Selling online used to mean one simple rule: if you had no physical presence in a US state, you didn’t collect that state’s sales tax. That changed in 2018. Today, simply selling enough into a state can create a legal obligation to register, collect and remit sales tax there, even if you have never set foot in it.
That obligation is called economic nexus, and it is one of the most common compliance traps for ecommerce brands, SaaS companies and overseas sellers entering the US market. This guide explains how it works, what the thresholds look like state by state, and what to do once you get close to one.
What Is The Economic Nexus?
The nexus is the link established between a seller and the government, giving the latter the right to impose taxes on the former. Traditionally, nexus has been defined through the physical presence of the seller, such as having a building, warehouse, personnel or stock.
Economic nexus refers to the establishment of the link as a result of the business activities of the seller. The establishment of nexus occurs once the sales volume exceeds the threshold limit set by the state.
Why it exists: the Wayfair ruling
According to the ruling by the US Supreme Court in the case of South Dakota vs. Wayfair, Inc. (2018), states had been granted the right to impose sales tax collection requirements on remote sellers based on economic nexus alone. Prior to this ruling, online transactions were exempt from taxation. Since then, all states imposing a state-wide sales tax implemented their economic nexus legislation.
Unfortunately, since every state established its own laws, compliance with the laws in one state does not guarantee compliance elsewhere.
How economic nexus thresholds work
These tests are commonly used by most states:
• The sales test: sales into the state above a certain dollar amount in a certain period (usually $100,000).
• The transaction test: a certain number of transactions into the state (usually 200 in many states).
Nexus is created if either one of them applies in a state, if both apply or in some cases if either of them is no longer considered and only sales apply. Illinois has ceased to apply the 200-transaction test effective from 1 January 2026, and Kentucky from 1 August 2026.
The period also varies; in most states, the current year or the previous year is considered, while other states apply the past 12 months.
Economic nexus thresholds in key states
The table below shows a sample of major states. Always confirm the current rule with the state’s revenue department before you rely on it, because thresholds change.
States | Sales Threshold | Transaction Threshold | Notes |
California | $500,000 | None | Higher than the typical $100,000 |
Texas | $500,000 | None | Counts taxable and exempt sales |
New York | $100,000 | More than 100 transactions | Both tests must be met |
Florida | $100,000 | None | Counts taxable remote sales only |
Illinois | $100,000 | None | Transaction test removed from 1 Jan, 2026 |
Kentucky | $100,000 | None | Transaction test removed from 1 Aug, 2026 |
Alabama | $250,000 | None | Higher than the typical $100,000 |
Mississippi | $250,000 | None | Higher than the typical $100,000 |
States with no statewide sales tax
Oregon, Montana, New Hampshire and Delaware have no general sales tax, so there is no economic nexus to track at state level. Alaska has no state sales tax either, but some local jurisdictions there can enforce their own remote seller rules.
What counts toward the threshold?
This is where many sellers get caught out. Rules differ on what you include when you add up your sales:
Taxable and exempt sales: some states count total gross sales, including exempt items. Others count only taxable sales.
Marketplace sales: some states include sales made through Amazon, Etsy or eBay in your total, even though the marketplace collects the tax. Others exclude them.
Digital products and SaaS: even in states where software isn’t taxed, those sales may still count toward the threshold.
In practice, you cannot assume your own revenue reports match how a state measures your sales. You need to track them using each state’s definition
What happens when you cross a threshold?
Once you hit a state’s threshold, you generally need to:
Register for a sales tax permit with that state.
Start collecting sales tax on taxable sales from the date the state requires (often from the sale that crossed the threshold or the following period).
File returns and remit the tax on the state’s schedule: monthly, quarterly or annually.
Keep records and exemption certificates in case of an audit.
Waiting too long is expensive. States can assess back taxes, interest and penalties for the period you should have been collecting, and you may not be able to recover that money from customers after the fact.
Economic nexus vs physical nexus
Economic nexus is an additional path to nexus, not a replacement for physical nexus. Storing inventory in a state, for example through Amazon FBA, using employees or contractors there, or attending trade shows can create a nexus on its own, regardless of your sales volume. A seller can have both types in different states at the same time.
Does this apply to overseas sellers?
Yes. Location does not exempt you. If you are an Australian, Indian, British or Canadian business selling into the US, the same state rules apply once your US sales pass a threshold. This also adds complexity that a domestic seller doesn’t face: you may need a US tax identification setup, a registered address for state permits, and a way to handle multi-state filings from abroad.
It is also very different from a flat system like Australia’s 10% GST, where one rate and one registration apply nationwide. In the US, you may face rules across dozens of states and more than 13,000 state and local tax jurisdictions.
How to stay compliant?
Track sales by state every month, using each state’s own measurement rules.
Set alerts at around 70–80% of a threshold so you have time to register before you cross it.
Review marketplace and inventory exposure, including FBA warehouses.
Don’t guess exemptions. Collect valid resale or exemption certificates where relevant.
Re-check thresholds each year, because states keep changing them.
Consider automation or professional help once you sell into several states. Manual tracking across states is where most errors happen.
How Taxcart Can Help?
Tracking economic nexus across multiple states is time-consuming and easy to get wrong. Taxcart helps businesses work out where they have nexus, register for the right permits and stay on top of filings, so you can grow your US sales without compliance surprises.
Not sure whether you’ve already triggered nexus? [Get in touch with TaxCart] for a nexus review.