If you have ever looked at your Shopify payouts and your QuickBooks bank feed and wondered why the Sales tax nexus is one of those topics that makes online sellers’ eyes glaze over until they get a letter from a state tax authority. Then it becomes the only thing they can think about.
If you sell products online, you need to understand nexus. Not because it is exciting, but because getting it wrong can cost you thousands in back taxes, penalties, and interest.
What Is Nexus?
Nexus is the legal connection between your business and a state that requires you to collect and remit sales tax there. Historically, nexus only existed if you had a physical presence in a state: an office, a warehouse, an employee.
That changed in 2018 with the Supreme Court’s South Dakota v. Wayfair decision. Now, most states have economic nexus laws that trigger a sales tax obligation based on your sales volume or number of transactions in that state, regardless of whether you have any physical presence.
How Economic Nexus Works
Each state sets its own thresholds. The most common is $100,000 in sales or 200 transactions in a calendar year. Some states only use a dollar threshold. A few have lower thresholds.
Here is the critical point: these thresholds apply per state. If you sell $100,000 total across all states, you might only have nexus in two or three of them. But if you sell $100,000 in California alone, you absolutely have nexus there.
Once you cross the threshold, you are required to register for a sales tax permit in that state, collect sales tax on orders shipped to that state, and file returns (monthly, quarterly, or annually depending on the state).
Where Most E-Commerce Sellers Go Wrong
- Not checking nexus at all. Many sellers assume sales tax only applies to their home state. This is incorrect under current law.
- Collecting tax but not remitting it. Shopify can collect sales tax automatically, but someone still needs to file the returns and send the money to each state. If you collect tax and do not remit it, you are holding money that legally belongs to the state.
- Not updating nexus as they grow. Your nexus footprint changes as your sales grow. A state you did not have nexus in last year might require registration this year.
How to Get This Right
- Use a nexus assessment tool. TaxJar and Avalara both offer free nexus assessments that analyze your sales data and tell you where you have obligations.
- Register for sales tax permits in every state where you have nexus. Do not collect tax without registering first.
- Configure sales tax collection in Shopify (or your platform) for those states.
- File returns on time. Late filings come with penalties in most states.
- Reassess quarterly. As your business grows, your nexus footprint will expand.
What About Marketplace Facilitator Laws?
If you sell on Amazon, Etsy, or Walmart Marketplace, those platforms are considered marketplace facilitators in most states. They collect and remit sales tax on your behalf for orders placed through their platform.
However, this does not cover sales through your own Shopify store or any other direct channel. You are still responsible for collecting and remitting tax on those sales yourself.
Do Not Let This Slide
Sales tax compliance is not optional, and states are getting more aggressive about enforcement. The good news is that once you set up the system, it runs mostly on autopilot. The key is getting it set up correctly in the first place.
Schedule a free consultation — no pressure, just a conversation about where your business is and where you want it to go.