Sales tax nexus is the level of connection between a business and a state that allows the state to impose registration, collection, filing, and recordkeeping obligations. The analysis is no longer limited to whether a seller has an office in the state.
In South Dakota v. Wayfair, the U.S. Supreme Court removed the prior constitutional rule that generally required physical presence before a state could require a remote seller to collect tax. Most sales-tax states now use some form of economic nexus, which means international sellers must evaluate people, inventory, platforms, and sales volume together.
Five Common Types of Nexus
1. Physical nexus: offices, stores, employees, sales representatives, installers, inventory, warehouses, long-term on-site personnel, and in some cases contractors may create a physical connection. Inventory held in an FBA or third-party fulfillment network cannot be ignored.
2. Economic nexus: a seller may have no people or property in a state but still exceed a state’s sales or transaction threshold. The threshold period and treatment of exempt, wholesale, and marketplace sales vary by state.
3. Marketplace nexus: marketplace facilitators such as Amazon, Walmart, and eBay often collect tax on facilitated transactions. That does not automatically eliminate the seller’s own registration, return, direct-channel, employee, or inventory obligations.
4. Affiliate or click-through nexus: activities of related companies, referral partners, agents, or in-state channels may create nexus for an out-of-state or foreign seller.
5. Product and service taxability: nexus answers where a duty may exist; it does not answer what is taxable. Tangible goods, software, SaaS, digital products, installation, and professional services may be treated differently, and resale or exemption documentation matters.
Seven Mistakes International Sellers Make
- Assuming marketplace collection solves every sales tax issue. It generally covers only the facilitated transactions and does not automatically address Shopify, wholesale, service, installation, or inventory exposure.
- Assuming no U.S. office means no nexus. FBA inventory, a 3PL, a remote employee, a sales representative, or trade-show activity may be enough.
- Using only total company sales. Each state defines its threshold base and measurement period differently.
- Waiting until the next calendar year after crossing a threshold. Effective dates vary, and some states require collection shortly after the threshold is met.
- Accepting a customer’s statement that it is a reseller without obtaining a valid resale or exemption certificate.
- Using the customer’s mailing city as the tax jurisdiction. U.S. rates may include state, county, city, and special-district components, and postal names do not always match tax boundaries.
- Registering too early or too late. Early registration creates ongoing filing obligations; late registration can create historical tax, interest, and penalties. Analysis should precede registration.
A Practical Multi-Channel Review Process
1. Map every sales channel: marketplace, direct website, wholesale, distributors, and offline sales.
2. Map physical activity: employees, offices, inventory, FBA, 3PLs, trade shows, installations, and repair activity.
3. Test current economic-nexus thresholds state by state and document the measurement period and sales included.
4. Build a taxability matrix by product or service and maintain exemption certificates.
5. Select registration and effective dates. For historical exposure, evaluate voluntary disclosure or another remediation path before filing blindly.
6. Align the commerce platform, ERP, accounting system, and sales tax engine so state settings, product tax codes, exemption status, and sourcing logic agree.
Nexus Is an Ongoing Process
Nexus changes as sales increase, inventory moves, employees are hired, and new channels open. A state-by-state sales and physical-presence review should be refreshed at least quarterly and whenever the business adds a warehouse, employee, platform, or major event.
A mature sales tax process connects nexus monitoring, taxability, registration, system configuration, return filing, reconciliation, and notice management into one controlled workflow.
