Economic Nexus: When You Owe Sales Tax in a State You've Never Set Foot In

Before 2018, a state could only require a business to collect its sales tax if that business had physical presence there — a store, a warehouse, an employee, something tangible in the state. The Supreme Court's decision in South Dakota v. Wayfair changed that. States can now require sales tax collection based on economic activity alone: sell enough into a state, and you owe tax there whether or not you've ever shipped from, stored anything in, or set foot in that state.

Most states modeled their rule on South Dakota's original standard — $100,000 in sales or 200 separate transactions into the state in a year, whichever came first. A lot has shifted since then: many states have dropped the 200-transaction count entirely and kept only the dollar threshold, on the reasoning that 200 small transactions shouldn't trigger the same obligation as a single $100,000 wholesale sale. A few states set their dollar threshold meaningfully higher — California's is $500,000, with no transaction count at all. The upshot is that the exact number is genuinely different state to state, and a threshold memorized a few years ago may no longer be the current one.

Economic nexus isn't the only way a seller ends up with an obligation in a state. Inventory physically sitting in a state — including inventory in an Amazon FBA fulfillment center, wherever Amazon happens to have routed it — is a form of physical presence that predates Wayfair and still applies on its own, independent of the sales-volume threshold. A seller can trip inventory-based nexus in a state they've never sold much into at all, simply because Amazon warehoused stock there.

Marketplace facilitator laws add a layer that creates real confusion. Since roughly 2019, every state with a sales tax requires marketplaces like Amazon, Etsy, and Walmart Marketplace to collect and remit sales tax on a seller's behalf, on sales made through that platform. That's genuinely useful — but it only covers that one channel. A seller running an Amazon store and a separate Shopify storefront is covered on Amazon and entirely on their own for Shopify, in every state where their own sales or inventory crosses that state's threshold. Marketplace collection creates a false sense that sales tax is "handled," when it's only handled on the platform actually doing the collecting.

The way this actually catches up with a seller is quiet. Nexus is tracked per state, against that state's own rolling period — sometimes the current calendar year, sometimes a trailing twelve months — and a seller can cross a threshold in a handful of states without any single one of them feeling like a big change, since none of them individually represents most of the business. By the time a state notices, through a data-matching program or a 1099-K reconciliation, the exposure has usually been building for a while, and the state assesses back tax plus penalties and interest for the full period, not just registration going forward.

The fix isn't guessing which states probably matter — it's a nexus review that maps every state actual sales were made into, every state inventory has physically sat in, and cross-references both against what marketplace facilitator collection already covers, narrowing genuine exposure down to an actual, manageable list instead of treating every state a package has ever shipped to as an open question. That's the review we run before a seller's back-filing need becomes bigger than it had to be.