Economic Nexus

What it is

Before 2018, a state could only force a business to collect its sales tax if that business had a physical presence there. That changed with South Dakota v. Wayfair, Inc., decided by the U.S. Supreme Court on June 21, 2018, which let states tax remote sellers based purely on economic activity. The case upheld South Dakota’s law requiring collection once a seller exceeds $100,000 in sales or 200 separate transactions in the state.

Today every U.S. state that levies a sales tax has an economic nexus rule for out-of-state sellers. The threshold is what matters: cross it, and you are legally required to register, collect tax from your buyers, and file returns in that state.

Why it matters to a multi-state seller

If you sell online — through your own store, a marketplace, or both — your customers are scattered across dozens of states. You can trip a state’s economic nexus threshold without ever setting foot there. Once you do, the clock starts: most states expect you to register and begin collecting tax in the period after you cross the line, and they can assess back taxes, penalties, and interest if you don’t.

The risk compounds because each state writes its own rule. A $120,000 sales year might create nexus in a $100,000-threshold state but not in California, where the bar is $500,000.

Worked example

Say your e-commerce brand ships nationwide and, over the past 12 months, recorded:

• South Dakota: $105,000 in sales → over the $100,000 threshold → economic nexus. You must register and collect.
• California: $180,000 in sales → under the $500,000 threshold → no economic nexus yet.
• New York: $510,000 across 140 transactions → New York requires $500,000 and more than 100 sales, so both tests are met → economic nexus.

Same revenue, three different outcomes — entirely because the thresholds differ.

State-level nuance

Thresholds vary in both the dollar amount and whether a transaction count applies:

A second moving piece is the 200-transaction test. Many states originally copied South Dakota’s “$100,000 or 200 transactions” language, which could create nexus for low-revenue, high-volume sellers. States are steadily dropping that count: as of January 1, 2026, roughly 16 states have eliminated the transaction threshold — Illinois removed it on January 1, 2026, and Kentucky is scheduled to drop it on August 1, 2026. Because these rules change yearly, always confirm a state’s current threshold before relying on it.

How this connects to staying compliant

Economic nexus is the trigger; everything else follows from it. Once you cross a threshold you typically need to (1) register for a sales tax permit in that state, (2) collect the correct rate from customers, and (3) file returns on the state’s schedule. Miss the trigger and the liability is yours — not your customer’s — plus penalties.

The practical defense is monitoring: track rolling sales by state against each state’s current threshold, and act in the states where you’re approaching or have crossed the line.

Sources: Sales Tax Institute — Economic Nexus State Guide: https://www.salestaxinstitute.com/resources/economic-nexus-state-guide Avalara — States eliminating economic nexus transaction thresholds (2025): https://www.avalara.com/blog/en/north-america/2025/06/states-eliminating-economic-nexus-transaction-thresholds.html South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018): https://www.supremecourt.gov/opinions/17pdf/17-494_j4el.pdf