Economic nexus is the legal duty to collect and remit sales tax in a state where your business has enough sales activity, even without any physical presence there. Most states set the trigger at $100,000 in gross sales into the state over a 12-month period, and some also count 200 separate transactions. Once you cross the line, you have to register, collect tax on taxable sales, and file returns on the schedule the state assigns you.
Where the Rule Came From
Before 2018, a state could only require sales tax collection from a business with a physical presence there, such as a store, office, or traveling salesperson. That standard came from Quill Corp. v. North Dakota (1992).1Cornell Law School. Quill Corp. v. North Dakota The Supreme Court overruled Quill in South Dakota v. Wayfair, Inc., holding that the physical presence requirement was “unsound and incorrect” and that a state may tax remote sellers whose economic activity creates a sufficient connection to the state.2Supreme Court of the United States. South Dakota v. Wayfair, Inc. The South Dakota law at issue set the threshold at $100,000 in annual sales or 200 separate transactions into the state, and every state with a sales tax has since adopted some version of that framework.
Thresholds and How They Are Measured
The $100,000 gross sales threshold is the most widely adopted standard. When the ruling first came down, most states also included the 200-transaction alternative, so crossing either the dollar amount or the transaction count would create nexus. Many states have since dropped the transaction-count test, leaving only the revenue threshold. If you sell into a state that still uses both, hitting either one is enough.
A few states set their threshold differently, and a handful set it lower for certain tax types. Five states have no statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Some local jurisdictions in Alaska do impose their own sales tax.
Thresholds are measured over a 12-month window, which depending on the state may be the current calendar year, the previous calendar year, or both. If you cross the threshold mid-year, your obligation to collect generally begins on the next transaction. That makes ongoing monitoring important: discovering months later that you passed a threshold can mean back tax, interest, and late-filing penalties that commonly run 5 percent of the unpaid tax per month up to a 25 percent cap.
Do Exempt Sales Count Toward the Threshold?
Usually yes. States that measure “gross sales” count everything, including sales for resale, sales to exempt organizations, and exempt product categories. States that measure “retail sales” exclude sales for resale but still count other exempt transactions, such as sales of food or sales to nonprofit buyers with an exemption certificate.3Streamlined Sales Tax. Remote Seller Thresholds Terms The practical takeaway: exempt sales almost always push you toward the threshold even though you never collect tax on them.
Selling Through a Marketplace
If you sell through a large online marketplace that handles listings and payment processing, the platform itself is generally responsible for collecting and remitting sales tax on those transactions. Marketplace facilitator laws, now in nearly every state with a sales tax, shift that duty to the platform once it crosses the state’s nexus threshold.4Streamlined Sales Tax. Marketplace Facilitator
Selling on both a marketplace and your own website changes the picture. The platform handles tax only on sales it facilitates, and you remain responsible for direct sales through your own channels. In most states, sales from both channels count toward your economic nexus threshold, so combined activity can trigger a registration requirement even when each channel alone stays under $100,000. You can request a Marketplace Facilitator Tax Collection Certificate from your platform confirming which states it collects tax in on your behalf, and keep it in your records for audits.5Multistate Tax Commission. Marketplace Facilitator Tax Collection Certificate – Multijurisdictional
What to Do Once You Cross a Threshold
After you trigger nexus, you need a sales tax permit from that state before you can lawfully collect tax. Most states offer online applications through their department of revenue, and processing runs from a few business days to a few weeks. Most charge no fee, though a small number require an application fee or refundable deposit rarely above $100. Look for the form designated for out-of-state or remote sellers, which is often different from the in-state business form.
To register in multiple states at once, the Streamlined Sales Tax Registration System (SSTRS) lets remote sellers file a single application covering participating states.6Streamlined Sales Tax. Registration FAQ Twenty-three states are full members of the Streamlined Sales Tax Agreement, with Tennessee as an associate member.7Streamlined Sales Tax. Streamlined Sales Tax Home Registering through SSTRS may qualify you for amnesty on past-due tax in some states and gives access to Certified Service Providers that can handle tax calculation and filing, sometimes at no cost to the seller. For non-member states, register directly with each state’s department of revenue.
Whichever route you use, you will typically need your EIN, business entity information, personal information for owners or officers, and the date your activity first crossed the threshold. That date becomes the official start of your tax obligation in the state.
Ongoing Obligations After Registration
States assign a filing frequency, generally monthly, quarterly, or annually, based on the amount of tax you collect. A new registrant with modest sales usually starts on a quarterly or annual schedule, and the state may move you to monthly filing as your volume grows. Frequency can differ between states for the same business, so confirm each assignment after you register.
File a return every period, even one showing zero tax due. Skipping a return because you owe nothing is one of the most common compliance mistakes, and late-filing penalties can apply to zero returns.
When a buyer claims an exemption, collect and keep a valid exemption certificate on file. Without it, those sales will generally be treated as taxable in an audit. Retention periods vary but are commonly four years from the date of the transaction.
Trailing Nexus When Sales Drop
Falling below a state’s threshold does not immediately end your collection duty. Most states impose a trailing-nexus period during which you must keep collecting and filing even though sales no longer meet the threshold. This period commonly runs through the end of the current calendar year and sometimes extends through the following full calendar year. Some states require filing until you formally cancel your registration. Check the specific wind-down rule for each state before you stop collecting.
Fixing a Missed Obligation
If you discover you should have been collecting tax in a state and were not, a voluntary disclosure agreement (VDA) can limit your exposure. You come forward before the state contacts you, and in exchange the state typically waives penalties and shortens the lookback period, often to three or four years instead of the longer window it could otherwise impose. VDAs are usually unavailable once the state has begun an audit or sent you a notice. Many states accept VDA applications through the Multistate Tax Commission’s centralized process. Coming forward voluntarily is almost always less expensive than waiting for an audit.
Buying a Business With Unpaid Sales Tax
If you purchase an existing business or its inventory, you can inherit the seller’s unpaid sales tax debts under a doctrine called successor liability. To protect yourself, withhold enough of the purchase price to cover any outstanding tax, penalties, and interest, and request a clearance certificate from the state confirming the seller has no outstanding liability. Your obligation to withhold continues until you receive that certificate. Successor liability generally cannot exceed the total purchase price, but it transfers automatically with the business and is not something the buyer can contest.