State-by-State Guide to Sales Tax Nexus

What Is Sales Tax Nexus?

Nexus is a legal term meaning "connection" or "link." In sales tax terms, nexus is the connection between your business and a state that triggers an obligation to collect and remit sales tax. Understanding where you have nexus is critical for compliance.

Types of Nexus

Physical Nexus

You have physical nexus in a state when you have a tangible presence there:

• Store, office, or warehouse
• Employees or contractors working in the state
• Inventory stored in the state (including FBA warehouses)
• Attending trade shows or events (temporary nexus in some states)

Economic Nexus

Economic nexus is triggered by reaching sales thresholds in a state, regardless of physical presence. This was established by the Supreme Court's 2018 Wayfair decision. Each state sets its own threshold—typically $100,000 or $500,000 in annual sales.

State-by-State Nexus Thresholds

Here's a comprehensive breakdown of economic nexus requirements for all 50 states. Thresholds are typically measured on a calendar year or rolling 12-month basis.

States with $100,000 Threshold

These states require registration when you exceed $100,000 in annual sales:

States with $500,000+ Threshold

These states have higher thresholds, giving smaller businesses more breathing room:

States with No Sales Tax

Lucky you if most of your customers are in these states:

• Alaska – No state sales tax (some local taxes exist)
• Delaware – No sales tax
• Montana – No sales tax
• New Hampshire – No sales tax
• Oregon – No sales tax

Origin-Based vs. Destination-Based States

Understanding whether a state uses origin or destination-based sourcing is crucial for calculating the correct tax rate.

Origin-Based States (Minority)

In origin-based states, you charge tax based on where you ship from, not where the customer is located. This makes calculation easier but only applies to in-state sales.

• Arizona
• Illinois (partially)
• Mississippi
• Missouri
• New Mexico
• Ohio
• Pennsylvania
• Tennessee
• Texas
• Utah
• Virginia

Destination-Based States (Majority)

In destination-based states, you charge tax based on where the customer is located. This requires knowing the customer's ZIP code and local tax rates.

Most states (including California, New York, Florida, Washington) use destination-based sourcing.

Special Situations

Marketplace Facilitator Laws

All 50 states (that have sales tax) now have marketplace facilitator laws. This means:

• Amazon collects tax for you automatically
• eBay collects tax in most states
• Etsy collects tax in most states
• Walmart Marketplace collects tax

However, if you sell on your own website or Shopify store, you are responsible for collecting tax based on your nexus obligations.

Temporary Nexus (Trade Shows, Events)

Some states create temporary nexus when you attend trade shows or sell at events. This is usually for short periods (30-90 days) and has special registration processes.

Drop Shipping

If you drop ship, nexus rules can get complicated:

• You may create nexus in the state where your supplier ships from
• You're typically responsible for collecting tax from the end customer
• Get resale certificates from your suppliers to avoid double taxation

How to Determine Your Nexus

1. Step 1: List All States with Physical Presence
   Include your home state, any states with offices/warehouses, and states where you have FBA inventory.
2. Step 2: Calculate Sales by State
   Pull reports from your sales channels showing gross sales by customer state. Don't include marketplace sales where the platform collects tax (Amazon, eBay, etc.).
3. Step 3: Compare to Thresholds
   Check each state's threshold. If you've exceeded it, you have economic nexus. Use our Nexus Checker for instant results.
4. Step 4: Register in Nexus States
   Visit each state's Department of Revenue website to register for a sales tax permit. This typically takes 1-3 weeks per state.
5. Step 5: Start Collecting Tax
   Once registered, configure your e-commerce platform to collect the correct rates for each state.

Common Nexus Mistakes to Avoid

Mistake #1: Ignoring FBA Inventory

If you use Amazon FBA, you likely have physical nexus in 8-12 states where Amazon stores your inventory. Don't assume you only have nexus in your home state.

Mistake #2: Only Tracking Your Home State

Your home state matters, but economic nexus means you need to track sales in every state where you have customers. Don't focus only on where you live.

Mistake #3: Waiting Until You're Way Over the Threshold

Register as soon as you cross a threshold. States can assess back taxes and penalties if you delay. Set up monitoring using our Economic Nexus Tracker to get alerts when you're approaching 90% of any threshold.

Mistake #4: Not Keeping Documentation

Keep records of where you sold, how much, and when you registered in each state. If audited, you'll need to prove when nexus was established.

Action Plan for Compliance

Tools to Simplify Nexus Management

• Sales Tax Nexus Checker – Quick check for current nexus status
• Economic Nexus Tracker – Monitor progress toward thresholds with alerts
• State Sales Tax Guide – Comprehensive state-by-state information
• Multi-State Sales Tax Calculator – Calculate exact tax for any state