What nexus means

"Nexus" is the legal threshold that determines whether you owe sales tax in a given state. There are two kinds: physical nexus (having a location, employees, or in some cases inventory — including inventory stored in a marketplace's fulfillment centers — in a state) and economic nexus (exceeding a state-set threshold of sales revenue or transaction count into that state, regardless of physical presence, following the South Dakota v. Wayfair Supreme Court decision).

Before Wayfair (2018), a state generally couldn't require an out-of-state seller to collect its sales tax unless that seller had a physical presence there. Wayfair removed that restriction, and within a couple of years essentially every state with a sales tax had passed an economic nexus law. That single change is why sales tax became a real compliance question for online sellers who had never opened an office or hired an employee outside their home state.

Why FBA/WFS-style fulfillment complicates physical nexus

When a marketplace stores your inventory across a network of fulfillment centers for fast shipping, your inventory can end up physically present in states you never chose to have a presence in — historically a significant source of unexpected nexus for marketplace sellers, though marketplace facilitator laws (see Marketplace Facilitator Laws) have shifted much of the actual tax-collection burden away from the seller in most cases.

This matters less for the marketplace-collected side of your sales than it used to, but physical nexus from stored inventory can still be relevant for things unrelated to sales tax collection itself — for example, some states use physical presence to determine income tax or franchise tax obligations, which marketplace facilitator laws do not cover. Don't assume that because a marketplace handles your sales tax collection, physical nexus from inventory placement is irrelevant to every other kind of state-level obligation.

Economic nexus thresholds vary by state

Most states set an economic nexus threshold expressed as a dollar amount of sales and/or a transaction count into that state annually. Historically many states modeled their threshold on the original Wayfair case figures, and a number of states have since simplified or raised their thresholds, dropped the transaction-count prong, or otherwise changed the mechanics. Because these figures vary by state and change periodically, do not rely on a fixed number you read once — verify the current threshold directly with the state's department of revenue or a tax professional before assuming you are (or are not) over it.

A few mechanics worth understanding regardless of the exact number:

  • Thresholds are measured per state, not in aggregate. Crossing $100k of total nationwide sales does not by itself create nexus anywhere — what matters is your sales into each individual state.
  • Most states count a rolling or calendar-year period, and some count the prior calendar year, the current year, or both — check the specific state's measurement window.
  • Marketplace sales generally still count toward the threshold calculation in most states even though the marketplace collects the tax, because the threshold is about your total economic activity in the state, not just your direct sales.
  • Once you cross a threshold, some states require action immediately and others give you a grace period (often the start of the next calendar quarter or year) before you must register.

What nexus actually obligates you to do

Once you have nexus in a state, you're generally required to register for a sales tax permit there and collect and remit sales tax on taxable sales into that state — for direct (non-marketplace) sales specifically, since marketplace-facilitated sales are typically handled differently. See Do You Need to Register for Sales Tax Permits in Multiple States? for the practical next step.

A worked (illustrative) example

Say you sell primarily through a marketplace but also run your own Shopify store. In one calendar year, your direct (non-marketplace) sales into a particular state total an amount that happens to exceed that state's published economic nexus threshold, even though your marketplace sales into that same state are separately taxed and remitted by the marketplace. Because the threshold calculation in many states includes all your sales into the state (marketplace and direct combined) even though only your direct sales are your responsibility to collect on, you could have an obligation to register and start collecting on the direct-sales channel well before your direct-sales revenue alone looks large. This is the scenario that catches multichannel sellers off guard: the marketplace-collected volume quietly pushes you over a threshold that then applies to your non-marketplace channel.

Trailing nexus

Some states apply "trailing nexus" — once you've established nexus (physical or economic), you may remain obligated to collect for a period afterward even if your sales drop back below the threshold or you close the physical presence that created it. Don't assume you can deregister the moment a single year comes in under threshold; check the specific state's rules on how nexus is given up, not just how it's acquired.

Best practices

  • Track your economic nexus exposure by state on an ongoing basis, not just once a year at tax time — a nexus-tracking tool or your accounting software's built-in reporting can flag when you're approaching a threshold in a state before you cross it.
  • Separate marketplace-collected and direct-sales revenue in your own records by state, since only one of those two is typically your direct responsibility.
  • Register before, not after, you cross a threshold where a state allows early/voluntary registration — retroactive registration and back-tax exposure is a far more painful process than proactive registration.
  • Revisit your nexus footprint at least annually, and immediately after any change to where your inventory is stored, since fulfillment network changes can shift your physical nexus profile without any change in your sales pattern.

Common mistakes

  • Assuming "the marketplace collects tax so I don't need to think about sales tax at all" — this is true for marketplace-facilitated sales in most states but not for direct sales or certain state-specific filing requirements.
  • Calculating economic nexus using only direct-sales revenue when a state's threshold counts marketplace-facilitated sales too.
  • Not accounting for trailing nexus obligations after closing a warehouse or dropping below a threshold.
  • Waiting until a state notice or audit arrives to investigate nexus, instead of tracking it proactively.

Checklist: assessing your nexus exposure

  • [ ] List every state where you have inventory stored (including all marketplace fulfillment center locations, if disclosed by the marketplace).
  • [ ] Pull your direct-sales (non-marketplace) revenue by state for the trailing 12 months.
  • [ ] Compare that figure against each state's current published economic nexus threshold.
  • [ ] Note any state where your total sales (marketplace + direct) are high even if direct sales alone are low.
  • [ ] Confirm with a tax professional which states require action now versus which are worth monitoring.

FAQs

Does storing inventory in a marketplace's fulfillment network automatically create nexus everywhere that marketplace has a warehouse? Historically this was a real risk, and it varies by state and by exactly how the fulfillment network is structured. Marketplace facilitator laws have reduced the practical consequence for sales tax collection specifically, but the underlying physical-presence question can still matter for other purposes. Confirm with a tax professional rather than assuming either "yes, everywhere" or "no, never."

If a marketplace already collects and remits sales tax on my sales, why would I ever need to register in that state myself? A handful of states still require sellers to file an informational return even when the marketplace remitted the tax, and if you also have a direct-sales channel, your obligations for that channel are separate from what the marketplace handles.

Do I need to register in a state the moment I cross the threshold, or can I wait until the next filing period? This varies by state — some require registration essentially immediately after crossing, others provide a grace period. Don't assume a grace period exists without checking the specific state.