In June 2018, the US Supreme Court's decision in South Dakota v. Wayfair, Inc. fundamentally changed the landscape of online retail sales tax. Before this ruling, online sellers only had to collect sales tax in states where they had a physical presence — a store, warehouse, or employee. After Wayfair, states gained the authority to require tax collection from out-of-state sellers based purely on their level of sales into that state, regardless of physical presence. By 2026, this has reshaped compliance obligations for millions of online businesses.
What Is Economic Nexus?
Economic nexus is a legal connection between an out-of-state seller and a state that triggers a sales tax collection obligation based on economic activity — specifically, exceeding a threshold of sales revenue or transaction volume into that state. Physical nexus (having a physical location or employees in a state) still creates nexus, but economic nexus now extends that obligation to purely online commerce.
In practical terms: if you sell goods or taxable services online and enough of your customers are in a particular state, that state can require you to collect and remit sales tax on those sales — even if you've never set foot in that state and have no physical presence there.
The Standard Economic Nexus Threshold
Following the Wayfair decision, all 45 sales-tax states (plus Washington D.C.) have enacted economic nexus laws. The most common threshold, adopted by most states, is:
- $100,000 in gross sales into the state per calendar year, OR
- 200 or more separate transactions into the state per calendar year
Either threshold being met triggers the nexus obligation. A few states use different thresholds:
- Kansas and a small number of other states have lower thresholds or use gross receipts rather than sales
- Some states count only taxable sales toward the threshold, not total gross sales
- A handful of states removed the transaction count threshold and rely solely on the dollar amount
The threshold is typically measured on a rolling 12-month basis or the previous calendar year, though states vary on exactly how they calculate it. Once you cross a threshold, most states require registration and tax collection to begin immediately or within 30–60 days.
Common Economic Nexus Scenarios
Scenario 1: Etsy/Shopify Seller
A handmade goods seller operating through Etsy and their own Shopify store generates $85,000 in sales to California residents and 250 individual orders in a year. They have economic nexus in California (the 200-transaction threshold is met) and must register, collect, and remit California sales tax on all California orders going forward — even though they've never visited California.
Scenario 2: Amazon FBA Seller
An Amazon FBA (Fulfilled by Amazon) seller has inventory stored in Amazon's warehouses in Texas, Pennsylvania, and Nevada. They have physical nexus in those three states (inventory = physical presence) regardless of their sales volume. Additionally, they sell $120,000 worth of goods to Florida residents — creating economic nexus in Florida as well. They must collect sales tax in at least four states.
Scenario 3: SaaS Software Company
A software-as-a-service (SaaS) company based in Washington State sells software subscriptions to businesses across the country. Many states now tax digital services and software subscriptions. If the company sells $150,000 worth of subscriptions to New York customers, they have economic nexus in New York and must collect New York sales tax (which applies to SaaS) on those sales.
Marketplace Facilitator Laws: When Amazon and Etsy Collect for You
One significant development post-Wayfair is the enactment of marketplace facilitator laws in virtually all sales-tax states. Under these laws, large online platforms (Amazon, Etsy, eBay, Walmart Marketplace) are required to collect and remit sales tax on behalf of third-party sellers using their platforms.
This means that if you sell exclusively through Amazon's marketplace in the US, Amazon is handling the sales tax collection and remittance for you in all marketplace-facilitator states. You don't need to worry about those states' sales tax for your Amazon sales.
However — critical point — those marketplace sales still count toward your economic nexus thresholds. If you sell $90,000 through Amazon and $15,000 through your own website to customers in Georgia, you've crossed Georgia's $100,000 threshold. Amazon handles the tax on their platform; but you now have nexus and must register to collect tax on your direct website sales to Georgia customers.
Retroactive Liability: What Happens If You're Behind?
Many online sellers discovered their economic nexus obligations late — sometimes years after the Wayfair decision. States can audit sellers and assess back taxes, penalties, and interest for the uncollected amounts. The lookback period varies by state but can be 3–7 years in many jurisdictions.
States have generally offered voluntary disclosure programs (VDAs) that reduce or eliminate penalties for sellers who come forward proactively to register and pay back taxes. If you believe you have unmet sales tax obligations from past years, consulting with a sales tax specialist about a VDA is often far less expensive than waiting for an audit.
How to Check Your Economic Nexus Exposure
- Pull your sales data by state for the past 12 months — most e-commerce platforms and marketplaces can export this
- Compare to each state's threshold — flag any state where you're above $100,000 in sales OR above 200 transactions
- Check if marketplace facilitator platforms already handle tax for those states on marketplace sales
- Identify states where you have unregistered direct-to-consumer sales above threshold
- Register with those states' Departments of Revenue — most allow online registration, often at no charge
Sales Tax Automation Tools
For businesses selling across many states, manual nexus tracking and rate calculation becomes impractical quickly. Tax automation platforms including TaxJar, Avalara, and Vertex integrate directly with e-commerce platforms to automatically calculate the correct rate for every transaction based on the buyer's address, identify when nexus thresholds are crossed, and in many cases file returns automatically in registered states.
For quick calculations on individual transactions or to understand the rate for a specific city, our free sales tax calculator provides instant lookups for all US states with 2026 combined rates. Use the reverse calculator to determine the pre-tax amount when you need to back out tax from a completed sale total.