What Is Economic Nexus and When Does It Apply to My Business?

Published: [DATE] | Author: Taxero | Reading time: 9 minutes
URL slug: /blog/what-is-economic-nexus

---

Economic nexus is a legal standard that requires out-of-state businesses to collect and remit sales tax in a state once their sales to that state's customers exceed a threshold — typically $100,000 in annual revenue or 200 transactions. It exists in 45 states plus Washington D.C. and applies to any business selling physical goods online, regardless of where the business is located. If you sell on Shopify, Amazon, WooCommerce, or any marketplace and ship products across state lines, economic nexus almost certainly applies to you.

---

Where Economic Nexus Came From

Before 2018, states could only require sales tax collection from businesses with a physical presence in their state: a warehouse, an office, an employee. Online retailers without a physical footprint in a state collected nothing — a loophole that cost states an estimated $13–26 billion per year.

The U.S. Supreme Court ended that in South Dakota v. Wayfair, Inc. (2018). The Court ruled 5–4 that South Dakota's economic nexus law — which required out-of-state sellers to collect tax once they crossed $100,000 in sales or 200 transactions — was constitutional. Within two years, 45 states had enacted nearly identical laws.

For ecommerce sellers, this was a fundamental change. Being based in Nevada doesn't protect you from owing sales tax in Texas. Shipping from a fulfillment center in Ohio doesn't eliminate your California obligations. The question that matters now is: how much did you sell to buyers in each state?

---

The Standard Economic Nexus Thresholds

Most states: $100,000 in annual sales OR 200 separate transactions to buyers in that state.

These are the states where one of those two conditions triggers registration:

| State | Revenue Threshold | Transaction Threshold | |-------|------------------|-----------------------| | Washington | $100,000 | — (revenue only) | | Pennsylvania | $100,000 | — | | Michigan | $100,000 | — | | Illinois | $100,000 | — (transaction count removed 2026) | | Colorado | $100,000 | — | | Georgia | $100,000 | 200 transactions | | Ohio | $100,000 | 200 transactions | | Virginia | $100,000 | 200 transactions | | Arizona | $100,000 | — | | New Jersey | $100,000 | 200 transactions | | Florida | $100,000 | 200 transactions | | Most other states | $100,000 | 200 transactions |

---

States With Non-Standard Thresholds (High Error Risk)

Several states diverge from the $100,000 standard. These are the most commonly misquoted thresholds in the industry:

Texas — $500,000 (revenue only)

Texas set its threshold at $500,000 in annual sales — five times the standard. Transaction count plays no role. Source: Texas Comptroller. This means a Shopify seller doing $150,000 per year in Texas sales has zero state filing obligation in Texas. A seller doing $600,000 does.

California — $500,000 (revenue only)

California also uses a $500,000 threshold, revenue only. California is the most complex sales tax state in the country — 125+ local jurisdictions each layer additional district taxes on top of the 7.25% state base rate. The threshold is forgiving; the compliance, once triggered, is not.

New York — $500,000 AND 100 transactions (both required)

New York uses AND logic, not OR. You must exceed both $500,000 in annual sales to New York buyers AND 100 separate transactions in that same period to trigger a registration obligation. A seller doing $800,000 in New York sales but only 80 orders does not have a New York obligation. A seller doing 300 orders but only $90,000 in total sales also does not. Both thresholds must be crossed simultaneously.

Kansas — No threshold

Kansas has had no minimum nexus threshold since 2019 following their own Wayfair-era legislation. Any sale to a Kansas buyer, regardless of dollar amount or transaction count, technically creates a nexus obligation. Kansas is the exception that catches sellers off guard.

---

Physical Presence Nexus Still Exists

Economic nexus didn't replace physical nexus — it added to it. You can have physical presence nexus in a state through:

• A warehouse, office, or store
• Amazon FBA inventory stored in a fulfillment center in that state
• An employee, contractor, or sales representative working there
• Trade show attendance in some states (varies by state and duration)
• Storing inventory with a third-party logistics provider (3PL)

Physical presence nexus can trigger an obligation below any economic threshold. An Amazon FBA seller with inventory in an Amazon fulfillment center in Georgia owes Georgia sales tax even if their annual Georgia sales are $10,000.

---

What "Crossing the Threshold" Actually Means

The threshold is typically measured on a prior-12-months rolling basis or current calendar year basis, depending on the state. Definitions matter:

• Revenue threshold: Usually gross sales to buyers in that state, including shipping if taxable, before returns. Check each state's definition — some exclude marketplace facilitator sales.
• Transaction threshold: Usually the number of separate orders, not line items. One order with 5 products = 1 transaction.

Once you cross the threshold, you're generally required to register before your next sale in that state — not at year-end. Some states give a grace period (30-90 days) before requiring collection to begin. Check each state's specific effective date rules.

---

What Happens When You Cross a Threshold

1. Register for a sales tax permit — File a registration application with the state's Department of Revenue. Most states offer online registration through their portal. Processing time ranges from same-day (Texas, Colorado) to 3–6 weeks (California, New York).

2. Begin collecting sales tax — Once registered, configure your store or marketplace to collect the applicable tax rate from buyers in that state.

3. File on your assigned schedule — Monthly, quarterly, or annually, depending on your sales volume and the state's assignment.

4. Remit the tax collected — Pay what you've collected to the state by the filing deadline.

Failing to do any of these steps creates escalating penalties. Most states charge 5–10% of unpaid tax per missed period, with monthly interest compounding on the balance.

---

Economic Nexus vs. Marketplace Facilitator Laws

If you sell on Amazon, Etsy, eBay, or Poshmark, you may wonder: "Does my marketplace handle this?" Partly.

Marketplace facilitator (MF) laws require large marketplaces to collect and remit sales tax on your behalf for transactions processed through their platform. Amazon, Etsy, eBay, and Poshmark all qualify as marketplace facilitators in most states.

But this doesn't eliminate your economic nexus exposure entirely:

1. Your marketplace sales still count toward your threshold in every state. If you're doing $80,000 on Amazon in California and $30,000 on your own Shopify store in California, your combined $110,000 exceeds the standard threshold in most states — even though California uses $500K.

2. If you sell on multiple platforms, the combined volume across all channels determines your nexus position — not each platform in isolation.

3. If you have any non-marketplace channel (your own website, WooCommerce, direct Stripe payments), those sales are never covered by MF rules and create direct filing obligations once you cross the threshold.

---

How to Determine Your Current Nexus Position

Run a sales-by-destination-state report for the past 12 months from every channel you sell on:

• Shopify: Reports → Taxes → Sales by state
• Amazon Seller Central: Reports → Payments → Tax Document Library
• Other marketplaces: most have CSV export with buyer state data

Then compare each state total against the threshold table above. Any state where you've exceeded the threshold is a state where you need to register.

Taxero automates this entire process. Connect your selling platforms — Shopify, WooCommerce, Amazon, TikTok Shop, eBay, CSV upload — and the nexus dashboard calculates your current exposure across all 50 states in minutes, flags every threshold you've crossed, and prepares registration filings automatically.

---

Frequently Asked Questions

Q: When did economic nexus laws start?
A: The legal authority came from the Supreme Court's South Dakota v. Wayfair ruling on June 21, 2018. Most states had enacted economic nexus laws by January 2019. As of 2026, 45 states plus Washington D.C. have active economic nexus laws. The 5 states with no sales tax (Alaska, Montana, New Hampshire, Oregon, Delaware) have no sales tax at all.

Q: Do economic nexus thresholds reset each year?
A: Yes — most states measure on a calendar year basis, so your threshold resets January 1. However, several states (Colorado, for example) use a rolling 12-month look-back. Once you've crossed the threshold and are registered, you remain registered in that state even in lower-volume years; deregistration is a separate process.

Q: If I'm below the threshold right now, can I stop collecting tax in a state?
A: Not immediately — you need to formally request cancellation of your registration. Most states require you to remain registered through the current year or filing period, and some require a showing of sustained below-threshold activity before cancellation.

Q: Do I owe tax on every sale to a state, or just sales above the threshold?
A: Once you've crossed the threshold for a state, you owe sales tax on ALL sales to buyers in that state — not just the incremental sales above the threshold.

Q: What if I just started my business and I'm nowhere near the threshold?
A: Monitor your sales by state from day one. The threshold is measured by calendar year in most states, so a business that launches in October and has a strong Q4 can cross the $100,000 threshold before December 31 of their first year.

Q: Does economic nexus apply to digital products or services?
A: Yes, in many states — but the rules vary significantly. Physical goods are taxed almost universally. Digital products (software, ebooks, SaaS subscriptions) are taxed in roughly 30 states, each with different rules. This guide focuses on physical goods; digital product sellers should consult the specific rules for each state.

---

The Bottom Line

Economic nexus means physical location is no longer the test. The test is: how much did you sell to buyers in each state?

For most sellers, the threshold is $100,000 or 200 transactions. For Texas and California sellers, it's $500,000. For New York, it's $500,000 AND 100 transactions. For Kansas, there's no minimum.

Cross the threshold, and you owe. The good news: getting compliant is straightforward if you do it proactively.

See your nexus exposure across all 50 states → — free, no credit card required.