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.
Understanding Sales Tax Nexus
Sales tax nexus is the specific threshold or condition that triggers a business's obligation to collect and remit sales tax in a given state. It is the practical application of the general nexus concept specifically to sales tax obligations.
Sales tax nexus can be triggered by physical nexus factors (having an office, warehouse, employee, or inventory in a state), economic nexus factors (exceeding a state's revenue or transaction count threshold), or affiliate nexus (having a marketing affiliate or referral partner in a state).
The thresholds vary by state. The most common economic nexus threshold is $100,000 in annual sales into the state, though some states use $200,000 or $500,000. Some states also use a transaction count threshold (typically 200 transactions) as an alternative trigger.
Why It Matters for Ecommerce
Understanding exactly where you have sales tax nexus is critical for compliance. Ecommerce sellers should review their nexus status quarterly, especially if using FBA (which moves your inventory between states) or if your sales are growing rapidly across multiple states. Non-compliance can result in assessments for back taxes plus penalties of 5-25% and interest.
Practical Example
Your ecommerce business ships from Ohio and has no physical presence in other states. In Q3, your California sales cross $100,000 for the year. You now have economic nexus in California and must register for a sales tax permit, collect California sales tax on non-marketplace orders, and file returns. Your Amazon sales are already covered by marketplace facilitator law.
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.
EcommerceEconomic Nexus
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.
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.
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