Sales Tax Nexus for Ecommerce: What Every Online Seller Needs to Know About State-by-State Rules
If you sell online, there's a good chance you owe sales tax in states you've never set foot in — and you might not even know it yet.
This isn't a hypothetical. Since a landmark 2018 Supreme Court ruling, every state with a sales tax now requires out-of-state sellers to collect and remit tax once their sales into that state cross a certain threshold. No warehouse, no office, no employees required. Just enough sales.
This concept is called economic nexus, and for ecommerce businesses selling across state lines, it's one of the most commonly overlooked compliance risks — not because owners are careless, but because the rules are genuinely confusing and differ from state to state.
Here's what you actually need to know.
What "Nexus" Means
Nexus is simply the legal connection between your business and a state that triggers a tax obligation. There are two kinds:
Physical nexus is the traditional kind: you have an office, employees, contractors, or inventory in a state. This creates an immediate tax obligation — there's no sales threshold to cross. If you store inventory in an Amazon FBA warehouse in a particular state, for example, you likely have physical nexus there regardless of how much you sell.
Economic nexus is newer and is what trips up most ecommerce sellers. It's triggered purely by sales activity — how much revenue or how many transactions you generate in a state — even if you've never physically been there.
The Supreme Court's 2018 South Dakota v. Wayfair decision is what opened the door to economic nexus. Before that ruling, physical presence was required. Now, hitting a sales threshold is enough.
The Thresholds: What Triggers Nexus
Most states have converged on a simple standard: $100,000 in annual sales into the state. But there are important exceptions, and the details matter more than the headline number.
The $100,000 standard. This applies in the majority of states, including Massachusetts. Many states historically paired this with a 200-transaction threshold (meaning you'd trigger nexus by hitting either number), but that's changing fast. Several states — including Illinois, Utah, Alaska, and soon Kentucky — have eliminated the transaction-count threshold entirely in 2025 and 2026, leaving revenue as the only trigger. This is a meaningful shift: a business with thousands of small transactions but modest total revenue is less likely to trigger nexus than it would have a few years ago.
Higher-threshold states. A handful of states set the bar higher:
California, Texas: $500,000 in sales, no transaction count
New York: $500,000 in sales and 100 transactions — both conditions must be met, which is unusual; most states only require one or the other
Alabama, Mississippi: $250,000 in sales
No sales tax at all. Alaska (at the state level), Delaware, Montana, New Hampshire, and Oregon don't impose a statewide sales tax, so economic nexus isn't a concern there in the traditional sense (Alaska does have a local seller registration system run by municipalities).
What Counts Toward the Threshold (It's Not Always What You'd Expect)
This is where a lot of sellers get tripped up. States don't all measure "sales" the same way:
Gross sales vs. taxable sales. Some states count every dollar of revenue, including exempt and resale transactions. Others only count taxable sales. Always check the specific state's definition rather than assuming.
Marketplace sales. Most states exclude sales made through a marketplace facilitator (Amazon, Etsy, Walmart Marketplace) that collects tax on your behalf, since the facilitator handles that compliance. But this isn't universal — always check the specific state's rule, and remember that your direct sales through your own site always count separately.
Measurement period. Some states look at the trailing 12 months. Others use the current or prior calendar year. A few use other windows entirely. This affects exactly when you cross the line.
The practical implication: you can't just add up your total sales by state from your own books and compare that number to a single, universal rule. You have to apply each state's specific counting rules to know where you actually stand.
Why This Matters More Than It Might Seem
Economic nexus isn't retroactive — you only owe tax on sales made after you cross the threshold, not before. But if you should have registered and didn't, the consequences compound:
States can assess back taxes, interest, and penalties once they catch a gap
Many states are now using third-party data sharing to identify sellers with "quiet" nexus — for example, businesses using out-of-state fulfillment warehouses they didn't think to flag
The longer the gap goes unnoticed, the larger the eventual liability
The risk isn't usually willful avoidance — it's simply not realizing that crossing $100,000 in sales to customers in, say, Ohio or Florida creates an obligation you didn't have last year.
A Practical Approach for Growing Ecommerce Businesses
1. Track sales by state, not just in aggregate. Most ecommerce platforms and accounting tools can break out revenue by ship-to state. If yours can't, this is worth fixing early.
2. Know your highest-risk states first. If you're approaching $100,000 in any single state, that's your most urgent check. States with $500,000 thresholds (California, Texas, New York) give you more runway, but don't ignore them once you're scaling.
3. Reassess regularly, not just once a year. Many states use a rolling 12-month or current/prior-year window. A strong holiday season can push you over a threshold mid-year in a state you weren't watching closely.
4. Separate marketplace sales (Amazon, Etsy etc) from direct sales in your tracking. Since the rules differ on how these are counted, lumping them together makes it harder to know your real exposure.
5. Don't wait for a notice to find out you have a problem. If you suspect you've already crossed a threshold in a state without registering, voluntary disclosure programs in most states can limit the lookback period and reduce penalties — but only if you come forward before the state finds you first.
If You're Based in Massachusetts
Massachusetts has its own specific threshold, registration process, and rules about what counts toward nexus — different enough from the general picture above that it deserves its own breakdown. Read our companion post, "Sales Tax Nexus in Massachusetts: What Local Ecommerce Sellers Need to Know," for the specifics, including exactly what to do if you've already crossed the threshold.
Not sure where you stand? Talk to a mentor before a state tells you.
This article is intended for general informational purposes and is not a substitute for advice from a tax professional or attorney. Sales tax rules vary by state and change frequently — always confirm current requirements with a qualified advisor or the relevant state's department of revenue before making compliance decisions.
