One Supreme Court ruling. One June morning in 2018. And overnight, the rules every online seller had built their business around stopped applying.
Before South Dakota v. Wayfair, you could sell to customers in 40 states and owe sales tax in exactly one of them: the state where you actually operated. No warehouse in Texas meant no Texas sales tax obligation. It was clean, predictable, and as the Court eventually decided, completely out of step with how commerce actually worked.
That changed on June 21, 2018, when the Supreme Court ruled 5–4 that states could require out-of-state sellers to collect and remit sales tax based purely on economic activity. No physical presence required. The U.S. Government Accountability Office had estimated states were losing between $8 and $13 billion annually in uncollected remote sales tax, and states wasted no time closing that gap.
If you sell online and ship to customers across state lines, this ruling reshaped your compliance obligations whether you know it or not.
What the Decision Actually Changed
For 26 years, the physical presence rule from Quill Corp. v. North Dakota (1992) governed sales tax nexus. You needed a store, a warehouse, or employees in a state before that state could make you collect. E-commerce exploded under that framework, and by the time Wayfair was decided, e-commerce accounted for 9.5% of all U.S. retail sales, a number that would have been unimaginable when Quill was written.
The Court saw the physical presence rule for what it had become: a judicially created tax shelter for remote sellers that put brick-and-mortar retailers at a structural disadvantage. So they scrapped it.
What replaced it is called economic nexus: the idea that selling enough into a state creates a tax obligation, regardless of where your operations live. No office needed. No employees needed. Just sales.
Physical nexus didn’t disappear. Warehouses, remote employees, and trade show attendance still create immediate obligations. Wayfair simply added an entirely new layer on top: economic activity alone is now enough.
One physical nexus trigger catches e-commerce sellers completely off guard: Amazon FBA inventory. When you enroll in Fulfillment by Amazon, Amazon redistributes your inventory across its fulfillment network to optimize delivery speed, and you have no control over where your products land.
If Amazon moves your inventory into a warehouse in Texas or Kansas, most states consider that inventory storage to be physical presence, triggering nexus immediately and independent of any economic threshold. A seller operating entirely out of one state can have physical nexus in a dozen others simply because of how Amazon manages its logistics network. Pennsylvania is a notable exception. A 2022 court ruling held that FBA inventory alone doesn’t create nexus there for marketplace-only sellers, but it remains the outlier not the rule.
Economic Nexus Thresholds: What You Actually Need to Track
South Dakota’s original law set the template that spread everywhere: $100,000 in sales or 200 transactions into a state triggers collection obligations. Most states adopted some version of this. But “most states” is not “all states,” and the landscape keeps shifting.
A few important deviations from the template:
California and New York both set their dollar threshold at $500,000, which is five times the common standard. New York goes further: it’s one of only two states requiring sellers to exceed both the dollar threshold and more than 100 sales transactions before nexus kicks in. Exceed only one? No obligation. This “AND” logic, shared only with Connecticut, is notably more seller-friendly than the “OR” logic used almost everywhere else. Alabama sets its threshold at $250,000.
The transaction count test is quietly disappearing across the country. South Dakota, the state that originated the 200-transaction rule, removed it effective July 1, 2023. Alaska followed on January 1, 2025. Utah on July 1, 2025. Illinois on January 1, 2026. The direction is clear: dollar thresholds are the future, transaction counts are on the way out.
How a state measures that dollar threshold varies too. Some count gross sales including exempt transactions. Others count only taxable sales. A seller with $80,000 in taxable sales and $30,000 in exempt sales might have nexus in one state and not another. Same revenue, different result. Measurement periods vary further: most states use a rolling 12-month window, while others look only at the prior calendar year.
As of January 1, 2023, all 45 states with a statewide sales tax have economic nexus laws. There is no longer a state you can simply ignore.
The Marketplace Seller’s Blind Spot
If you sell through Amazon, eBay, Etsy, or Walmart Marketplace, you’ve probably noticed that the platform handles sales tax automatically. That’s real. All 45 sales-tax states have marketplace facilitator laws requiring platforms to collect and remit on your behalf for marketplace transactions.
What catches sellers off guard is what those laws don’t cover.
If you also sell through your own website, you’re entirely on your own for those transactions. Shopify is not a marketplace facilitator. It’s a sales tool, not a tax collector. Your direct sales remain your responsibility in every state where you’ve crossed the economic nexus threshold.
Many states also require sellers to file a return even when the marketplace remitted all the tax, sometimes called a zero-dollar return. And in some states, your marketplace sales count toward the economic nexus threshold that triggers obligations for your direct sales. These aren’t edge cases. They’re common traps.
The practical rule: marketplace facilitator laws simplify a piece of the picture, not all of it.
What Happens After You Cross a Threshold
Crossing an economic nexus threshold creates a legal obligation with a clock attached. Most states require registration within 30 to 60 days of crossing the threshold. Miss that window, and you’re collecting tax without a permit, which creates its own problems.
The compliance steps themselves are consistent:
Register for a sales tax permit in the state. Begin collecting the correct rate from customers which requires knowing the state, county, city, and special district taxes that apply to each transaction across over 11,000 jurisdictions nationwide. File returns on the schedule the state assigns. Remit on time.
One thing no state will do: tell you when you’ve crossed a threshold. The monitoring obligation falls entirely on the business. There are no automatic notices, no courtesy alerts. Many sellers discover nexus obligations months or years after they were triggered, which is exactly how back-tax exposure accumulates quietly.
Then do it again next month, or quarter, in every state where you have obligations.
This is where the gap between “I have sales tax software” and “I’m actually compliant” tends to open up. Software automates the calculation, but it doesn’t configure itself, monitor shifting thresholds, or catch the errors that accumulate when settings don’t match a state’s current rules. HOST’s free sales tax software review identifies exactly those misconfigurations: the ones quietly causing businesses to over- or under-collect every month without realizing it.
Already Behind? There’s Still a Path Forward
Here’s the uncomfortable math: if you’ve been selling across state lines for a few years without tracking economic nexus, there’s a reasonable chance you have uncollected obligations you don’t know about. That’s not unusual, and it’s not the end of the world, but it does require a specific response.
Two things worth knowing before you act. First, states actively look for non-compliant sellers through nexus questionnaires, by auditing your customers and tracing sales back to you, and by extrapolating from similar companies already filing in the state. Discovering a liability is rarely a coincidence.
Second, if you have past exposure and simply register today, the registration form will ask for your nexus start date. Misrepresenting or concealing that history can create civil and criminal liability on top of whatever taxes you owe. The right sequence is to evaluate your exposure first, then decide whether to file a VDA or back-register with full disclosure.
One more distinction that matters here: economic nexus obligations generally run from the date a state’s economic nexus law took effect, they were not applied retroactively. Physical nexus is different. If you had inventory in a state or a remote employee there before any economic nexus threshold existed, that exposure goes back to the date the physical presence began, with no economic law threshold to limit it.
A Voluntary Disclosure Agreement (VDA) lets you come forward proactively, limits how far back the state can look, and typically eliminates penalties. The window closes the moment a state contacts you. After that, you’ve lost your negotiating position entirely. Earlier is almost always better.
If you’re not sure where you stand, a nexus analysis compares your actual sales data against each state’s current thresholds to map out exactly where you have obligations, where you don’t, and what needs to happen next.
Next Steps
Hands Off Sales Tax (HOST) has been 100% focused on sales tax since 1999. We handle nexus analysis, registrations, multi-state filings, notice responses, and audit defense, so you can put your energy back into the business that actually generates revenue.
Contact HOST today to talk through your situation, or schedule a consultation if you want a clear picture of where you stand.
You handle the sales. We handle the tax.
Frequently Asked Questions
What is Wayfair sales tax nexus?
The connection a remote seller creates with a state through economic activity. Reaching that state’s sales threshold triggers a collection obligation. The term comes from the 2018 Supreme Court case South Dakota v. Wayfair, which established that physical presence is no longer required for a state to demand sales tax collection.
Does the Wayfair ruling apply to all states?
Yes. As of January 1, 2023, all 45 states with a statewide sales tax have enacted economic nexus laws. The thresholds, measurement periods, and what counts toward the threshold all vary by state.
What is the most common economic nexus threshold?
$100,000 in annual sales is standard in most states. California and New York both set it at $500,000. Thresholds change, so TaxCloud’s current nexus chart is a reliable reference for up-to-date figures.
If Amazon collects sales tax for me, am I fully covered?
Not necessarily. Marketplace facilitator laws cover your Amazon transactions, but your direct-channel sales remain your responsibility. Many states also require a return filing even when the platform remitted all the tax.
What should I do if I have back nexus obligations?
A Voluntary Disclosure Agreement (VDA) is almost always the best path because it limits the lookback period and typically eliminates penalties. Act before the state finds you; after contact, the option disappears.
How do I know which states I have nexus in?
You need your actual sales data compared against each state’s current thresholds, measurement rules, and inclusions. HOST’s nexus analysis service does exactly this, and tells you what to do about it.
