Economic Nexus Explained: Sales Tax in Other States

Introduction

If your business sells across state lines — an online store, a SaaS product, a growing D2C brand — economic nexus is the single most consequential sales tax concept you need to understand, and one of the most commonly misunderstood. This guide covers exactly how it works, where the thresholds actually sit in 2026, and the specific trend reshaping the rules across nearly every state.

Note: This is educational information, not tax advice. Nexus rules vary by state, change frequently, and depend on the specific facts of your sales — verify your specific situation with a qualified tax professional before making registration decisions.

Table of Contents

1. The Wayfair Decision That Changed Everything
2. Economic Nexus vs. Physical Nexus
3. The $100,000 Standard — and Its Exceptions
4. The 2026 Trend: Dropping the Transaction Threshold
5. What Sales Actually Count
6. Marketplace Facilitator Laws
7. What to Do Once You Cross a Threshold
8. If You Discover Past Non-Compliance
9. FAQ
10. Conclusion

The Wayfair Decision That Changed Everything

Before June 21, 2018, the rule was simple and narrow: a state could only require a business to collect its sales tax if that business had a physical presence there — an office, warehouse, employee, or inventory. This was the standard set by Quill Corp. v. North Dakota (1992).

The Supreme Court's decision in South Dakota v. Wayfair, Inc. overturned that standard, ruling that states can require out-of-state sellers to collect sales tax based on economic activity alone — no physical presence required. South Dakota's own law at the center of the case — a $100,000 sales or 200-transaction threshold — became the template that most other states copied when writing their own economic nexus laws. All 45 states that impose a sales tax, plus DC, now have economic nexus rules in place.

Economic Nexus vs. Physical Nexus

It's worth being precise about the distinction, since both still apply simultaneously:

• Physical nexus: triggered by an office, warehouse, inventory (including inventory stored in a fulfillment center like Amazon FBA), or employees physically located in a state
• Economic nexus: triggered purely by sales volume or transaction count into a state, regardless of physical presence

A business can have nexus in a state through either path — and many growing e-commerce businesses trigger physical nexus unknowingly simply by using a fulfillment network that stores inventory across multiple states.

The $100,000 Standard — and Its Exceptions

$100,000 in annual sales is the most common threshold, used by 30+ states, taken directly from the original South Dakota law. Notable exceptions:

Because these thresholds genuinely vary — including what counts toward them and how the measurement period is calculated — a business can trigger nexus in one state while remaining comfortably below the threshold in a neighboring one with an identical revenue number.

The 2026 Trend: Dropping the Transaction Threshold

This is the most significant recent development in economic nexus law: states are steadily eliminating the 200-transaction threshold and relying solely on the revenue-based standard. Over a dozen states — including California, Illinois, and Washington — have already dropped the transaction-count prong, with Kentucky joining the list effective August 1, 2026.

The reasoning states have given is straightforward: 200 small-dollar transactions (which could total just a few thousand dollars) doesn't represent the same meaningful economic presence as $100,000+ in actual revenue. Moving to a single, receipts-based standard simplifies compliance and focuses enforcement on businesses with genuine economic activity in the state, rather than catching very small sellers in a technical transaction-count trap.

What Sales Actually Count

This varies meaningfully by state, but generally includes:

• Taxable retail sales into the state
• In many states, exempt sales are still counted toward the threshold even though no tax is actually collected on them
• Marketplace-facilitated sales — whether these count depends on the state (see below)

What typically does not count: sales for resale, most services (in states that don't tax services), and occasional/isolated sales outside your regular business activity.

Marketplace Facilitator Laws

All 50 states now have marketplace facilitator laws, which shift the actual tax collection burden from an individual third-party seller to the platform itself — Amazon, Etsy, and Walmart Marketplace generally collect and remit sales tax on behalf of sellers using their platforms.

The nuance that catches sellers off guard: even though the marketplace handles collection, whether those marketplace sales still count toward your own economic nexus threshold — relevant if you also sell through your own website — depends on the specific state. A seller doing $60,000 through their own Shopify store and $50,000 through Amazon might already be over a $100,000 threshold in a state that counts both, while comfortably under it in a state that only counts direct sales.

What to Do Once You Cross a Threshold

Most states require registration and the start of tax collection immediately or in the following filing period — there's typically no extended grace period once the trigger is confirmed. This makes proactive, ongoing monitoring essential:

1. Track sales by ship-to state, not just total revenue, for both the current and prior calendar year
2. Compare each state's total against its specific threshold — don't assume $100,000 is universal
3. Register promptly once a threshold is crossed, rather than waiting for a notice
4. Reassess quarterly, not annually — several states measure economic nexus on a rolling basis, not a fixed calendar year

If You Discover Past Non-Compliance

If you discover you've already crossed a threshold in a state without registering, most states participate in Voluntary Disclosure Agreements (VDAs), often coordinated through the Multistate Tax Commission's National Nexus Program — a single application process covering multiple states at once. Coming forward proactively through a VDA can meaningfully limit the look-back period and reduce or waive penalties, compared to the outcome if the state identifies the gap first through an audit.

Conclusion

Economic nexus turned sales tax from a "know your one home state's rules" problem into a genuine 45-state monitoring exercise — and the trend toward simpler, revenue-only thresholds hasn't made that monitoring less important, just less confusing to calculate once you're actually doing it. The businesses that stay ahead of this aren't the ones trying to memorize every state's exact number; they're the ones who've built a habit of checking sales by state regularly enough that crossing a threshold is a planned registration, not a surprise notice.

If you'd like help setting up ongoing nexus monitoring as part of your regular bookkeeping, get in touch for a free consultation.