or previous calendar year. Several have dropped the transaction-count test they started with.
| State | Threshold |
|---|---|
| Most states | $100,000 of sales into the state |
| California | $500,000 |
| Texas | $500,000 |
| New York | $500,000 and more than 100 sales |
| Florida | $100,000 of taxable remote sales |
Check each state's revenue department for the exact rule: what counts (gross, taxable or retail sales), the measurement period, and whether marketplace sales count.
Five states have no statewide sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon. Some Alaska localities do tax remote sales.
How do marketplaces change it?
Every sales tax state now has a marketplace facilitator law. When you sell through Amazon, Etsy, eBay or similar, the marketplace collects and remits the tax on those sales. You may still have to count those sales toward your own threshold in some states, and you still owe tax on your direct sales, such as your own website.
What happens once you pass a threshold?
- Register for a sales tax permit in that state before you start collecting.
- Charge the right rate, which can vary by city and county.
- File returns, monthly, quarterly or annually, depending on volume.
- Keep exemption certificates for business buyers who resell.
Sales tax software connected to your checkout calculates rates at the address level and tracks thresholds. For a seller in a few states, it is usually worth the cost.
Do foreign sellers have to collect it?
Yes, if they pass a state's threshold. Sales tax is separate from federal income tax, so a foreign company with no US income tax liability can still owe state sales tax. A non-resident's US LLC selling online is treated like any other remote seller. See US LLC banking for non-residents and tariffs and import duties for the federal side.
What if you are already over a threshold?
Many states run voluntary disclosure programmes that limit back taxes and waive penalties for sellers who come forward before being contacted. A sales tax adviser can make the approach without naming you first.
Holding sales tax until it is due
Sales tax collected is the state's money. Many sellers sweep it into a separate balance as it comes in. Rivet gives registered companies USD account details in their own name, so marketplace payouts and direct sales land in one place and the tax can be set aside before filing.
Questions people ask
What is economic nexus?
A connection to a state, created by the amount or number of sales into it, that is enough for the state to require you to register and collect its sales tax. It was allowed by the Supreme Court in South Dakota v. Wayfair in 2018.
Do sales through Amazon count toward economic nexus?
It depends on the state. Many states count marketplace sales toward your threshold but require the marketplace to collect the tax on them. Others exclude them. Check each state where you are close.
Does a foreign company have to collect US sales tax?
If it sells taxable goods or services to buyers in a state and passes that state's threshold, generally yes. Sales tax is a state tax and does not depend on federal income tax status.
Are services subject to sales tax?
Some. Each state decides. Many tax physical goods and some digital products, and fewer tax services. Software as a service is taxable in some states and not others.
Sources
William covers what happens once a company starts moving money: getting the business verified, paying contractors and suppliers abroad, and keeping card spend under control. William writes for the founder or finance lead who has to make it work this week, and links every rule cited to the text it comes from.
More from William Sunjo M. →This article is general information, not legal, tax or financial advice. Rules and fees change; check the sources above and the provider’s current terms before you act on them.
- economic nexus
- sales tax
- remote seller
- wayfair
- e-commerce
- us tax
