Understanding Economic Nexus After Wayfair

The Game-Changing Wayfair Decision

On June 21, 2018, the U.S. Supreme Court's decision in South Dakota v. Wayfair, Inc. fundamentally changed how online sellers must think about sales tax. The ruling overturned the physical presence requirement established in 1992's Quill Corp. v. North Dakota, opening the door for states to require remote sellers to collect sales tax based on economic activity alone.

What Changed?

Before Wayfair, you only had to collect sales tax in states where you had a physical presence— like a store, warehouse, or office. After Wayfair, states can now require tax collection based on your economic nexus: reaching a certain threshold of sales or transactions in that state, regardless of physical presence.

The South Dakota Model

The Supreme Court approved South Dakota's threshold of $100,000 in annual sales OR 200 separate transactions. Most states have adopted similar thresholds, though the specifics vary by state.

How Economic Nexus Works Today

Each state sets its own economic nexus threshold. Here are some common examples:

Once you cross a state's threshold, you're required to register for a sales tax permit and start collecting tax from customers in that state. The clock typically starts the day after you exceed the threshold, though some states provide a grace period.

What This Means for Online Sellers

1. Monitor Your Sales by State

You need to track your sales in every state where you have customers. Use our Economic Nexus Tracker to monitor when you're approaching thresholds.

2. Register When You Cross the Threshold

Most states require registration within 30 days of establishing nexus. Don't wait—register promptly to avoid penalties. Each state has its own registration process through their Department of Revenue website.

3. Collect and Remit Tax

Once registered, you must collect the correct amount of sales tax from customers in that state and remit it according to the state's filing schedule (monthly, quarterly, or annually).

4. Know Your Filing Frequency

States assign filing frequencies based on your tax liability:

• Monthly: High-volume sellers (typically $1,000+ monthly tax)
• Quarterly: Medium-volume sellers
• Annual: Low-volume sellers

Marketplace Facilitator Laws: A Silver Lining

One piece of good news: if you sell on platforms like Amazon, eBay, or Etsy, those platforms are now required to collect and remit sales tax on your behalf in most states. This is thanks to marketplace facilitator laws that followed Wayfair.

Check our Marketplace Facilitator Guide to understand which platforms collect tax for you.

Common Mistakes to Avoid

Mistake #1: Ignoring Small States

Even if you only make $110,000 in Wyoming, you've crossed their threshold and need to register. Don't assume small sales volumes mean you can skip registration.

Mistake #2: Using Your Home State's Tax Rate Everywhere

Most states use destination-based sourcing, meaning you charge tax based on where the customer is located, not where you're located. Always use the customer's state and ZIP code to calculate the correct rate.

Mistake #3: Waiting Too Long to Register

States can assess penalties and back taxes if you delay registration. As soon as you cross a threshold, start the registration process.

Mistake #4: Not Keeping Good Records

You'll need detailed records of every transaction for audit purposes. Keep records for at least 3-5 years, including customer location, sale amount, tax collected, and date.

Practical Steps to Get Compliant

1. Step 1: Calculate Your Current Nexus Status
   Use our Nexus Checker to see which states you currently have nexus in.
2. Step 2: Register in States Where You Have Nexus
   Visit each state's Department of Revenue website and complete the registration process. This usually takes 1-2 weeks per state.
3. Step 3: Update Your Store's Tax Settings
   Configure your e-commerce platform (Shopify, WooCommerce, etc.) to collect the correct tax rates. Consider using a tax automation service like TaxJar or Avalara for accuracy.
4. Step 4: Set Up a Filing Calendar
   Use our Sales Tax Calendar to track filing deadlines for each state.
5. Step 5: Monitor Your Sales Ongoing
   As your business grows, you'll cross new thresholds. Check your nexus status quarterly to stay ahead of new obligations.

Looking Forward

While the Wayfair decision added complexity for online sellers, it also leveled the playing field with brick-and-mortar retailers. The key is staying proactive: monitor your sales, register when required, and collect tax correctly.

Ready to Calculate Your Obligations?

Try our tools to understand your sales tax obligations:

• Multi-State Sales Tax Calculator – Calculate exact tax for any state
• Economic Nexus Tracker – Monitor your progress toward nexus thresholds
• Quarterly Tax Estimator – Estimate your tax liability for the quarter