What is Sales Tax Nexus? A Guide for Small Sellers

If you sell products online, you've probably heard the term "nexus" thrown around. It sounds complicated, but understanding nexus is essential for staying compliant with sales tax laws. Let's break it down in plain English.

What is Nexus?

Nexus is just a fancy legal term that means you have a significant enough connection to a state that you're required to collect and remit sales tax there.

Think of it like this: if you have nexus in a state, that state considers you to be "doing business" there, and they want their cut of the sales tax.

The Two Types of Nexus

1. Physical Nexus

This is the traditional type. You have physical nexus in a state if you have:

• An office, store, or warehouse
• Employees working there
• Inventory stored there (including Amazon FBA warehouses!)
• Salespeople or representatives

Example: If you live in Texas and sell handmade candles from your garage, you have physical nexus in Texas.

2. Economic Nexus

This is the newer type, and it catches many online sellers off guard. After the 2018 Supreme Court case South Dakota v. Wayfair, states can require you to collect sales tax even without any physical presence, as long as you exceed certain sales thresholds.

Example: If you're based in Texas but sell over $100,000 worth of products to customers in Florida, Florida says you have economic nexus and must collect their sales tax.

Economic Nexus Thresholds by State

Every state sets its own threshold. Here are some common ones:

State	Threshold
California	$500,000 in sales
Texas	$500,000 in sales
New York	$500,000 AND 100 transactions
Florida	$100,000 in sales
Pennsylvania	$100,000 in sales
Most other states	$100,000 in sales

Note: Many states originally had a 200-transaction threshold as an alternative to the dollar amount, but most have removed it. New York and Connecticut still require both a dollar amount AND a transaction count. Always verify current rules with the state.

States Without Sales Tax

Five states have no state sales tax at all:

• Alaska (though some local jurisdictions do collect sales tax)
• Delaware
• Montana
• New Hampshire
• Oregon

How Do I Know If I Have Nexus?

Ask yourself these questions:

1. Where do you have a physical presence? (Home, office, warehouse, inventory)
2. Which states are you shipping to? Track your sales by state.
3. Are you exceeding any state's economic threshold? Check your sales volume per state.

If you're a small seller just starting out, you likely only have nexus in your home state. But as you grow and sell to more states, you'll eventually cross those economic thresholds.

What Happens When You Have Nexus?

Once you have nexus in a state, you need to:

1. Register for a sales tax permit in that state
2. Collect the correct sales tax from customers in that state
3. File sales tax returns on schedule (monthly, quarterly, or annually depending on the state)
4. Remit the tax you've collected to the state

It sounds like a lot, but tools like Sails can automate most of this for you.

Common Nexus Mistakes to Avoid

Ignoring Amazon FBA

If you use Fulfillment by Amazon, your inventory might be stored in warehouses across multiple states. Each one can create physical nexus. This catches a lot of sellers off guard.

Not Tracking Sales by State

You can't know if you've crossed a threshold if you're not tracking. Use your e-commerce platform's reporting tools (or Sails) to monitor sales by state.

Waiting Too Long to Register

Some states have lookback provisions and may charge penalties and interest for past sales where you should have been collecting tax. Don't wait until you're way over the threshold.

The Bottom Line

Nexus rules determine where you need to collect sales tax. Physical nexus comes from having a presence in a state. Economic nexus comes from exceeding sales thresholds. As a small seller, start by collecting in your home state and expand as you grow.

The rules can feel overwhelming, but the good news is you don't have to figure it all out alone. Sails tracks your nexus exposure automatically and alerts you when you're approaching thresholds in new states.

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Ready to stop worrying about nexus? Try Sails free and let us handle the complexity.