Since the Supreme Court's Wayfair decision in 2018, a business can owe sales tax in a state where it has no office or staff, simply because it sells enough there. This is called economic nexus.
How economic nexus works
- Most states set a threshold of $100,000 in sales into the state in the current or previous calendar year. Some use higher figures, such as California, New York and Texas.
- Several states also had a 200-transaction test; many have since dropped it. Check each state's current rule.
- Once you pass the threshold, you must register, collect tax on taxable sales and file returns in that state.
Physical nexus still applies too: staff, inventory (including in a fulfilment warehouse) or an office in a state creates nexus regardless of sales.
Marketplace sales
Marketplaces such as Amazon and Etsy usually collect and remit sales tax for sales made through them. Those sales may still count towards your threshold in some states, so track them.
What to do
- Report sales by ship-to state every month from your accounting or e-commerce system.
- Compare each state against its threshold.
- Register before you start collecting, and set up tax rates in your checkout or invoicing.
- File returns on the schedule each state assigns.
Already behind?
Many states offer voluntary disclosure agreements that limit look-back periods and waive penalties if you come forward first. Speak to your CPA before contacting a state.
How we help
We track sales by state in QuickBooks Online or Xero, flag thresholds as you approach them and keep records your CPA can file from. See our bookkeeping services for US businesses.
General information. Thresholds differ by state and change; confirm with each state or your CPA.
