You Might Owe Sales Tax in States You've Never Set Foot In. Here's Why

Here's a scenario that catches more businesses off guard than almost anything else in small business tax compliance: a company based in Ohio, with no office, no employees, and no warehouse anywhere near California, ends up owing California sales tax anyway. Not because anything changed about where the business operates. Because enough California customers bought enough product online that the business crossed an invisible line California drew years ago, and nobody in the business noticed the moment it happened.

That's economic nexus, and if your business sells across state lines—online, through a marketplace, or through wholesale, however—it's worth understanding exactly how it works, because "we don't have a presence there" stopped being a valid reason to skip sales tax registration back in 2018.

What Is Economic Nexus, Exactly?

Economic nexus is the legal basis for requiring an out-of-state business to register for, collect, and remit sales tax in a state once its sales into that state cross a specific threshold—regardless of whether the business has any physical presence there at all. It exists because of a 2018 Supreme Court decision, South Dakota v. Wayfair, which threw out the old rule that a state could only require sales tax collection from businesses with a physical footprint inside its borders.

Before Wayfair, an online retailer with no offices, warehouses, or employees in a given state simply didn't have to collect that state's sales tax, full stop. After Wayfair, states got the green light to say, "If you're selling enough into our state, that's connection enough." Every state that charges sales tax has since adopted some version of this rule. As of 2026, that's 45 states plus Washington, D.C.—missing only the states with no statewide sales tax at all: Delaware, Montana, New Hampshire, and Oregon.

How the Thresholds Actually Work

Most states settled on the same basic number: $100,000 in sales into that state within a year triggers the obligation to register and start collecting. That's the dominant standard, and it's actually gotten simpler over the past couple of years—a number of states used to pair that dollar figure with a 200-transaction threshold, meaning you could trip the rule either by dollar volume or by sheer order count, which was brutal for businesses selling a high volume of low-priced items. States have been quietly dropping that transaction test: Alaska removed it in 2025, Utah in mid-2025, Illinois at the start of 2026, and Kentucky mid-2026. The trend is clearly moving toward a cleaner, revenue-only standard.

A handful of states set the bar meaningfully higher. California, Texas, and Tennessee all use $500,000 rather than $100,000—genuinely useful breathing room if a chunk of your revenue comes from those particular markets. Alabama and Mississippi sit in between at $250,000. New York is the real outlier: it requires both $500,000 in sales and more than 100 transactions before nexus kicks in, the only state that makes you clear two separate bars rather than either one.

State	Threshold	Transaction Test?
Most states (standard rule)	$100,000 in sales	No, for most—dollar-only
California	$500,000 in sales	None
Texas	$500,000 in sales	None
Tennessee	$500,000 in sales	None
New York	$500,000 in sales	Yes—AND 100+ transactions required.
Alabama	$250,000 in sales	None
Mississippi	$250,000 in sales	None
Delaware, Montana, New Hampshire, Oregon	No statewide sales tax	Not applicable

One detail worth sitting with: this obligation is retroactive to the day you actually crossed the threshold, not the day you noticed. If your business quietly passed $100,000 in Ohio sales back in April but nobody ran the numbers until October, the state doesn't consider October the start date—it considers April the start date, with everything since then technically owed.

Marketplace Sales: The Rule Most Sellers Get Wrong

If you sell on Amazon, Walmart Marketplace, Etsy, or a similar platform, there's a second layer of complexity worth understanding specifically: whether those marketplace sales count toward your own nexus threshold, or whether the marketplace itself is responsible for collecting tax on those sales instead.

Most marketplaces now collect and remit sales tax on your behalf under what's called marketplace facilitator law—genuinely helpful, since it means you're not manually calculating tax on every Amazon order. But whether those marketplace sales still count toward your own threshold in a given state is a separate question, and states don't agree on the answer. California and Louisiana, for example, include your marketplace sales when calculating whether you've crossed their threshold. A number of other states—Alabama, Arizona, Arkansas, Colorado, and Illinois among them—exclude marketplace sales from that calculation entirely. This isn't a small technicality: a business that sells primarily through Amazon could be much closer to crossing a threshold than its direct-to-website sales alone would suggest, depending on which state is doing the counting.

The Trap That Has Nothing to Do With Revenue: Physical Nexus

Everything above describes economic nexus specifically—the threshold-based rule created by Wayfair. But the older concept it replaced, physical nexus, never actually went away. It just became one of two ways a state can require you to collect its tax, not the only way.

This matters enormously for anyone using Fulfillment by Amazon. If Amazon has ever stored so much as a pallet of your inventory in a state's fulfillment center, that alone creates physical nexus in that state—regardless of your revenue, regardless of whether you've come anywhere close to the $100,000 threshold. A business doing $1,000 in direct sales into a state can still owe that state's sales tax purely because Amazon warehoused their product there. This is the single biggest blind spot for FBA sellers evaluating their own nexus exposure, because it's easy to run every calculation based on revenue and completely miss that a warehouse, not a dollar figure, already created the obligation.

What Happens If You've Crossed a Threshold and Haven't Registered

The honest answer is that it depends on how long it's gone unnoticed and how a state chooses to handle it, but the exposure is real and it compounds. States can generally assess back taxes, penalties, and interest going back to the actual date nexus was established, not the date you find out. Most states also offer a Voluntary Disclosure Agreement process, which typically limits how far back they'll look and can reduce or waive penalties—but that's a proactive step you take before a state finds you, not something available once an audit notice has already arrived.

The practical response for most businesses isn't panic; it's a proper nexus review: mapping actual sales by destination state against each state's current threshold, checking marketplace facilitator treatment state by state, and confirming whether inventory storage anywhere creates physical nexus independent of revenue. That's a genuinely detailed, ongoing exercise, especially for a business selling across dozens of states through a mix of direct sales and marketplaces—not something to eyeball once a year and file away.

Nexus is evaluated state by state, not as one national revenue number. A business comfortably under the radar nationally can already owe tax in three or four specific states without anyone at the company realizing it, simply because those particular states happened to be where the sales concentrated.

Where This Fits Into Your Bookkeeping

Tracking sales tax exposure properly means watching a rolling window of state-by-state revenue, monitoring which states just changed their rules, and keeping registration and filing current in every state where the threshold's been crossed—the kind of ongoing, detail-heavy tracking that's easy to let slip when it's squeezed between everything else on a growing business's plate. An outsourced bookkeeping team can maintain that state-by-state visibility as a standing part of your monthly close, rather than something that only gets checked when a state notice shows up in the mail.

Common Questions About Economic Nexus

Does economic nexus apply to services or just physical products? It depends entirely on the state—some states tax digital products and certain services, others tax only tangible goods. The nexus threshold determines whether you have an obligation to register in a state at all; what's actually taxable once you're registered is a separate, state-specific question.

If I only sell through Amazon and Amazon collects the tax, do I still need to worry about nexus? Yes, for two reasons. First, whether your marketplace sales count toward your own threshold varies by state, as covered above. Second, if Amazon stores your inventory in a state's warehouse, that alone can create physical nexus regardless of what Amazon collects on your behalf.

How often do these thresholds change? More often than most businesses expect—several states have modified their rules within the past two years alone, mostly by dropping the transaction-count test. A threshold check that was accurate last year isn't guaranteed to be accurate today.

What's the fastest way to find out if I already have Nexus somewhere? Map your actual sales by destination state against each state's current threshold and transaction rule, factoring in how that state treats marketplace sales specifically. This is exactly the kind of state-by-state exercise most businesses underestimate until they actually sit down and run it.

Is nexus retroactive if I've been over a threshold for a while without knowing? Generally yes—the obligation is typically considered to start from the date the threshold was actually crossed, not the date it was discovered, which is why an early, voluntary review tends to produce a far better outcome than waiting for a state to find the gap first.

The Bottom Line

Economic nexus turned "we don't have a presence there" into a much weaker argument than it used to be. For any business selling meaningfully across state lines, the question isn't really whether nexus rules apply—it's whether anyone has actually checked, state by state, recently enough for the answer to still be accurate. Given how often these thresholds keep moving, that's less a one-time project than an ongoing part of keeping the books genuinely current.