You Might Owe Sales Tax in States You've Never Set Foot In. Here's Why

Here's a situation which catches more businesses out than almost anything else in the realm of small business tax compliance: a business based in Ohio (with no office, no employees and no warehouse anywhere near California) is nonetheless liable for California sales tax. Not because anything has changed in terms of the business's operations. Because the business has simply crossed the threshold that California established years ago (an invisible line) as a result of sufficient California customers buying sufficient product online. The business simply didn't notice the moment it crossed that line.

That's economic nexus and if your business is selling across state lines in any form (online, via a marketplace, wholesale etc) it's important to understand exactly how it works as "we don't have a presence there" is no longer a valid excuse to not register for sales tax. That change came into effect in 2018.

What Is Economic Nexus, Exactly?

Economic nexus is the legal basis for requiring an out of state business to register for, collect and remit sales tax in a state when its sales into that state exceed a certain threshold (regardless of whether it has any physical presence in that state at all). It's the result of the 2018 Supreme Court decision in South Dakota v. Wayfair which effectively overruled the old rule that a state could only require a business to collect sales tax if it had a physical presence in that state.

Prior to Wayfair an online retailer with no offices, no warehouses and no employees in a given state simply didn't have to collect that state's sales tax, period. Post Wayfair the states were free to say "if you're selling sufficiently into our state that's enough". All the states that have sales tax have since adopted some version of that rule. As of 2026 it's 45 states plus Washington DC (so missing only the states that have no sales tax at all: Delaware, Montana, New Hampshire and Oregon).

How the Thresholds Actually Work

The overwhelming majority of states have settled on the same basic rule: $100k in sales into that state over the course of a year triggers the requirement to register and start collecting. That's the prevailing standard and it's actually become simpler in the last couple of years. A number of states in the past would have had a dual test where you had to meet either the $100k sales threshold or the 200 transaction threshold (whichever came first), which was very difficult for businesses that were selling a large volume of low priced goods. The trend has been to quietly remove the transaction test. Alaska did it in 2025, Utah in mid-2025, Illinois at the start of 2026 and Kentucky in mid-2026. The trend is clearly towards a simple revenue based test.

A few states have set the bar significantly higher. CA, TX and TN all use the $500k threshold rather than $100k (very useful indeed if a significant portion of your revenue is coming from those particular states). AL and MS are in the $250k bracket. NY is the real odd one out in that it requires both $500k in sales and over 100 transactions before nexus arises, the only state that requires you to clear both of those hurdles.

State	Threshold	Transaction Test?
Most states (standard rule)	$100,000 in sales	No, for most—dollar-only
California	$500,000 in sales	None
Texas	$500,000 in sales	None
Tennessee	$500,000 in sales	None
New York	$500,000 in sales	Yes—AND 100+ transactions required.
Alabama	$250,000 in sales	None
Mississippi	$250,000 in sales	None
Delaware, Montana, New Hampshire, Oregon	No statewide sales tax	Not applicable

One thing to bear in mind: the obligation is retrospective to the day you actually crossed the line (i.e. the day you actually did the business in that state), not the day you realised you had. If your business had quietly passed the $100k mark in Ohio in April and you didn't even run the numbers until October then Ohio will look at April as the date of the obligation and will consider all of it from that point onwards as being owed.

Marketplace Sales: The Rule Most Sellers Get Wrong

If you're selling on Amazon, Walmart Marketplace, Etsy and the like there's another layer of complexity that's worth understanding specifically: do those marketplace sales count towards your own nexus threshold or does the marketplace itself take responsibility for collecting tax on those sales?

Most marketplaces will now collect and remit sales tax on your behalf under what's known as marketplace facilitator law (very useful as it means you don't have to work out the tax on every Amazon order). Whether those marketplace sales count towards your own threshold in a particular state is a separate issue and the states don't all agree on that. CA and LA for instance do count marketplace sales when working out whether you've hit their threshold. A number of other states (Alabama, Arizona, Arkansas, Colorado and Illinois to name just a few) completely exclude marketplace sales from that calculation. This is no trivial point at all: a business that's predominantly selling via Amazon could in fact be a lot closer to the threshold in a given state than their direct website sales would indicate.

The Trap That Has Nothing to Do With Revenue: Physical Nexus

Everything we've said above is about economic nexus specifically (the threshold rule introduced by Wayfair). The old concept of physical nexus never disappeared though. It just became one of the two methods by which a state could require you to collect its tax rather than the sole method.

This is absolutely critical for anyone using Fulfillment by Amazon. If Amazon has ever stored a pallet of your inventory in a state's FBA facility then you have physical nexus in that state. That's it. That's all it takes. It doesn't matter how much you're earning in that state. It doesn't matter whether you're anywhere near the $100k threshold. A business that does $1k in direct sales into a state can still owe that state's sales tax simply because Amazon stored their product in that state. That's the single biggest blind spot for FBA sellers when assessing their own nexus situation. You can run all your calculations on revenue and completely miss the fact that a warehouse has already created the nexus.

What Happens If You've Crossed a Threshold and Haven't Registered

The blunt truth is it all comes down to how long it's been going unattended and how the state decides to deal with it. The exposure is real and it builds. A state can generally assess back taxes, penalties and interest all the way back to the date of the actual nexus. Most states will also have a Voluntary Disclosure Agreement process which will typically cap how far back they'll go and may even result in the reduction or waiver of penalties. That's a step you take proactively before the state finds you, not something you can do once an audit notice has already been issued.

The practical response for most businesses is not panic, it's a proper nexus review. That involves a state by state mapping of actual sales by destination state against each state's current threshold, checking the treatment of marketplace facilitators state by state and confirming whether any inventory storage at all anywhere creates physical nexus irrespective of revenue. That's a very detailed, ongoing exercise for a business which is selling into dozens of states via a mixture of direct sales and marketplaces. It's not something you can just do once a year and file it away.

Nexus is state by state, not as a single national figure. A business that is completely invisible nationally can already be liable to tax in three or four states simply because those states were the ones where the sales were concentrated.

Where This Fits Into Your Bookkeeping

Properly tracking your sales tax exposure means monitoring a rolling window of state by state revenue, keeping an eye on which states have just changed their rules and ensuring that your registration and filings are all up to date in every state where you've crossed the threshold. It's the kind of ongoing, detailed tracking that's very easy to overlook when it's just one more thing on the list of things you have to do as a business grows. An outsourced bookkeeping team can provide that state by state visibility as part of your monthly close rather than it being something you only check when a state notice turns up in the post.

Common Questions About Economic Nexus

Does economic nexus apply to services or does it apply only to physical products? It varies completely from state to state. Some states will tax digital products and certain services, others will only tax tangible goods. The nexus threshold will determine whether or not you even have an obligation to register in a state at all. What you then tax once you're registered is a separate question which is determined by the individual state.

If I only sell via Amazon and Amazon is the one collecting the tax, do I still have nexus? Yes, for two reasons. Firstly, whether your marketplace sales count towards your own threshold will vary from state to state (as outlined above). Secondly, if Amazon stores your inventory in a warehouse in a particular state that will in itself create physical nexus irrespective of what Amazon collects on your behalf.

How often do these thresholds change? More often than most businesses expect—several states have modified their rules within the past two years alone, mostly by dropping the transaction-count test. A threshold check that was accurate last year isn't guaranteed to be accurate today.

What's the fastest way to find out if I already have Nexus somewhere? Map your actual sales by destination state against each state's current threshold and transaction rule, factoring in how that state treats marketplace sales specifically. This is exactly the kind of state-by-state exercise most businesses underestimate until they actually sit down and run it.

Is nexus retroactive if I've been over a threshold for a while without knowing? Generally yes—the obligation is typically considered to start from the date the threshold was actually crossed, not the date it was discovered, which is why an early, voluntary review tends to produce a far better outcome than waiting for a state to find the gap first.

The Bottom Line

Economic nexus turned "we don't have a presence there" into a much weaker argument than it used to be. For any business selling meaningfully across state lines, the question isn't really whether nexus rules apply—it's whether anyone has actually checked, state by state, recently enough for the answer to still be accurate. Given how often these thresholds keep moving, that's less a one-time project than an ongoing part of keeping the books genuinely current.