Economic Nexus, Explained Without the Jargon

Before 2018, the rule was simple and physical. If you had a location, an employee, or inventory in a state, you collected its sales tax. If you did not, you did not. Mail-order and online sellers could ship into a state for years and owe it nothing.

Then South Dakota v. Wayfair replaced physical presence with economic presence. States can now require you to register and collect based purely on how much you sell into them. Every state with a sales tax has since adopted some version of this, and — critically — they did not adopt the same version.

What a threshold actually is

A state sets a bar. Cross it over the measurement period, and you are expected to register with that state's revenue agency and start collecting from customers there.

The most common bar is $100,000 in sales. But the variations matter more than the pattern:

• California and Texas set it at $500,000 — high enough that many small sellers never approach it.
• Alabama and Mississippi use $250,000.
• New York requires $500,000 and more than 100 transactions. Both, not either.
• Connecticut requires $100,000 and 200 transactions.

That "and" is worth pausing on. In a state requiring both, a business doing $400,000 across 40 large transactions has crossed neither bar and owes nothing. The same $400,000 across 900 small orders crosses both. Identical revenue, opposite obligations.

Plenty of other states use "or" — either condition triggers registration — and a number have been dropping their transaction-count test entirely, because it swept in tiny sellers doing a few thousand dollars across many small orders.

Where it goes wrong

Almost nobody gets caught by ignoring a threshold they knew about. They get caught three other ways.

Nobody was tracking by state. The books record total revenue. Nobody ever split it by ship-to state, so the question "how much did we sell into Illinois last year" has no answer without a project. You cannot monitor a threshold you are not measuring against.

Growth crossed it quietly. A good quarter in one state pushes you over in month eight. There is no notification. The obligation begins, and the clock starts running whether or not anyone noticed.

Marketplace sales muddied the picture. If you sell on a large marketplace, that platform generally collects and remits on those transactions. Good news — but your own website, wholesale, and direct sales are still yours to handle. Some states count marketplace sales toward your threshold even though the platform remits them; others do not. If your books lump all channels together, you cannot tell which of your sales are actually your obligation.

The liability nobody sees

Here is what makes this different from most compliance questions. Sales tax you collect is not revenue. It is money you are holding on behalf of a state.

When the amount collected does not match the amount remitted, that difference is a real liability sitting in your business, accruing quietly. It does not show up as a bad month. It shows up years later, usually during due diligence when someone is buying the business, or when a state sends a notice.

The fix is unglamorous: track taxable sales by state as they happen, keep the sales tax liability account reconciled to what was actually collected, and know where you stand against each threshold before you cross it rather than after.

We do that as part of sales tax filing support, and there is a state-by-state directory with the current threshold, administering agency, and filing cadence for all fifty states and DC.

One boundary worth stating: a sales tax return is a transactional filing based on what you collected, and preparing one is a bookkeeping function. It is not an income tax return, and we do not prepare those. If you have discovered you should have registered somewhere a while ago, the numbers are ours to get straight — but the decision about back-filing or voluntary disclosure belongs with your CPA or a tax professional.