A sales tax obligation triggered when a seller exceeds a state's revenue or transaction count threshold (e.g., $100K in sales or 200 transactions), even without physical presence in that state.
Understanding Economic Nexus
Economic nexus is a sales tax obligation triggered when a remote seller exceeds a state's statutory threshold for revenue or transaction volume in that state, even if the seller has no physical presence there. This concept was validated by the U.S. Supreme Court in the landmark 2018 South Dakota v. Wayfair decision.
Prior to Wayfair, states could only require sales tax collection from businesses with a physical presence (office, warehouse, employee). The Wayfair decision recognized that large remote sellers benefit from state infrastructure and services, justifying the economic nexus concept.
Most states have adopted economic nexus thresholds modeled on South Dakota's: $100,000 in annual sales or 200 transactions in the state. However, thresholds vary — some states have eliminated the transaction count trigger, and a few have higher revenue thresholds.
Why It Matters for Ecommerce
Economic nexus is the most common way ecommerce sellers create sales tax obligations in new states. As your business grows and you ship to more states, you'll progressively cross economic nexus thresholds and need to register for sales tax permits in those states. Monitoring your state-by-state sales volume proactively prevents surprise tax liabilities.
Practical Example
In 2025, your online store ships $90,000 to New York customers by October. You're $10,000 away from New York's $100,000 economic nexus threshold. By December, you hit $115,000. You now have economic nexus in New York and must register, collect sales tax on 2026 orders, and file returns. Proactive tracking would have given you time to prepare.
Related Terms
Nexus
A sufficient connection between a business and a state that requires the business to collect and remit sales tax in that jurisdiction. Can be established through physical presence or economic activity.
EcommerceSales Tax Nexus
The specific threshold (physical or economic) that triggers a business's obligation to collect sales tax in a given state. Varies by state and can include office locations, employees, or inventory storage.
EcommerceMarketplace Facilitator Tax
State tax laws that require the marketplace (e.g., Amazon, Etsy, eBay) — not the individual seller — to collect and remit sales tax on transactions. Now enacted in most US states.
Related Tools
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