Sales Tax Nexus Guide: When Do You Need to Collect?

Sales tax nexus is the connection with a state that obliges a seller to register, collect that state's sales or use tax from customers, and file returns. Before 2018, an out-of-state seller needed a physical presence in the state. Today, sales volume alone can create nexus. This guide explains both kinds, sets out the thresholds for four states from their own revenue departments, and works through one seller's sales into those four states to show how the same dollar figures lead to different answers. Of the 50 states, 45 levy a statewide sales tax, as does the District of Columbia; Alaska, Delaware, Montana, New Hampshire and Oregon do not.

What creates sales tax nexus?

Two things, and either one is enough.

Physical presence still counts after Wayfair. The decision added economic nexus; it did not remove the older test. So a business can have nexus in a state where its sales are tiny, simply because it keeps stock or staff there.

What did South Dakota v. Wayfair decide?

On June 21, 2018, the Supreme Court of the United States decided South Dakota v. Wayfair, Inc., No. 17-494, by 5 votes to 4. It held that the physical presence rule of Quill Corp. v. North Dakota (1992) and National Bellas Hess v. Department of Revenue of Illinois (1967) was "unsound and incorrect," and that both cases "should be, and now are, overruled" (opinion, supremecourt.gov).

The South Dakota law in the case applied only to sellers that, each year, delivered more than $100,000 of goods or services into the state or made 200 or more separate transactions there. The Court noted that the law was not retroactive and that South Dakota had joined the Streamlined Sales and Use Tax Agreement, features that limited the burden on small sellers. Other states then set their own thresholds, and as the table below shows, they do not all use South Dakota's figures. South Dakota itself dropped the 200-transaction test in 2023.

What are the economic nexus thresholds in California, Texas, New York and South Dakota?

These four show how differently states measure the same idea. Each row is taken from the state's own revenue department.

Three differences matter most in practice:

• What is counted. California and New York count goods. Texas counts goods and services, taxable or not, so a service business can cross the Texas line even if most of what it sells is not taxable there.
• "And" versus "or". New York requires both the dollar and the transaction test. A seller of a few expensive items can exceed $500,000 and still be under the New York threshold.
• The window. Calendar years, rolling twelve months and sales tax quarters start and end on different dates, so you can cross one state's line mid-year and another's only at year end.

Worked example: one seller, four states

This is a hypothetical business with made-up figures, used to apply the four rules above. A Colorado company with no staff, office or inventory outside Colorado sells furniture online and also bills design consultations. Over the last year it delivered to customers in four states:

So the company must register in Texas and South Dakota, and neither of the larger-sounding California or New York totals triggers registration on these figures. In Texas, the Comptroller says a remote seller that exceeds the safe harbor must get a permit and start collecting no later than the first day of the fourth month after the month it exceeds the amount. Two more lessons from the example: crossing a threshold makes you responsible for collecting tax on the taxable sales into that state, not on everything (whether the design consultations are taxable is a separate question for each state), and the figures need to be re-checked every period, because the California total is $80,000 from the line.

Do marketplace sales count toward your threshold?

It depends on the state, which is why you should keep marketplace and direct sales separate in your records. In Texas, a remote seller that sells only through a marketplace provider that certifies it is collecting tax on the seller's behalf does not need a Texas permit, but must keep records of all marketplace sales for at least four years (Texas Comptroller, same page). If you sell both directly and through marketplaces, read each state's rule on whether marketplace sales count toward your own threshold before you assume you are under it.

What changes on your invoices once you have nexus?

Register first. Collecting a state's tax without a permit creates its own problems. After registration:

1. Charge tax only on taxable sales into that state, at the rate that state's rules require. Rates often include local taxes, and the Wayfair dissent noted that over 10,000 jurisdictions levy sales taxes, so use the state's own rate lookup rather than a single statewide figure.
2. Show the tax as its own line with the rate, so the customer and the auditor can see what was charged. See what to include on an invoice.
3. Collect exemption or resale certificates from customers who claim not to owe tax, and keep them with the invoice. Without a valid certificate on file, the state may hold you responsible for the tax you did not collect.
4. Keep sales by destination state for the measurement windows above, including sales you do not tax.
5. File on the schedule the state assigns, even in periods with no taxable sales, if the state requires it.

For how sales tax differs from VAT and GST, see VAT vs GST. For the general basics, see the sales tax glossary entry.

How do you track nexus if you invoice clients in several states?

Keep one table per state with a running total for that state's window, and check it monthly. The minimum columns are: invoice date, customer state, goods amount, services amount, taxable amount, marketplace or direct, and invoice number. Update the window totals at each month end and flag any state above about 80% of its threshold so you can prepare a registration rather than discover it after the fact.

If you invoice with InvoiceQuickly, it will help with part of this but not all. Clients have a state field, and on Pro ($9/month) you can export your invoices to CSV with the client, dates, subtotal, tax and total. The export does not include the client's state, so add it from your client list in the spreadsheet. InvoiceQuickly applies one tax percentage per invoice, on the subtotal after any discount: you enter the rate; it does not look up destination rates, decide taxability, track thresholds or store exemption certificates. Your tax registration number is copied from settings to new invoice PDFs; check the saved IDs and PDF before sending. A business with nexus in many states and mixed taxable and non-taxable items on the same invoice needs dedicated sales tax software. See features and pricing.

When is this guide not enough?

• You sell into many states at volume. Rates, sourcing rules, taxability and filing calendars differ in every state; use a sales tax engine and an adviser.
• You sell services or digital products. Taxability of services and software varies widely between states and needs a state-by-state answer; see the SaaS invoicing guide for invoicing basics.
• You have already passed a threshold without registering. Talk to an adviser about the state's voluntary disclosure programme before you contact the state or start charging tax.
• You are outside the United States. Economic nexus can apply to foreign sellers too, alongside your home country's VAT or GST rules.

This is general information about the four states named, checked against their official pages on October 27, 2026. It is not legal or tax advice. Thresholds and rules change; check the state's department of revenue or an adviser before you rely on them. Last reviewed: October 27, 2026.

Frequently asked questions

How does nexus work for sales tax?

Nexus is the link with a state that requires you to register and collect its sales tax. You get it through a physical presence, such as staff, an office or inventory in the state, or through economic nexus, by selling more into the state than its threshold in the period it measures. Each state sets its own threshold and rules.

What are the 5 states with no sales tax?

Alaska, Delaware, Montana, New Hampshire and Oregon have no statewide sales tax. The other 45 states and the District of Columbia do.

What does "no nexus" mean?

It means you have neither a physical presence nor sales above the economic threshold in a state, so you are not required to register or collect that state's sales tax. Your customer may still owe use tax on the purchase, but that is their obligation, not yours.

Is the economic nexus threshold $100,000 in every state?

No. South Dakota uses more than $100,000. California, Texas and New York use $500,000, and New York also requires more than 100 sales. What counts toward the figure and the period it is measured over differ too, so check each state you sell into.

Do services count toward economic nexus?

In some states. Texas counts revenue from services, taxable or not, toward its $500,000 safe harbor. California and New York count sales of tangible personal property. Reaching a threshold does not by itself make your services taxable; that depends on each state's taxability rules.

Do I need to collect sales tax when dropshipping?

It depends on the states involved and who has nexus where. A drop-shipment involves a seller, a supplier and a customer, and states treat resale certificates and the supplier's obligations differently. Check the destination state's guidance on drop shipments, or ask an adviser, before you set up the arrangement.

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