What it is

Sales tax nexus is the legal link between a seller and a state that obligates the seller to collect that state’s sales tax, charge it to customers, and remit it to the state. Without nexus, a state generally cannot require you to collect its tax. With nexus, you must register for a permit, collect the right rate, and file returns — or the unpaid tax becomes your liability.

There are two primary ways to create nexus:

• Physical nexus — a tangible presence in the state, such as an office, employees or contractors, a warehouse, or stored inventory (including goods held in a third-party or Fulfillment by Amazon facility).
• Economic nexus — enough sales into the state to cross a dollar or transaction threshold, with no physical footprint required.

Physical nexus is the older rule. Economic nexus is newer: it was authorized when the U.S. Supreme Court decided South Dakota v. Wayfair, Inc. on June 21, 2018, overturning the long-standing rule that a state could only tax sellers with a physical presence. The case upheld South Dakota’s law requiring collection once a remote seller exceeds $100,000 in sales or 200 separate transactions in the state.

A third path — marketplace nexus — comes into play when you sell through platforms like Amazon or Etsy. Those sales can count toward your obligations even though the platform does the collecting.

Why it matters to a multi-state seller

If you sell online, your customers are spread across dozens of states, and you can establish nexus in a state without ever intending to. Storing inventory in an out-of-state warehouse creates physical nexus. Crossing a sales threshold creates economic nexus. Either one switches on a duty to register and collect.

The stakes are real because the obligation runs to you, not your customer. If a state later finds you had nexus and failed to collect, it can assess the back tax you should have charged — plus penalties and interest — for every period you were over the line. For a fast-growing brand, that exposure builds quietly across many states at once.

Worked example

Say your brand sells nationwide through your own Shopify store and Amazon FBA. Over the past 12 months:

• South Dakota: $105,000 in direct sales → over the $100,000 economic nexus threshold → economic nexus. You must register and collect.
• Texas: You store FBA inventory in a Texas fulfillment center → physical presence → physical nexus, regardless of sales volume.
• Ohio: $40,000 in sales, no inventory, no staff → below the threshold and no physical footprint → no nexus yet.

Same business, three different reasons (or non-reasons) for nexus — physical in one state, economic in another, none in the third.

State-level nuance

Every U.S. state that levies a sales tax now asserts both physical-presence and economic nexus over sellers, but the specifics differ. Economic thresholds vary — many states use $100,000, while California, Texas, and Tennessee use higher figures — and some states pair the dollar test with a transaction count while others have dropped it. Physical-presence rules also differ at the margins: states draw their own lines on how many days a traveling rep or trade-show booth creates nexus.

Because each state writes its own rule and revisits it yearly, the only reliable approach is to test your footprint against current, state-specific rules rather than a single national number.

How this connects to staying compliant

Nexus is the trigger that starts every other sales tax obligation. Once you have nexus in a state, the sequence is the same: (1) register for a sales tax permit, (2) collect the correct combined state and local rate from customers, and (3) file returns on the state’s schedule. No nexus, no obligation; nexus, full obligation.

The practical discipline is monitoring. Track where you have people and property, and track rolling sales by state against each state’s threshold. Act in the states where you’ve crossed — or are about to cross — the line, before the state acts on you.

Sources: Sales Tax Institute — Wayfair / economic nexus FAQ: https://www.salestaxinstitute.com/sales_tax_faqs/wayfair-economic-nexus Avalara — Economic Nexus and South Dakota v. Wayfair, Inc.: https://www.avalara.com/us/en/learn/sales-tax/south-dakota-wayfair.html Avalara — State-by-state physical presence nexus guide: https://www.avalara.com/us/en/learn/guides/state-by-state-physical-presence-nexus-guide.html South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018): https://www.supremecourt.gov/opinions/17pdf/17-494_j4el.pdf