Sales and Use Tax Nexus After the Wayfair Decision

Before 2018 a state could not require a business to collect its sales tax unless the business had a physical presence there — a store, an office, employees, or inventory. South Dakota v. Wayfair, Inc. ended that rule. A state may now compel collection from a seller with no presence at all, provided the seller's economic connection to the state is substantial enough. Each state sets its own measure of "enough", usually as a volume of sales into the state or a count of separate transactions, and those measures are not the same across the country. Sales and use tax remains entirely state and local law; there is no federal sales tax.

1.The rule that was replaced

The physical presence test came from a line of Supreme Court decisions culminating in Quill Corp. v. North Dakota in 1992, a mail-order case decided before internet retail existed. Its logic was that requiring a remote seller to navigate thousands of local tax jurisdictions imposed an unreasonable burden on interstate commerce. By the 2010s that reasoning had aged badly: catalogs had become platforms, and states watched an expanding share of retail sales escape collection.

Wayfair upheld a South Dakota statute that required collection from sellers exceeding stated levels of in-state sales or transactions. The Court pointed to three features of that law as reducing the burden: it applied only prospectively, it exempted sellers below the stated levels, and South Dakota had adopted a simplified, centrally administered system. Those features were described approvingly rather than made mandatory, which is why the design of a state's law still matters even though no state has been forced to copy South Dakota exactly.

Physical presence nexus

Still sufficient. An office, employee, contractor, trade show attendance, or inventory held in a warehouse creates nexus in most states regardless of sales volume.

Economic nexus

Now also sufficient. Crossing the state's stated sales or transaction measure creates the collection duty with no presence of any kind.

2.Why the thresholds are a moving target

Almost every state with a sales tax adopted an economic nexus statute after Wayfair, and the details diverge in ways that matter more than the headline numbers.

• Some states use a sales measure alone; others use sales or a transaction count, so a seller with many small orders can trigger the duty on volume of orders rather than revenue.
• States differ on whether the sales measure counts gross sales, retail sales, or taxable sales only — a distinction that decides the question for sellers of exempt goods.
• The measurement period varies: the previous calendar year, the current year, or a rolling twelve months.
• The date collection must begin after a threshold is crossed differs, from the next transaction to the start of the following period.
• Several states have repealed their transaction-count measure since adoption, and legislatures continue to adjust the figures.

A separate layer sits beneath the states. Local jurisdictions — cities, counties, and special districts — impose their own rates, and a handful of states allow local jurisdictions to administer their own taxes rather than routing everything through a central authority. In those states a remote seller may face multiple registrations and filings within one state.

3.Marketplace facilitator laws

The second structural change was legislative rather than judicial. States enacted marketplace facilitator statutes that shift the collection duty from the individual seller to the platform that processes the sale. A small business selling exclusively through a large online marketplace generally has no collection obligation of its own for those sales, because the platform collects and remits.

Caution: The shift covers marketplace sales only. A seller who also sells through its own website, at markets, or by wholesale must evaluate nexus on those channels separately — and in several states, marketplace sales still count toward the seller's own economic nexus measure even though the platform collects on them.

The statutes also vary in what counts as a facilitator. Definitions written for retail platforms have been applied to delivery services, ticketing sites, and short-term rental platforms, and disputes over the edges of the definition continue as of mid-2026.

4.Use tax, the half nobody files

Sales tax and use tax are complements. Where a seller does not collect sales tax on a taxable item, the buyer owes use tax to their own state at the same rate. The obligation has always existed; it was simply unenforceable against individual consumers at scale, which is what made the pre-Wayfair gap so large.

For businesses the position is different. Business use tax is routinely examined, because purchases of equipment, software, and supplies from out-of-state vendors are visible in the accounting records. A business that has never filed a use tax return while buying from remote vendors is a straightforward audit target, and the liability accrues whether or not a return was filed. Many states offer voluntary disclosure programs that limit the look-back period and waive penalties for a business that comes forward before being contacted.

5.What this has nothing to do with

None of this is federal law. There is no federal sales tax, the Internal Revenue Service plays no role in administering state sales tax, and a business can be fully compliant federally while badly exposed in a dozen states. There is also no state equivalent of the independent Taxpayer Advocate Service in many jurisdictions, though a growing number of states have created their own taxpayer rights advocate offices. The interaction runs in one direction only: sales and use taxes a business pays or incurs on its own purchases are generally deductible as ordinary and necessary business expenses under section 162, and sales tax collected from customers is not the seller's income. The documentation practices that support those deductions are the subject of business expense and home office deductions.

A related but distinct question is state income tax nexus. A federal statute long predating Wayfair protects sellers of tangible goods whose only in-state activity is soliciting orders from a state net income tax, provided the orders are approved and filled from outside the state. That protection has never applied to sales tax, and states have narrowed their reading of it for businesses operating through websites. Crossing a sales tax threshold and owing state income tax are separate determinations. Federal obligations — income tax, employment tax, and the estimated payments covered in estimated tax payments and the underpayment penalty — are unaffected by either, and the federal filing duties of a small business are set out on the Small Business and Self-Employed Tax Center.

6.Questions this raises

Does selling only services keep me outside these rules?

Not necessarily. States differ sharply on which services are taxable, and the trend has been to expand the list — software delivered electronically, digital goods, data processing, and advertising services are taxable in some states and exempt in others. A service business selling nationally may be exempt in most states and squarely taxable in a few. The analysis has to be run service by service and state by state.

I crossed a threshold two years ago and never registered. What now?

The liability exists for the whole intervening period, and in most states the assessment period does not begin to run until a return is filed, so the exposure does not age away. Voluntary disclosure programs exist in most states precisely for this situation: coming forward typically limits the look-back to a defined number of years and abates penalties. That option generally closes once the state initiates contact.

Does a single employee working remotely from another state create nexus there?

In most states, yes — for sales tax and often for income tax as well. Physical presence nexus survived Wayfair and an employee is physical presence, so a company with one remote worker in a state may have a collection duty there with no sales threshold analysis at all. Distributed workforces have made this the most common source of unexpected registrations since 2020.

Can a customer's resale certificate be taken at face value?

It can be relied on if it is collected in good faith, complete, and retained. The certificate is what shifts the tax to the buyer's later resale, and in an audit the seller who cannot produce it owes the tax on that sale regardless of what the buyer did with the goods. Certificate collection and periodic renewal is administrative work, and it is the most common failure found in a sales tax audit.

7.Working the compliance question in order

1. Map the sales. Produce revenue and transaction counts by ship-to state for the last several years. Without this, nothing else can be assessed.
2. Identify physical presence. Employees, contractors, inventory in third-party warehouses, and traveling salespeople each create nexus independently of any threshold.
3. Test each state against its own measure. Read the current rule from that state's revenue department, noting the measurement period and whether marketplace sales count.
4. Separate the channels. Determine which sales a platform is already collecting on and which are yours to handle.
5. Decide on disclosure for past periods. Where a threshold was crossed years ago, a voluntary disclosure is usually better than registering prospectively and waiting for the state to ask about the gap.
6. Build the calendar. Filing frequencies differ by state and change with volume, and a late return in a small state carries the same penalty structure as one in a large one.

Where the exposure has grown into an assessed balance that cannot be paid at once, state revenue departments run their own payment and settlement programs; the federal analogues are described in offers in compromise and installment agreements, and the two systems must be negotiated separately.