Where You Have to Collect Sales Tax: Nexus Explained

What decides whether I have to collect sales tax in a state?

Sales tax nexus is a connection to a state that can require a seller to register and collect tax on taxable sales. Physical presence or enough sales into the state can create that connection; the state's rules decide which sales and local taxes apply. A remote seller threshold is not a general exemption for a seller with an office, people, or inventory in that state (Texas Comptroller: remote sellers; California CDTFA: Wayfair FAQ).

Use the customer's delivery or service location to organize the review, then apply that state's sourcing and taxability rules. Sales tax nexus and state income or franchise tax nexus are separate questions. Texas, for example, starts a taxable entity's franchise tax nexus no later than the date it obtains a Texas use tax permit (Texas Comptroller: remote sellers). See which business returns to file for that separate review.

Do I have to collect sales tax in my own state?

If you operate in a state and make taxable sales there, you generally need its sales tax registration even when sales are below its remote seller threshold. California generally requires sellers located there and making retail sales in the state to register; New York says a home business has the same sales tax responsibilities as another vendor selling the same taxable items (California CDTFA: fulfillment centers; New York Tax Department: registration).

Your home address alone does not decide tax on every order. Check where each order is delivered, whether the sale is taxable there, and whether another state also requires collection. A state without a statewide sales tax may still have other business taxes or local sales taxes.

What counts as physical presence?

Physical presence can include an office, employees or other representatives making sales, and inventory stored in a state. California lists inventory, offices, representatives, and leased equipment as examples; New York lists employees, contractors, agents, and delivery in the seller's own vehicles at least 12 times a year among its connections (California CDTFA: Wayfair guidance; New York Tax Department: registration).

Physical presence is fact-specific. Record where staff work, where goods are stored, and who owns or controls the goods. Check the state's own rule before treating a temporary visit, contractor, or warehouse arrangement as harmless.

What is economic nexus, and what are the thresholds?

Economic nexus lets a state require a seller with no physical presence there to collect tax after enough in-state sales. There is no single national threshold. States differ on the amount, measurement period, whether both sales and transaction tests apply, and which sales count (Streamlined Sales Tax: remote seller guidance).

The tests change. Illinois removed its remote seller transaction-count test (state bulletin), and Alaska's remote seller commission removed its own (commission guidance). Use the multistate chart to find a state's guidance, then verify the current rule on that state's site.

Which sales count toward a state's threshold?

Count sales the way the destination state's test defines them. A state may measure gross sales, gross revenue, retail sales or taxable sales, so exempt and resale sales count in some states and not others (Streamlined Sales Tax: remote seller guidance). Texas counts taxable and nontaxable goods and services, resale sales, sales to exempt buyers, and marketplace sales in its remote seller safe harbor calculation (Texas Comptroller: remote sellers; marketplace FAQ). California includes facilitated marketplace sales, sales for resale, and sales of related persons in its economic nexus test. A remote seller making only documented sales for resale and no California retail sales does not have to register solely under that test; a later retail sale, including a drop shipment to a California consumer for a retailer not registered there, can change the answer (California CDTFA: Wayfair FAQ; marketplace sellers). New York includes marketplace sales in its gross receipts and transaction test (New York Tax Department: remote registration).

Do not use taxable sales alone unless the state's test says to. Keep separate totals for direct sales, marketplace sales, exempt sales, and resale sales, by destination and month. The applicable test may count some of those sales while leaving the actual sale untaxed.

Does inventory in a marketplace or third-party warehouse create nexus?

Inventory in another state can create physical presence even when a marketplace or warehouse operator stores and ships it. California generally requires an out-of-state seller using a California fulfillment center to register and file returns. Its marketplace-only exception may apply if every California sale is facilitated by a marketplace facilitator that is the retailer for that sale (California CDTFA: fulfillment centers; marketplace sellers). Illinois says a seller that fills any orders from its Illinois inventory is not a remote retailer for its economic threshold (Illinois Department of Revenue).

Texas makes a narrower exception: an otherwise remote seller below $500,000 need not get a permit solely because its goods are temporarily stored at a marketplace provider's Texas facility, if the provider certifies it assumes the seller's tax duties. Above the safe harbor, the seller must get a permit and collect tax on its own taxable sales. Either way, the stored inventory gives a taxable entity Texas franchise tax responsibility (Texas Comptroller: marketplace FAQ).

Ask for inventory location reports, including moves between warehouses. The legal result can depend on the state's rule and the storage arrangement. A marketplace's collection on its sales does not by itself settle your registration duty for inventory or direct sales.

If a marketplace collects sales tax for me, do I still need a permit?

Sometimes. The marketplace usually handles tax on sales it facilitates when the state's marketplace law applies, but your own sales and physical presence can still require a permit and returns. Texas allows a remote seller selling only through a certified collecting marketplace to remain unregistered, while a Texas-based marketplace seller must hold a permit and file returns even if all sales go through that marketplace (Texas Comptroller: marketplace sellers). California generally does not require registration when all California sales of tangible merchandise are facilitated by marketplace facilitators that are the retailers for those sales; direct sales can change that answer (California CDTFA: marketplace sellers). New York requires a marketplace seller that otherwise meets vendor registration rules to register and file periodic returns (New York Tax Department: registration).

Keep proof that the marketplace collected tax for each state and period. If you also sell through your own checkout, check whether marketplace sales push you over a threshold that makes you collect on those direct sales.

Do I have to charge sales tax on services or digital products?

Nexus alone does not make every sale taxable. Each state decides which services and digital products it taxes, and a local rule can differ. New York generally exempts services unless specifically taxed, but taxes prewritten software delivered electronically or by remote access (New York Tax Department: taxable services; computer software). Texas lists specific categories of taxable services, including data processing and real property services (Texas Comptroller: taxable services).

Classify each product or service by what the customer receives. For bundled charges, subscriptions, or software with services, check the destination state's treatment before setting a checkout tax rule. Keep any resale or exemption document that the state requires.

Which states have no statewide sales tax?

Alaska, Delaware, Montana, New Hampshire, and Oregon have no statewide general sales tax (Colorado General Assembly: state comparison). That does not mean every sale into those states is free of local tax or other taxes. Alaska municipalities may tax remote sales: within 30 days of meeting the commission's statewide test, a remote seller must register with the Alaska Remote Seller Sales Tax Commission for covered sales into member jurisdictions, unless its marketplace handles all those sales. Nonmember jurisdictions may require direct local registration; sales tied to physical presence are reported locally (commission FAQ).

Local collection also matters in states with a statewide tax. Colorado's home-rule cities may administer their own sales taxes (Colorado General Assembly). Louisiana assigns state and local sales tax administration and returns for remote sales to its remote seller commission (Louisiana R.S. 47:340). Check local rules before assuming one state registration covers every locality.

When do I have to start collecting after I cross a threshold?

The start date is set by the state, so record when its test was first met. California requires registration when the goods-sales threshold is exceeded and collection on later taxable retail sales; the sale that crosses the threshold is excluded under that rule. Texas requires a remote seller that exceeds its safe harbor to obtain a permit and begin collecting no later than the first day of the fourth month after that month. New York requires registration within 30 days after the threshold is met and collection 20 days later (California CDTFA: Wayfair FAQ; Texas Comptroller: remote sellers; New York Tax Department: remote registration).

These dates do not delay duties created by physical presence or an earlier registration. If the threshold was crossed in an earlier period, see catching up on uncollected sales tax.

I have nexus: what do I do next?

Confirm taxability, register where required, start collecting on the correct date, and file the returns the state assigns. Registration can require returns even for a period with no taxable sales; New York specifically requires periodic returns from registered sellers in that situation. If sales later fall below a threshold, check whether the state lets you close the account and file a final return. Keep filing while the registration remains active (New York Tax Department: remote registration).

1. Export sales by destination state and month for the current and previous year. Separate direct, marketplace, exempt, and resale sales.
2. List every office, worker, representative, warehouse, and inventory location. Keep marketplace collection records and exemption documents.
3. Check each state's current threshold, counting rule, taxability rule, local collection, and start date. Record the source and date checked.
4. Apply for permits before collecting, set the correct destination tax rules, and calendar return due dates. Recheck thresholds as new months and quarters close.

If several states, a mix of marketplace and direct sales, or software and services are involved, the records and taxability choices need a closer review. Bookkeeping support can help organize the sales and filing records.

Example

Illustrative US dollar amounts: A shop with no people or inventory in Texas sells goods for delivery there. In the twelve calendar months ending in March, its own checkout brings in $300,000 and a certified collecting marketplace brings in $250,000. Its Texas total, $550,000, passes the remote seller safe harbor for the first time, because Texas counts both channels. It must obtain a Texas permit and start collecting on taxable sales through its own checkout no later than July 1, the first day of the fourth month after March. The marketplace handles tax on its facilitated sales; the shop keeps proof of that collection. On each Texas return (Form 01-114), marketplace sales go in Item 1, Total Texas Sales, but not in Item 2, Taxable Sales (Texas Comptroller: marketplace FAQ). The shop collects local use tax at each delivery address's rate unless it elects Texas's single local use tax rate, on its permit application or later on Form 01-799 signed by an owner, general partner, officer or authorized agent, effective at the start of a reporting period (Texas Comptroller: remote sellers).

Different for you?

• You crossed a threshold earlier and did not collect: see catching up on uncollected sales tax.
• Your business is based outside the US: see foreign sellers and US sales tax.
• You are a Canadian seller with US warehouse inventory: see Canadian sellers with US inventory.
• You need to know whether sales tax nexus also creates an income or franchise tax filing: see which business returns to file.
• You need the income tax treatment of marketplace sales or payment reports: see online seller income tax.
• You sell into Canada: see Canadian sales tax for non-resident and digital sellers.
• Several states or sales channels make filing records hard to maintain: compare doing your own books or hiring a bookkeeper and bookkeeping support.