Sales Tax Nexus: When Does Your Online Business Trigger It? A CPA Guide
Selling online means you can have customers in every state, and each state with a sales tax decides for itself when an out-of-state seller has to register, collect its tax, and file returns. The connection that lets a state require this is called nexus.
Since the Supreme Court’s 2018 decision in South Dakota v. Wayfair, a business with no office, employees, or inventory in a state can still have to collect that state’s sales tax once its sales there are large enough or numerous enough.
What Does Sales Tax Nexus Actually Mean?
Sales Tax Nexus, in Plain English
Nexus is the connection with a state that lets it require a seller to register there, collect that state’s sales tax from customers, and send it in. Without nexus, a state can’t make you collect. This article covers sales tax. Whether your business owes a state income tax is decided under separate rules.
Physical Nexus: The Older but Still Important Trigger
For decades the rule was physical presence: a state could require collection only from sellers with something physical there, such as property, employees, or sales representatives. The Supreme Court set that rule in National Bellas Hess (1967), a case about a mail-order company that reached customers only through the mail and shipping companies, and kept it in Quill Corp. v. North Dakota (1992). Physical presence can still create nexus today, without waiting for a sales threshold. (supremecourt.gov)(dor.sd.gov)
Economic Nexus: The Rule That Catches Growing Online Businesses
On June 21, 2018, in a 5-4 decision in South Dakota v. Wayfair, the Supreme Court sided with South Dakota in a case over a law requiring out-of-state sellers to collect its sales tax if they delivered more than $100,000 of goods or services into the state, or made 200 or more separate transactions there, in a year. The sellers South Dakota sued, Wayfair, Overstock.com, and Newegg, had no employees or real estate in South Dakota, yet each one easily met the law’s dollar or transaction test. South Dakota estimated it was losing $48 million to $58 million a year in sales tax it couldn’t make sellers like them collect. The Court overruled Quill and Bellas Hess, writing that “the Internet’s prevalence and power have changed the dynamics of the national economy.” Every state with a sales tax has since adopted its own economic nexus rule for remote sellers. (supremecourt.gov)
Nexus Is Not the Same Thing as Taxability
Nexus answers whether a state can require you to register and collect. Taxability answers whether a particular sale is taxed there. You can have nexus in a state and still sell nothing that’s taxable there, or sell some items that are taxed and some that aren’t. Whether you have to register in a state where nothing you sell is taxed depends on the state.
The Economic Nexus Threshold Most Small Businesses Need to Know
The state rules in this article are current as of September 2026, and states change them often, so check the state’s own revenue department before relying on any of them.
The table below shows each state’s economic nexus test at a glance, with a link to the state’s own source. Treat it as a starting point, not a final authority. A physical presence, such as an employee or inventory, can create nexus in a state even below these thresholds. “More than $100,000” means sales of exactly $100,000 don’t cross the line; “$100,000 or more” means they do. “Either test” means crossing the dollar test or the transaction test alone creates nexus; “both tests required” means you need both.
| State | Dollar threshold (and which sales count) | Transaction test | Measurement period | Source |
|---|---|---|---|---|
| Alabama | More than $250,000 of direct retail sales, taxable or not (resale sales and sales a marketplace collects Alabama tax on for you don’t count) | None | Previous calendar year | (revenue.alabama.gov) |
| Alaska (local taxes only) | $100,000 or more of sales into Alaska; applies where local governments have joined the Alaska Remote Seller Sales Tax Commission | None | Previous or current calendar year | (arsstc.org) |
| Arizona | More than $100,000 of retail sales (marketplace sales excluded) | None | Previous or current calendar year | (azleg.gov) |
| Arkansas | More than $100,000 (taxable sales only) | More than 200 (either test) | Previous or current calendar year | (arkleg.state.ar.us) |
| California | More than $500,000 of tangible personal property, taxable or not (includes prewritten software starting January 1, 2027) | None | Previous or current calendar year | (cdtfa.ca.gov) |
| Colorado | More than $100,000 (marketplace sales excluded) | None | Previous or current calendar year | (leg.colorado.gov) |
| Connecticut | $100,000 or more | 200 or more (both tests required) | 12 months ending September 30 | (portal.ct.gov) |
| District of Columbia | More than $100,000 | 200 or more (either test) | Previous or current calendar year | (code.dccouncil.gov) |
| Florida | More than $100,000 (taxable sales only) | None | Previous calendar year | (flsenate.gov) |
| Georgia | More than $100,000 | 200 or more (either test) | Previous or current calendar year | (dor.georgia.gov) |
| Hawaii (general excise tax) | $100,000 or more | 200 or more (either test) | Previous or current calendar year | (capitol.hawaii.gov) |
| Idaho | More than $100,000 (marketplace sales included) | None | Previous or current calendar year | (legislature.idaho.gov) |
| Illinois | $100,000 or more | None | Previous 12 months, checked each quarter | (tax.illinois.gov) |
| Indiana | More than $100,000 | None | Previous or current calendar year | (in.gov) |
| Iowa | $100,000 or more | None | Previous or current calendar year | (legis.iowa.gov) |
| Kansas | More than $100,000 (taxable or not) | None | Previous or current calendar year | (ksrevenue.gov) |
| Kentucky | More than $100,000 | None | Previous or current calendar year | (apps.legislature.ky.gov) |
| Louisiana | More than $100,000 | None | Previous or current calendar year | (legis.la.gov) |
| Maine | More than $100,000 | None | Previous or current calendar year | (legislature.maine.gov) |
| Maryland | More than $100,000 | 200 or more (either test) | Previous or current calendar year | (regs.maryland.gov) |
| Massachusetts | More than $100,000 | None | Previous or current calendar year | (malegislature.gov) |
| Michigan | More than $100,000 (taxable or not) | 200 or more (either test) | Previous calendar year | (michigan.gov) |
| Minnesota | More than $100,000 (marketplace sales included) | 200 or more (either test) | Previous 12 months | (revisor.mn.gov) |
| Mississippi | More than $250,000 | None | Any 12 months in a row | (dor.ms.gov) |
| Missouri | More than $100,000 (taxable sales only) | None | Previous 12 months, checked each quarter | (revisor.mo.gov) |
| Nebraska | More than $100,000 | 200 or more (either test) | Previous or current calendar year | (nebraskalegislature.gov) |
| Nevada | More than $100,000 | 200 or more (either test) | Previous or current calendar year | (leg.state.nv.us) |
| New Jersey | More than $100,000 | 200 or more (either test); a pending bill would drop this test | Previous or current calendar year | (nj.gov) |
| New Mexico (gross receipts tax) | $100,000 or more (taxable sales only) | None | Previous calendar year | (tax.newmexico.gov) |
| New York | More than $500,000 of tangible personal property, which includes prewritten software such as SaaS | More than 100 (both tests required) | Previous four sales tax quarters | (tax.ny.gov) |
| North Carolina | More than $100,000 (marketplace sales included) | None | Previous or current calendar year | (ncleg.gov) |
| North Dakota | More than $100,000 | None | Previous or current calendar year | (ndlegis.gov) |
| Ohio | More than $100,000 | 200 or more (either test) | Previous or current calendar year | (codes.ohio.gov) |
| Oklahoma | $100,000 or more (taxable sales only) | None | Previous or current calendar year | (oklahoma.gov) |
| Pennsylvania | $100,000 or more (taxable or not) | None | Previous calendar year | (pa.gov) |
| Rhode Island | $100,000 or more | 200 or more (either test) | Previous calendar year | (rilegislature.gov) |
| South Carolina | More than $100,000 (taxable or not, wholesale included) | None | Previous or current calendar year | (dor.sc.gov) |
| South Dakota | More than $100,000 | None | Previous or current calendar year | (sdlegislature.gov) |
| Tennessee | More than $100,000 (taxable or not, wholesale excluded) | None | Previous 12 months | (revenue.support.tn.gov) |
| Texas | $500,000 or more (taxable or not, marketplace sales included) | None | Previous 12 months | (comptroller.texas.gov) |
| Utah | More than $100,000 | None | Previous or current calendar year | (le.utah.gov) |
| Vermont | $100,000 or more | 200 or more (either test) | Previous 12 months | (legislature.vermont.gov) |
| Virginia | More than $100,000 (retail sales; see the Virginia section for marketplace sales) | 200 or more (either test) | Previous or current calendar year | (law.lis.virginia.gov) |
| Washington | More than $100,000 (taxable or not, wholesale included) | None | Previous or current calendar year | (app.leg.wa.gov) |
| West Virginia | $100,000 or more | 200 or more (either test) | Previous or current calendar year | (code.wvlegislature.gov) |
| Wisconsin | More than $100,000 (taxable or not, wholesale included) | None | Previous or current calendar year | (revenue.wi.gov) |
| Wyoming | More than $100,000 | None | Previous or current calendar year | (wyoleg.gov) |
Some rows note which sales count toward the dollar threshold, such as “taxable sales only.” Where a row has no note, check the state’s own source before adding up your sales.
Five states have no statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Alaska still appears in the table because many Alaska cities and boroughs charge their own sales tax, and many of them share one registration system for remote sellers.
Why $100,000 Is Common but Not Universal
Most states use $100,000 of sales into the state as the dollar threshold. A few set it higher: California and Texas use $500,000, and Alabama and Mississippi use $250,000. New York uses a different test: more than $500,000 of gross receipts from sales of tangible personal property delivered into New York and more than 100 such sales, both over the prior four sales tax quarters. In New York, tangible personal property includes prewritten software, even when it’s accessed online. (cdtfa.ca.gov)(comptroller.texas.gov)(revenue.alabama.gov)(dor.ms.gov)(tax.ny.gov)(tax.ny.gov)
States also differ on which sales count. California counts all sales of tangible personal property delivered into the state, whether or not they’re taxed; starting January 1, 2027, that includes prewritten software, even when it’s accessed online. Texas and Washington count all sales into the state, whether or not they’re taxed. States such as Florida and Missouri count only taxable sales. (cdtfa.ca.gov)(comptroller.texas.gov)(dor.wa.gov)(leg.state.fl.us)(revisor.mo.gov)
Which States Still Use Transaction-Count Thresholds
Some states still have a second test based on the number of transactions instead of dollars. These 14 states and the District of Columbia, marked “either test” in the table above, count transactions as an alternative to the dollar test, so 200 or more transactions into the state in a year (more than 200 in Arkansas) can create nexus even when the dollar total is below the threshold. (dfa.arkansas.gov)
Two more states require both tests at once: Connecticut ($100,000 or more and 200 or more sales) and New York (more than $500,000 and more than 100 sales). Every other state with a sales tax uses a dollar test alone. States change these tests, and a bill pending in New Jersey as of this writing would drop its transaction count. (cga.ct.gov)(pub.njleg.state.nj.us)
Several states have dropped the transaction count recently, including Kentucky (August 1, 2026), Illinois (January 1, 2026), Utah (July 1, 2025), North Carolina (July 1, 2024), South Dakota itself (July 1, 2023), and Louisiana (2023). The transaction test matters most for low-price sellers: at an average order of $20, 200 orders add up to only $4,000 of revenue. (apps.legislature.ky.gov)(tax.illinois.gov)(tax.utah.gov)(ncdor.gov)(dor.sd.gov)(legis.la.gov)
Why the Measurement Period Matters
The period a state measures over matters as much as the amount. Virginia and many others look at the previous or current calendar year, so crossing Virginia’s threshold this year keeps you in nexus there for the rest of this year and all of next year, even if your sales then drop. Some states, such as Texas, Tennessee, Minnesota, Mississippi, and Vermont, look back over a rolling 12 months. (law.lis.virginia.gov)(comptroller.texas.gov)(tn.gov)(revenue.state.mn.us)(dor.ms.gov)(tax.vermont.gov)(tax.virginia.gov)
Connecticut uses the 12 months ending September 30, and New York uses its four most recent sales tax quarters. States also set different start dates after you cross. Texas, for example, requires collection by the first day of the fourth month after the month you exceed its threshold. (cga.ct.gov)(comptroller.texas.gov)(tax.ny.gov)
Why Physical or Other In-State Activity Can Trigger Nexus Before You Reach a Sales Threshold
The dollar and transaction thresholds apply to economic nexus only. A physical presence, such as an employee, inventory, or property in the state, can create nexus from your first sale there. South Dakota, for example, says its minimum threshold doesn’t apply at all to a business with a physical presence in the state. (dor.sd.gov)
Nexus can come from more than one direction. Marketplace selling isn’t a trigger by itself, though inventory a marketplace stores for you can be, and it changes how the others apply.
| Nexus trigger | What it means | What to watch for |
|---|---|---|
| Economic nexus | Your sales into a state cross that state’s threshold | The dollar amount, any transaction count, the measurement period, and which sales count all vary by state |
| Physical nexus | Your business has people, property, or inventory in the state | Employees, inventory (including inventory a marketplace stores for you), property, sales representatives, and other in-state activity |
| Marketplace activity | Selling through a marketplace facilitator such as Amazon or Etsy doesn’t create nexus by itself, but it can affect the other triggers | Some states count marketplace sales toward your threshold and some don’t, and inventory the marketplace stores in a state can create physical presence there. Your direct sales and any registration obligation stay yours |
| Other state-specific nexus rules | A state applies additional rules to particular activities or sellers | Affiliates, contractors, referral (click-through) arrangements, and industry-specific rules |
Having Nexus Isn’t Enough: Is Your Sale Actually Taxable?
Nexus and taxability are separate. Even when a state can require you to register and collect, you still have to ask whether each sale is taxable there.
Tangible Goods
Physical products are taxed in states with a sales tax unless a specific exemption applies. Some states tax certain goods at a lower rate. Virginia taxes food for home consumption at 1%, and applies the same 1% rate to menstrual products and to disposable incontinence products such as diapers. Other personal care items, such as soap, skincare, and cosmetics, don’t get the 1% rate and are taxed at the full rate. (law.lis.virginia.gov)(tax.virginia.gov)
Services
States differ widely. Virginia taxes few services. Hawaii’s general excise tax reaches nearly all business activity, including services. New Mexico’s gross receipts tax covers services, and South Dakota taxes the sale of services. (tax.virginia.gov)(tax.hawaii.gov)(tax.newmexico.gov)(dor.sd.gov)
Since October 1, 2025, Washington also taxes services such as website design, IT services, online advertising, and temporary staffing. A 2026 law repeals those service taxes, except the tax on advertising, starting January 1, 2029. The repeal is part of the same law that created Washington’s new income tax on high earners, so it falls away if the courts ultimately strike down that tax. (dor.wa.gov)(lawfilesext.leg.wa.gov)
Digital Products
Ebooks, music, videos, and downloaded software are taxed in some states and not in others. Virginia doesn’t tax them when they’re delivered electronically, while Pennsylvania and Washington do. (law.lis.virginia.gov)(pa.gov)(dor.wa.gov)
SaaS and Cloud Software
Software you access online instead of downloading is taxed in some states, taxed differently in others, and not taxed in others. The table in the next section shows six examples.
Mixed Products and Services
When one price covers taxable and nontaxable items, state rules decide how it’s taxed, and separately stating the charges can change the answer. Pennsylvania taxes recorded training, including training sold with canned (prewritten) software. It doesn’t tax live training, such as a webinar, when the live training is billed as a separate charge. Virginia doesn’t tax a professional service just because it comes with a minor physical item, such as a printed report, as long as that item isn’t billed separately. (pa.gov)(law.lis.virginia.gov)
Why Digital Products and SaaS Are Especially Complicated
Downloaded Software, Ebooks and Digital Goods
Some states treat digital goods as taxable property and others don’t. Since August 1, 2016, Pennsylvania has expressly taxed ebooks, music, videos, apps, games, and canned software delivered electronically or by streaming. Texas taxes software the same way whether it’s delivered on a disk or electronically. (pa.gov)(pa.gov)(law.cornell.edu)
SaaS and Remote-Access Software
Texas taxes SaaS as a data processing service, on 80% of the charge. Washington taxes remote access software. California doesn’t tax SaaS today, but a law enacted in 2026 makes prewritten software, including software accessed remotely, taxable starting January 1, 2027. (comptroller.texas.gov)(dor.wa.gov)(leginfo.legislature.ca.gov)
Digital Courses, Subscriptions and Memberships
Courses are one of the least consistent areas. Washington treats recorded courses as digital goods, which it taxes unless a business buys them solely for business purposes and gives you an exemption certificate. Since October 1, 2025, it also taxes live online group classes, though one-on-one instruction and some other classes are excluded. Pennsylvania taxes a recorded course as digital video, and its guidance treats separately billed live training, such as a webinar, as nontaxable. Since July 1, 2026, Utah has expressly taxed streaming and subscription access to videos, music, ebooks, and games. (dor.wa.gov)(le.utah.gov)(pa.gov)(pa.gov)(app.leg.wa.gov)
Why the Same Product Can Be Taxable in One State and Exempt in Another
Each state writes its own definitions, so the same ebook, course, or software subscription can be taxed in one state and exempt next door. The table below compares how six example states treat two kinds of digital products. Unlike the threshold table above, it doesn’t cover every state, so check the rules in each state where you have nexus. (cdtfa.ca.gov)(tax.utah.gov)(le.utah.gov)(law.cornell.edu)
| State | Downloaded digital products | SaaS / cloud software | Important qualification |
|---|---|---|---|
| Virginia | Not taxable when delivered electronically with no physical copy | Not taxable; treated like a download | A disk or other physical copy in the sale, or selling it as an integral part of a taxable hardware sale, makes prewritten software taxable |
| California | Not taxable today when nothing physical changes hands | Not taxable today; prewritten software, including SaaS, becomes taxable January 1, 2027 | The 2027 change covers software only; ebooks, audio, video, and games stay excluded |
| Pennsylvania | Taxable (ebooks, music, video, apps, games, and canned software) | Taxable; canned software is taxed however it’s accessed | Recorded courses are taxable as digital video; separately stated live training is not |
| Washington | Taxable, except digital goods bought solely for business purposes | Taxable as remote access software, even when a business buys it for business use | Since October 1, 2025, many live online group classes are also taxable |
| Texas | Taxable; software is taxed the same whether downloaded or on a disk | Taxable as a data processing service, on 80% of the charge | Downloaded software is taxed on 100% of the price |
| Utah | Taxable when the item would be taxable in physical form | Prewritten software accessed remotely is taxable when used in Utah | Since July 1, 2026, streaming and subscription access to video, music, ebooks, and games is expressly taxable |
Virginia Sales Tax Nexus: The Rules You Need to Know
Virginia is where our firm is based, and its rules show how one state puts the pieces together. If your business is based in Virginia, the threshold below doesn’t apply to you: you already have a physical presence here, so you register before your first taxable Virginia sale.
Virginia’s $100,000 / 200-Transaction Threshold
An out-of-state seller has economic nexus in Virginia if, in the previous or current calendar year, it receives more than $100,000 in gross revenue from retail sales in Virginia or makes 200 or more separate retail sales in Virginia. Sales by commonly controlled businesses are added together. (law.lis.virginia.gov)
Say a North Carolina seller of $20 phone cases ships 250 orders from its own website to Virginia customers in a year. It has only $5,000 in Virginia sales, but it has crossed the 200-transaction test and has nexus.
What Counts Toward Virginia’s Threshold
Virginia counts retail sales, so sales for resale don’t count. If you sell through a marketplace facilitator, only your direct sales count toward the threshold, and sales made through the marketplace are left out. That counting rule applies only if nothing else requires you to register in Virginia, such as inventory stored there (a marketplace’s warehouse counts), an office, salespeople, or a commonly owned Virginia business. (law.lis.virginia.gov)(law.lis.virginia.gov)
When a Remote Seller Must Register
Register with Virginia Tax within 30 days of the day you cross the threshold. If you owe tax for an earlier period, read about voluntary disclosure below before you register. Registration is online, or by paper Form R-1 if you can’t register online. (tax.virginia.gov)(tax.virginia.gov)
How Virginia Treats Marketplace Sellers
The marketplace facilitator collects Virginia tax on the sales it facilitates, and you may not collect tax on those sales yourself. If all of your Virginia sales go through a marketplace facilitator and nothing else requires you to register in Virginia, as described above, you don’t need to register. If your direct sales to Virginia customers cross the threshold, or something else such as inventory requires you to register, you register and collect tax on your taxable direct sales. (law.lis.virginia.gov)(tax.virginia.gov)
What Virginia Taxes and What It Doesn’t
Virginia taxes sales of physical goods but generally doesn’t tax standalone services such as consulting, coaching, and design work. The services it does tax include short-term lodging, prepared meals, making goods from materials the customer supplies, and services sold as part of a sale of taxable goods. It doesn’t tax software, data, or content delivered electronically over the internet, and Virginia Tax treats cloud software the same as a download, so SaaS isn’t taxed. A disk or other physical copy included in the sale makes prewritten software taxable, and so does selling it as an integral part of a taxable hardware sale. (law.lis.virginia.gov)(tax.virginia.gov)(tax.virginia.gov)
Custom programs written for one customer are exempt, even when delivered on a disk. Keep records, such as the invoice or contract, showing that the software wasn’t provided with hardware or other physical goods. (law.lis.virginia.gov)(tax.virginia.gov)
How Virginia Sources Remote Sales
Remote sellers charge the rate for the city or county where the product is delivered. That rate is 5.3% in most of the state, 6% in Northern Virginia, Hampton Roads, and Central Virginia (the Richmond region), 7% in the Historic Triangle (James City County, Williamsburg, and York County), and 6.3% in several localities that add a 1% local tax. (law.lis.virginia.gov)(tax.virginia.gov)
Since July 1, 2026, Virginia cities and counties can ask voters to approve an added local sales tax of up to 1%, so check Virginia Tax’s rate lookup tool each filing period. (tax.virginia.gov)
Other Nexus Triggers Online Businesses Miss
Any of these can create nexus before you reach a sales threshold.
Employees and Contractors
An employee working from home in another state can give your business a physical presence there. Washington, for example, treats a business as having employees in the state if it must report them for Washington unemployment insurance. Independent salespeople or representatives making sales for you in a state can also create nexus. Texas, for example, counts employees and independent salespeople who sell, deliver, or take orders for you there. (app.leg.wa.gov)(comptroller.texas.gov)
Inventory and Third-Party Fulfillment
Inventory stored in a state can create nexus there, even in someone else’s warehouse. California says a seller outside the state that stores inventory in a California fulfillment center is engaged in business in California. California applies that to fulfillment centers run by a third party, which covers an Amazon warehouse holding inventory for a seller using Fulfillment by Amazon. With FBA, Amazon decides which warehouses hold your stock, so use your Seller Central inventory reports to see which states it’s in. (cdtfa.ca.gov)(cdtfa.ca.gov)
Affiliates and In-State Representatives
A related company acting for you in a state can create nexus through its activity there. (comptroller.texas.gov)
Click-Through and Referral Arrangements
Some states presume nexus when in-state people are paid to refer customers to you. New York presumes it when New York residents you pay a commission for referrals send you more than $10,000 in sales to New York customers over the prior four sales tax quarters, far below New York’s economic test (more than $500,000 and more than 100 sales). The seller can rebut the presumption. (tax.ny.gov)
Trade Shows and Temporary Physical Presence
Temporary presence can count. Washington, for example, can treat a business that exhibits at trade shows there as physically present in the state. The one exception is a single industry-only trade show a year, and only if you make no retail sales in Washington, at the show or otherwise. If you exhibit, speak, or sell at shows or conferences in other states, check each state’s rule before you go. (dor.wa.gov)
Which States Deserve Extra Attention?
States With Transaction-Count Thresholds
If you sell low-price items into the states with a transaction test in the table above, track your number of transactions in each state every month, not just your revenue.
States With Unusual Economic-Nexus Rules
In New York and Connecticut, you need to meet both the dollar test and the transaction test to have economic nexus. Others, such as Texas and Mississippi, measure over a rolling 12 months instead of a calendar year.
States With Broad Digital-Product Taxation
Pennsylvania, Washington, Texas, and Utah are among the states that tax digital products and SaaS broadly.
States With Complicated Local Sales-Tax Systems
Examples include Colorado, Louisiana, and Alaska. Colorado has home-rule cities that write their own sales tax rules and collect their own tax. Louisiana’s local taxes are set by parishes, cities, and school boards, and a separate state commission handles remote sellers. (tax.colorado.gov)(legis.la.gov)
Alaska has no state sales tax but has more than 100 local taxing jurisdictions. Once your total sales into Alaska reach $100,000, you register with the Alaska Remote Seller Sales Tax Commission if you sell into any taxing community that has joined it. For communities that haven’t joined, you deal with each one directly, under its own rules. (arsstc.org)(arsstc.org)
States With Special Rules for Particular Products or Services
In 2025, Washington started taxing services such as website design and online advertising.
How Sales Tax Nexus Applies to Different Online Business Models
Ecommerce and Physical-Product Sellers
Physical products are taxable unless a specific exemption applies, so once you cross a state’s threshold, expect to collect on your direct product sales there. Watch the dollar test, the transaction test in states that have one, and any inventory you or a marketplace such as Amazon stores in other states.
Service Businesses
If you cross a threshold in a state that doesn’t tax your service, you have no tax to collect there on that service. Nexus matters in states that tax services broadly, such as Hawaii, New Mexico, and South Dakota, and in states that tax a list of services, such as Washington.
SaaS and Software Businesses
SaaS is taxed in states such as Texas, Washington, Pennsylvania, New York, and Utah, not taxed in Virginia, and taxed in California starting January 1, 2027. Check how each state where you have nexus, from a threshold or from an employee there, treats SaaS.
Coaches, Consultants and Course Creators
Live coaching and consulting are services, so a state taxes them only if its tax covers that kind of service; Washington, for example, now taxes many live online group classes. Recorded courses are different: they can be taxed as digital goods in states such as Washington and Pennsylvania. A membership that bundles recorded lessons and live calls for one price falls under the mixed-sale rules above.
Businesses Combining Services and Digital Products
Some states tax the digital part of a package, such as a recorded course, but not the live service, when the invoice shows them as separate charges. So bill them separately when you can.
Businesses Selling Through Marketplaces
A marketplace facilitator that meets a state’s requirements collects the tax on sales made through the marketplace, but your own website sales, and in some states your registration, are still your responsibility. Inventory the marketplace stores for you in a state can also create nexus there.
Does Selling Through Amazon, Etsy or Another Marketplace Change Anything?
What Marketplace Facilitator Laws Actually Do
Marketplace facilitator laws make qualifying platforms collect and remit the sales tax on the sales they facilitate for their sellers. (streamlinedsalestax.org)
When the Platform Collects Tax for You
The platform collects on sales made through it in each state where it meets that state’s marketplace facilitator requirements. Check the platform’s tax documentation to confirm which states and sales it covers. (tax.idaho.gov)
When You Still Have Registration Obligations
Even when a marketplace collects the tax, two things can still fall on you. First, you collect the tax on your direct sales, such as orders through your own website, in each state where you have nexus. Second, some states want you registered even if every sale there goes through a marketplace. Virginia doesn’t: if all your Virginia sales go through a marketplace and nothing else ties you to Virginia, you don’t register. South Dakota may: its Department of Revenue says a marketplace seller that crosses South Dakota’s $100,000 threshold may also need its own South Dakota license, even though the marketplace collects the tax. (tax.virginia.gov)(dor.sd.gov)
What Happens When You Sell Through Both a Marketplace and Your Own Website
States count the two differently. Say a Richmond candle shop’s sales to Minnesota customers in a year are $70,000 through Etsy and $45,000 through its own website. Minnesota counts sales from all sources, so the shop’s $115,000 of Minnesota sales is over Minnesota’s $100,000 threshold. Etsy still collects Minnesota tax on the $70,000, and the shop registers and starts collecting on its website sales from Minnesota’s required start date.
Now assume the same $115,000 of sales went to Arizona customers instead. Arizona counts only direct sales, not marketplace sales, so only the $45,000 from the shop’s website counts, which is under Arizona’s $100,000 threshold.
Why You Still Need State-By-State Sales Records
For each state, you need to know how much you sold, how many transactions you had, and which channel each sale came through, because each state counts differently.
Which Sales Tax Rate Do You Charge an Online Customer?
Destination vs. Origin Sourcing
There are two ways to pick the rate. Destination sourcing uses the rate where the buyer receives the product. Origin sourcing uses the rate where the seller is located. Some states use origin sourcing only for sellers based inside the state and have sellers shipping in from other states charge the buyer’s rate. Virginia, Ohio, Tennessee, Illinois, and Utah work this way, so as an out-of-state seller you’ll generally charge the rate for your customer’s location. (law.lis.virginia.gov)(tax.ohio.gov)(tn.gov)(tax.illinois.gov)(le.utah.gov)
Sourcing decides the rate within a state. Which state gets the tax depends on where the buyer receives the product. Say you’re based in Virginia. A sale to a customer in Richmond is a Virginia sale: you charge the rate for your own location and pay Virginia. A sale shipped to a customer in Atlanta isn’t taxed by Virginia at all, because Virginia doesn’t tax goods delivered out of state. If you have nexus in Georgia, you charge the rate for the Atlanta address and pay Georgia; if you don’t, you charge nothing, and the buyer is supposed to pay Georgia use tax on it instead. It works the same in reverse: a North Carolina seller with nexus in Virginia charges the rate for its Virginia customer’s city or county and pays Virginia. (law.lis.virginia.gov)(law.lis.virginia.gov)
Why the Customer’s Location Matters
For goods you ship into another state, the delivery address sets which state and local rates apply. Services and SaaS follow each state’s own sourcing rules.
State, Local and Special District Taxes
The rate you charge can be several taxes added together: the state rate plus county, city, and special district taxes for the delivery address. A few states make this easier for remote sellers. Texas lets them charge a single 1.75% rate for all local taxes, on top of the state rate, instead of looking up each local rate. Alabama lets them join a program that charges a flat 8% on taxable sales, covering state and local tax together. (comptroller.texas.gov)(revenue.alabama.gov)
Local rules change, too. Pennsylvania used to apply its Philadelphia (2%) and Allegheny County (1%) local taxes based on the seller’s location. A law enacted July 12, 2026 switched both to the delivery address, effective back to January 1, 2026, and the state starts enforcing the change on October 1, 2026. So if you collect Pennsylvania tax, you should be charging those local taxes on deliveries into Philadelphia and Allegheny County by then. (pa.gov)
Why Accurate Customer-Location Data Matters
Collect a full address from every buyer, including digital buyers, and use a rate lookup tool or tax software, because a wrong address means a wrong rate.
So When Do You Actually Need to Act?
Find your situation in the left column.
| Your situation | What to do |
|---|---|
| Under a state’s threshold, with no physical presence or other nexus trigger there that you know of | Keep tracking your sales and activity there; you may not need to register yet |
| Approaching a state’s threshold | Track your sales in that state every month and find out when you’d have to register if you cross |
| Employees, inventory, property, or other activities in another state | Check that state’s rules now; physical presence can require you to register from your first sale there, even if sales are low |
| Marketplace sales plus direct website sales | Track marketplace and direct sales separately, and check how each state counts them and whether you still need to register |
| A mix of taxable and nontaxable products or services | Check whether each item is taxable in each state before deciding you have nothing to collect |
| You’ve already crossed a threshold or already have in-state nexus | Determine when your collection obligation began and whether you owe tax on past sales |
What If You’ve Already Crossed a Sales Tax Nexus Threshold?
This section covers what to do about past sales, whether nexus came from a threshold or from an employee or inventory in the state, and how to get registered. The next section covers staying compliant.
Don’t Assume You’re Automatically in Trouble
Crossing a threshold without registering is fixable, and states have programs for sellers who come forward.
Determine When Nexus Began
In each state, nexus began on whichever came first: the date you first had a physical presence or another nexus trigger there, such as an employee or inventory, or the date you crossed the state’s threshold under its own measurement period. Then find the date that state required you to start collecting.
Identify Which Sales Were Taxable
Generally, the tax at stake is on the taxable sales you made after your collection obligation began in each state. Sales a marketplace already collected tax on aren’t part of it. Hawaii’s general excise tax, which the business itself owes, can also reach earlier receipts from the year you cross its threshold. Your exposure also includes any sale you treated as exempt or for resale but can’t support with an exemption certificate or other proof the state accepts. (files.hawaii.gov)(tax.hawaii.gov)
Calculate Potential Uncollected Tax
If you should have collected tax and didn’t, you owe it yourself, even though your customers never paid it.
Register and Begin Collecting
If you owe tax for past periods, decide whether to use voluntary disclosure (explained below) before you register, because registering first can cost you eligibility. Virginia, for example, says a business already registered with Virginia for sales tax is probably not eligible. Once you’ve decided, register, and don’t start collecting until you’re registered. (tax.virginia.gov)
Consider Voluntary Disclosure Where Appropriate
A voluntary disclosure agreement can limit how far back a state looks and can waive penalties if you come forward before the state contacts you. Virginia’s standard look-back is three years, though terms vary with the facts and can be longer if you collected tax and didn’t send it in. Virginia may waive late penalties, but interest is still due. (tax.virginia.gov)(mtc.gov)
The Multistate Tax Commission runs a program that lets you approach several states at once and stay anonymous until you sign an agreement with a state. Not every state takes part, and Virginia doesn’t, so a Virginia disclosure goes straight to Virginia Tax. (mtc.gov)(mtc.gov)
Review Prior-Period Exposure With a Tax Professional
A professional can confirm the start dates, which sales were taxable, and whether a voluntary disclosure agreement makes sense.
What to Do Once You’ve Crossed a Threshold
These steps keep you compliant from here on.
Register With the State
Register with the tax agency in each state that requires it (for Alaska’s local taxes, that’s the Alaska Remote Seller Sales Tax Commission). In states that belong to the Streamlined Sales Tax program, if your only nexus comes from crossing the economic nexus threshold, you can register through the program’s registration system and have one of its participating certified service providers calculate, file, and remit the tax. Those core services are free. Virginia is not a member. (streamlinedsalestax.org)(streamlinedsalestax.org)
Determine Your Collection Start Date
Collection starts on each state’s own date, and your platform should start charging tax by then.
Configure Your Ecommerce Platform
Turn on tax collection in your own store for the states where you’re registered, and mark which of your products are taxable in each one.
Apply the Correct State and Local Rates
Charge the rate for the customer’s location under each state’s sourcing rules.
Collect and Maintain Exemption Certificates
Keep an exemption certificate, or other documentation the state accepts, for every sale you don’t tax because the buyer is exempt or is buying for resale.
File Returns and Remit the Tax
The state assigns your filing frequency. Virginia, for example, puts you on monthly or quarterly filing based on how much tax you owe, with returns due on the 20th of the month after the period ends. (tax.virginia.gov)
Keep State-By-State Sales Records
For each state, record your sales, your transaction count, and which channel each sale came through, since your returns and next year’s threshold tests both run on them.
Monitor Thresholds Going Forward
Keep checking your sales in the states where you haven’t crossed a threshold yet, and watch for a marketplace moving your inventory into new states.
When Should You Get a Sales Tax Nexus Review?
Get a sales tax nexus review when you’re approaching a threshold in a state, when you add employees, contractors, or inventory in another state, or when you start selling a new kind of product such as software or courses. You should also get one if you find you crossed a threshold in the past. A review helps you pin down where you have nexus and when it began, what is taxable, and what to do next.
Conclusion
Sales tax nexus is no longer just a problem for businesses with offices, warehouses, or employees around the country. If you sell online, you have to track economic nexus, physical nexus, marketplace rules, and taxability separately.
The practical move is to monitor sales by state every month, know which states count transactions, keep track of where you have inventory and remote workers, and act before a missed registration turns into back-tax exposure. If you are already over a threshold, decide how to handle past sales, including voluntary disclosure, before you register, then set up to collect and file going forward.
FAQ: Sales Tax Nexus for Small Businesses
What’s the Sales Threshold Before I Have to Worry About Another State?
Most states use $100,000 of sales into the state in a year, but California and Texas use $500,000 and Alabama and Mississippi use $250,000. New York requires both more than $500,000 of sales of tangible personal property delivered into the state and more than 100 such sales, and Connecticut requires both $100,000 or more and 200 or more sales. Some states also count 200 or more transactions (more than 200 in Arkansas) as a separate test, and a physical presence can create nexus with no threshold at all.
Do I Need to Collect Sales Tax If My Business Only Sells Services?
Only if you have nexus in a state that imposes sales tax on the service you sell. South Dakota taxes many services, Washington taxes a list of them, and Virginia taxes few. Hawaii and New Mexico also tax many services, but through a general excise tax and a gross receipts tax that the seller owes, rather than a traditional sales tax.
Does Virginia Tax Digital Products or SaaS?
No, as long as the product is delivered electronically with no physical copy and isn’t an integral part of a taxable hardware sale. Keep records, such as the invoice or contract, showing the software wasn’t sold with hardware or other physical goods, because Virginia Tax can ask for that proof.
Does Having a Remote Employee or Contractor in Another State Create Nexus?
It can, even if your sales there are small. An employee working in a state can give your business a physical presence there; Washington’s rules work this way, for example. So can independent contractors who make sales for you there.
If I Sell Through Amazon, Etsy or a Similar Platform, Do They Handle Sales Tax for Me?
They do on the sales they facilitate in states where they meet the marketplace facilitator requirements, but not on sales through your own website. Inventory the platform stores for you in a state can also require you to register there. In some states, such as South Dakota, you may still need your own registration even when the platform collects.
Is a Pre-Recorded Course or Downloadable Product Taxed Differently Than a Live Service?
It can be. Pennsylvania taxes recorded courses as digital video but not live training billed as a separate charge. Washington taxes recorded courses as digital goods (unless bought solely for business purposes) and, since October 1, 2025, many live online group classes too.
Can I Have Sales Tax Nexus Without Owing Sales Tax on Every Sale?
Yes. Nexus decides whether a state can require you to register and collect; each sale’s taxability decides whether tax applies to it.
What Happens If I Crossed a Sales Tax Threshold Without Realizing It?
You may owe tax on past sales under each state’s start-date rules. If you come forward before the state contacts you, a voluntary disclosure agreement can limit how far back the state looks and waive penalties, and in some states interest too.
Do I Need to Register in a State Before I Start Collecting Sales Tax?
Yes. Registering sets up the account you’ll use to file returns and remit the tax you collect. If you owe tax for past periods, decide on voluntary disclosure before you register.
How Do I Know Which Sales Count Toward Economic Nexus?
Check the state’s own rule, because states count differently. Some count all sales into the state, including exempt and marketplace sales, while others count only taxable sales or only direct sales.