Sales tax is the obligation that catches growing ecommerce businesses at exactly the wrong moment. It does not arrive with a bill. No agency writes to tell you that you crossed a line four months ago. You simply become liable, quietly, and discover it later — often during due diligence, or when a marketplace asks for a registration number you do not have.
The rules also keep moving. Two states changed their thresholds during 2026 alone, both in the same direction: away from counting transactions and towards measuring revenue only. That is good news, and it means advice written before 2026 will overstate your exposure in several states.
This guide explains what creates nexus, what the current thresholds are, what changed this year, and what to do in the weeks after you cross one.
The short answer
- Nexus is the connection that obliges you to collect a state’s sales tax. It comes in two forms: physical and economic.
- Most states use a $100,000 threshold measured on sales into that state alone — not your total revenue.
- The old “200 separate transactions” test is being abandoned. Illinois dropped it on 1 January 2026 and Kentucky on 1 August 2026.
- Selling through Amazon, Etsy or eBay usually shifts collection to the marketplace — but not always your registration duty.
- Storing inventory in a state creates physical nexus with no threshold at all.
Where these rules came from
Until 2018 a state could only require you to collect sales tax if you had a physical presence there. Mail-order and then online sellers operated outside the net, which states regarded as an eroding tax base and competitors regarded as an unfair advantage.
The Supreme Court’s decision in South Dakota v. Wayfair ended that. States could now assert nexus based on economic activity alone. Within two years almost every state with a sales tax had enacted a threshold, most copying South Dakota’s $100,000 or 200 transactions.
The 200-transaction test proved to be the flaw. A seller shipping 250 orders at $15 each — $3,750 of revenue — could trigger a registration and filing duty costing more than the sales were worth. States have been repealing it steadily since.
What changed in 2026
Illinois removed its 200-transaction threshold with effect from 1 January 2026. Remote sellers now establish nexus there only by exceeding $100,000 in gross receipts.
Kentucky followed, dropping its transaction test on 1 August 2026.
If you registered in either state purely because you crossed a transaction count, your position may now be different. That does not automatically end your obligations — deregistering has its own process, and you remain responsible for periods when you were registered — but it is worth reviewing rather than continuing to file out of habit.
Current thresholds
| Threshold | States |
|---|---|
| $100,000 | The large majority — around 41 states |
| $250,000 | Alabama, Mississippi |
| $500,000 | California, Texas, New York |
| No sales tax at all | Delaware, Montana, New Hampshire, Oregon, and Alaska at state level |
Two points founders consistently get wrong. First, the threshold is measured per state: $2m of global revenue with $40,000 into Ohio creates no Ohio nexus. Second, the states with the largest markets have the highest thresholds, which means you can often sell substantially into California or Texas before anything is triggered.
You can check rates and model the effect for a given state using our sales tax calculator.
How to measure it
Three details decide whether you have actually crossed a threshold, and they differ between states.
The measurement period. Some states look at the previous calendar year, others at a rolling twelve months. A rolling test can be crossed mid-month without any year-end event to prompt you.
Gross or taxable. Many states count gross sales into the state, including sales of exempt items. A seller of exempt goods can therefore cross a threshold while owing very little actual tax.
Marketplace sales. States differ on whether sales made through Amazon or Etsy count towards your own threshold even when the marketplace collects the tax. In some they do, which can push a small direct-sales operation over a line it did not know it was near.
Marketplace facilitator rules
Every state with a sales tax now has marketplace facilitator legislation. The effect is that the marketplace — Amazon, Etsy, eBay, Walmart — must calculate, collect and remit sales tax on sales made through its platform.
For a seller trading exclusively through marketplaces this removes most of the burden. You are not collecting the tax and you are generally not remitting it.
It does not necessarily remove your registration duty. Some states still expect a registered seller to file returns reporting marketplace sales as exempt, so the state can see the whole picture. And the moment you sell directly as well — your own Shopify store alongside your Amazon listings — those direct sales are entirely yours to handle.
The physical nexus trap
Economic thresholds get the attention, but physical nexus is what most often catches ecommerce sellers, because it has no threshold. One dollar of the wrong kind of presence creates an obligation.
Inventory is the usual culprit. If you use Amazon FBA and Amazon moves your stock into a warehouse in a state, many states treat that stored inventory as physical presence — immediately, and regardless of how little you have sold there. You may not even know which warehouses hold your goods without checking your inventory reports.
Other triggers include an office or premises, employees or contractors working in a state, and in some states attending trade shows beyond a limited number of days.
What does not create nexus for an overseas seller: having customers in a state, holding a US bank account, using a payment processor, or your registered agent’s address in your formation state.
A worked example
Zainab runs a homeware brand from Lahore through a Wyoming LLC. In the twelve months to August she sold $1.4m globally: $620,000 into the United States, spread as $180,000 into California, $115,000 into Texas, $104,000 into Ohio, and the rest scattered across thirty states in amounts under $40,000. About 70% went through Amazon FBA, the balance through her own store.
California: $180,000 is below the $500,000 threshold, so no economic nexus. But Amazon stores her inventory in California, which creates physical nexus with no threshold. She is liable there.
Texas: same analysis — under the $500,000 economic threshold, but FBA inventory triggers physical nexus.
Ohio: $104,000 exceeds the $100,000 threshold. Economic nexus applies.
The other thirty states: below every threshold, and no inventory. Nothing to do, though she should keep watching the rolling totals.
The lesson is that her largest exposures come from warehouses she never chose, not from the states she sells most into. Her Amazon sales are collected by Amazon; her direct store sales in those three states are hers to collect.
What to do when you cross a threshold
Register before you collect. Collecting tax without a permit is itself unlawful in most states. Registration is usually online and often free.
Set up collection at the right rate. Most states are destination-based, meaning the rate depends on the customer’s address, combining state, county and city components. This is a job for software rather than a spreadsheet.
File on the assigned frequency. The state tells you whether to file monthly, quarterly or annually. Most require a return even for a period with no sales — a missed zero return still attracts a penalty.
Keep the money separate. Sales tax you collect is not revenue. It is money held on behalf of the state, and spending it is the reason otherwise healthy businesses end up with liabilities they cannot clear.
Rates are not one number per state
Once you are registered, the next surprise is that a state does not have a single sales tax rate. Most have a state rate topped up by county, city and special district rates, and the combined figure depends on the buyer’s precise address.
Two customers on opposite sides of the same street can attract different rates if a district boundary runs between them. There are several thousand distinct taxing jurisdictions in the United States, and they change.
This is why calculating manually stops working almost immediately. Ecommerce platforms handle it natively or through an integration, and the cost of that is far below the cost of systematically charging the wrong rate — which leaves you owing the difference on every sale you undercharged.
A small number of states are origin-based for in-state sales, applying the seller’s location instead. For an overseas seller with no US location that distinction rarely matters, but it explains why advice on this differs.
Exemption certificates
Not every sale is taxable even in a state where you have nexus. Sales for resale, and sales to exempt organisations, can be made without tax — provided you hold valid documentation.
If you sell wholesale, your buyer should give you a resale certificate. Keep it. In an audit, the burden is on you to prove why tax was not charged, and “the customer told me they were a reseller” is not evidence. A missing certificate means you owe the tax you never collected.
Certificates can expire and vary in format by state. Build collecting them into your onboarding for wholesale customers rather than chasing them years later.
What an audit actually looks at
State audits of remote sellers concentrate on a short list: when nexus began, whether you registered promptly, whether the rates applied were correct, whether exempt sales are supported by certificates, and whether the tax collected was actually remitted.
The date nexus began is the one that determines the size of the problem, because it sets how far back the assessment runs. Sellers who can evidence the month they crossed a threshold, and show they registered shortly after, are in a far stronger position than those reconstructing it years later from incomplete reports.
Keep monthly sales-by-state figures and periodic inventory location reports. They are unglamorous records that turn a difficult audit into a short one.
If you are already late
Historic exposure is more common than not among growing sellers, and it compounds: the uncollected tax, plus interest, plus penalties, for every period since nexus arose. Because you never charged the customer, it comes out of your margin.
Most states operate a voluntary disclosure programme. Approach them before they approach you and they will typically limit the look-back period and waive or reduce penalties. Wait to be found, and neither concession is available.
Quantify the exposure state by state before deciding. In some states the amount will be small enough to register and move on; in others a formal disclosure is worth the professional fee.
Common mistakes
- Measuring global revenue against a state threshold. Only sales into that state count.
- Assuming marketplaces handle everything. They collect; they may not discharge your registration duty, and direct sales are yours.
- Ignoring inventory location. The single most common source of unexpected liability.
- Skipping zero returns. Once registered, file every period whether or not you sold anything.
- Relying on pre-2026 guidance. Transaction-count tests are disappearing state by state.
- Treating collected tax as cash flow. It belongs to the state from the moment you take it.
Whether what you sell is taxable at all
Crossing a threshold obliges you to register. It does not automatically mean every sale you make is taxable. Before building collection into your checkout, work out what the state actually taxes.
The default rule almost everywhere is that tangible goods are taxable and services are not, unless the state has specifically listed the service. A handful of states invert that and tax services broadly. In between sit a long tail of states that tax some services — data processing, information services, digital advertising, repair work — and not others.
| What you sell | Typical position |
|---|---|
| Physical goods | Taxable in every state that has a sales tax |
| Professional services | Usually exempt, but check state by state |
| Software as a service | Genuinely split. Taxable in a substantial minority |
| Downloaded software | More often taxable than SaaS |
| Digital books, music, video | Varies, and often distinct from software |
| Shipping and handling | Taxable in some states, exempt if separately stated in others |
Two traps sit inside that table. The first is shipping: several states tax the delivery charge when the goods are taxable, and several exempt it only if it is stated separately on the invoice rather than rolled into the price. That is a formatting decision with a tax consequence.
The second is bundling. Sell a taxable item and an exempt service for one combined price and many states treat the whole bundle as taxable. Price and invoice them separately and, in most of those states, only the taxable element is caught. Businesses selling software with an implementation or support component run into this constantly.
Get a written product taxability determination for your own catalogue before you rely on a platform’s default category mapping. The mapping is a reasonable starting point, not an answer.
Home rule states, where the city files separately
In most states you register once, file one return, and the state distributes the local shares. In a small group of states you do not, and it is the single most underestimated compliance cost in US sales tax.
These are the home rule states, where municipalities or parishes have their own authority to impose, administer and collect the tax. Colorado, Alabama and Louisiana are the usual examples, and Alaska is a special case — it has no state sales tax at all, but local boroughs and cities levy their own.
The consequence for a remote seller is arithmetic. A single state can present dozens of separate registrations, each with a licence fee, a filing frequency and a return of its own. A seller comfortably handling forty state returns a year can find one home rule state adding more filings than all the others combined.
Each of those states has built some form of centralised or simplified route for remote sellers — a single portal, a commission that collects on behalf of local jurisdictions, or a flat simplified rate. They genuinely help, and they do not always cover every jurisdiction. Check what the current single-point option covers before assuming one registration is enough.
The practical advice is to treat home rule states as a distinct workstream when your sales approach their thresholds, rather than discovering the structure after you have registered.
Trailing nexus, and closing a registration properly
Nexus does not always end the day the activity that created it stops. Several states apply what is called trailing nexus: having established a connection, you remain obliged to collect for a defined run-off period — commonly the remainder of the current year and sometimes the whole of the next.
So a seller who closes a fulfilment arrangement in a state in March, or whose sales fall below a threshold, may still owe returns for months afterwards. Stopping collection on the day the trigger disappears is a common and expensive assumption.
Closing an account properly matters for the same reason. A registration you stop using but never formally cancel keeps generating an expectation of returns, and states penalise a missing zero return exactly as they penalise a missing one with tax on it. The account has to be closed on the state’s own form, with a final return filed for the last period, and any tax collected but not yet remitted paid over.
Keep the closure confirmation. If a state’s system reactivates an account or a notice arrives two years later, that document is the whole of your answer.
Frequently asked questions
I am not American and my company is a Wyoming LLC. Does US sales tax apply to me?
Yes. Sales tax follows where your customers and inventory are, not where you or your company are based. Being overseas offers no exemption.
Does my formation state decide where I collect?
No. Forming in a state without sales tax does not exempt you from collecting in states where you have nexus.
Do digital products and SaaS count?
It depends entirely on the state. Some tax software and digital goods, others do not, and definitions vary. Check state by state rather than assuming digital means exempt.
How is this different from VAT?
Sales tax is charged once, at the final sale to the consumer, and is administered by each state separately. VAT is charged at each stage with credit for input tax, and is administered nationally.
Can I deregister if my sales fall?
Usually yes, by closing the account formally. Until you do, the state expects returns — including zero returns — and will penalise their absence.
Does an EIN register me for sales tax?
No. An EIN is federal. Sales tax registration is separate and per state.
How often should I review my position?
Quarterly is sensible for a growing seller, and monthly once you are near any threshold. Review inventory locations at the same time.
Staying ahead of it
Sales tax rewards early attention and punishes discovery. Track sales by state as a routine number, know which warehouses hold your inventory, and register promptly once a threshold is crossed rather than waiting until the position is tidy.
We handle US sales tax registration and filing for overseas sellers, including reviewing historic exposure before it becomes someone else’s discovery. See our sales tax services or get in touch.
This article is general information, current as at September 2026, and is not tax advice. Remotix BPO is a business process outsourcing company and is not an accounting firm. State rules change frequently — confirm current thresholds before relying on them.
