Managing sales tax across multiple states is one of the biggest challenges for online sellers. If you run an e-commerce business in the United States, knowing when and where to collect sales tax can protect you from penalties and keep your business running smoothly.
This guide breaks down sales tax nexus and provides a practical bookkeeping checklist to help you stay compliant.
Key Takeaways
- Understand nexus types: physical (warehouses, employees) triggers instant obligations; economic depends on state sales thresholds like $100k+ post-Wayfair.
- Track sales monthly by state, separating marketplace (Amazon handles tax) vs. direct sales; set alerts at 75-90% of thresholds.
- Follow checklists: monthly tracking/reconciliation, quarterly nexus reviews, annual full audits and registrations across 45 states.
- Manage exemptions and digital goods: collect valid certificates; exempt sales often count toward thresholds; rules vary by state.
- Use sales tax software like Avalara for automation: rates, monitoring, filings, and exemptions to scale efficiently.
- File proactively: register within 30 days of nexus; use destination-based rates; retain records 4-7 years to avoid penalties.
What is Sales Tax Nexus?
Sales tax nexus is the connection between your business and a state that requires you to collect and remit sales tax. Before 2018, this mainly meant having a physical presence like a store or warehouse. The Wayfair sales tax ruling changed everything by allowing states to require tax collection based on sales volume alone, even without physical presence.
This Supreme Court decision created economic nexus, fundamentally changing e-commerce sales tax compliance in the USA. Now, online sellers must track their sales in every state to determine when they cross the threshold that creates tax obligations.
Understanding this concept is your first step, but nexus actually comes in two distinct forms and knowing the difference between them determines your entire compliance strategy.
The Two Types of Nexus: Physical vs Economic
Understanding how to determine where your ecommerce business has sales tax nexus in the US states starts with knowing both types of nexus. Each type creates obligations differently, so let’s break them down.
Physical Nexus Triggers
Physical nexus occurs when you have tangible presence in a state:
- Offices, retail stores, or warehouses
- Inventory stored in fulfillment centers (inventory in FBA warehouse sales tax nexus applies here)
- Employees or contractors working in the state
- Regular attendance at trade shows or events
- Equipment or property owned in the state
The moment you establish any of these physical connections, you have nexus in that state. There’s no threshold to cross the obligation begins immediately.
Economic Nexus for Remote Sellers
Economic nexus happens when your sales reach state-specific thresholds. This is where remote seller sales tax nexus rules apply:
- No physical presence required just sufficient sales activity
- Obligations triggered by sales volume, not location
- Thresholds vary by state (typically $100,000 to $500,000)
- Must be monitored continuously across all states
The physical nexus vs economic nexus sales tax distinction is important: physical creates instant obligations, while economic depends on sales volume over time.
The distinction matters because you need to monitor both types constantly. A business might have economic nexus in twenty states where customers are located, while also having physical nexus in just two states where they operate warehouses. Each situation requires separate tracking and compliance.
Current Economic Nexus Thresholds by State
The economic nexus thresholds by state have evolved significantly. As of July 2025, 15 states have eliminated the 200-transaction threshold for remote sellers, so nexus is triggered only by crossing the dollar threshold (e.g., $100,000 in sales). However, many other states still use a combined threshold (e.g., $100,000 in sales OR 200 transactions).
Here’s what the current landscape looks like in 2025:
| Threshold Type | Common Amount | States Using This |
|---|---|---|
| Standard threshold | $100,000 in sales | Majority of states |
| Higher threshold | $500,000 in sales | California, Texas, New York |
| Mid-range threshold | $250,000 in sales | Alabama, Mississippi |
States with Higher Thresholds
Looking at what states have economic nexus sales tax thresholds above $500k specifically, New York requires both $500,000 in sales and 100 separate transactions, while California and Texas use $500,000 in sales without a transaction requirement.
These higher thresholds give smaller businesses more room to grow before facing registration obligations in these large markets.
Recent Changes and Trends
Utah removed its transaction threshold effective July 1, 2025, to reduce compliance stress for smaller merchants. This trend toward sales-only thresholds continues across the country, with Illinois planning to remove its transaction threshold on January 1, 2026.
The economic nexus sales tax thresholds increasingly adopted by US states follow a simpler model: track total sales only, not individual transaction counts.
Now that you know what creates nexus, the real challenge becomes tracking these thresholds consistently across dozens of states.
That’s where a structured bookkeeping system becomes necessary not just helpful, but truly necessary for staying compliant.
Your Month-by-Month Bookkeeping System
Here’s your bookkeeping checklist for multi-state sales tax nexus ecommerce to keep you organized and compliant. We’ve organized this by frequency because different tasks need different levels of attention. This bookkeeping checklist for multi-state sales tax compliance covers everything from daily monitoring to annual audits.
Monthly: Your Core Tracking Tasks
- Track Sales by State: Monitor your revenue in each state where you have customers. Set alerts at 75% and 90% of thresholds so you have time to prepare for registration. This is the foundation of your online store multi-state tax filing requirements.
- Separate Marketplace and Direct Sales: Keep clear records of sales through Amazon, eBay, or other platforms versus your own website. Marketplace facilitator rules mean platforms like Amazon, eBay, and Etsy collect and remit tax on your behalf in most states. However, you still need to track these sales because, in many states, they count toward your economic nexus threshold. In a few states (like Colorado, Florida, and Georgia), marketplace sales are excluded from the threshold.
- Document Physical Presence: Note any changes like new employees, warehouse locations, or inventory storage that could create physical nexus triggers. Even temporary situations like attending a week-long trade show can create obligations in some states.
- Reconcile Collections: Compare what you collected in sales tax against what you actually owe based on your sales data. This catches errors before they compound over multiple months.
These monthly tasks create your foundation, but they’re not enough on their own. Quarterly check-ins help you spot trends and catch issues before they escalate.
Quarterly: Your Strategic Review
- Review Nexus Status: Check your top 20 sales states to see if you’ve crossed any new thresholds or if state rules have changed. Economic nexus thresholds by state can shift with new legislation, so staying current matters.
- Verify Software Connections: If using sales tax software integration, confirm all your e-commerce platforms and accounting tools are connected and syncing correctly. Integration failures can lead to undercollection and compliance gaps.
- Audit Exemption Certificates: Review your sales tax exemption certificate management to ensure all certificates for exempt sales are current and properly stored. Expired certificates mean those sales become taxable retroactively.
While monthly and quarterly tasks handle your ongoing operations, annual deep-dives ensure long-term compliance and catch anything that might have slipped through during the busy day-to-day.
Annual: Your Comprehensive Compliance Audit
- Complete New Registrations: Handle sales tax registration by state for any new nexus you’ve established. Register as soon as you cross the economic nexus threshold (often within 30 days) to avoid penalties. In many states, you must start collecting tax from the first sale that pushes you over the threshold.
- Conduct Full Nexus Audit: Review all 45 sales tax states to identify any nexus situations you might have missed during the year. This includes checking for new physical presence and verifying economic nexus calculations.
- Update Compliance Calendar: Map out all filing deadlines for the coming year since states assign different filing frequencies based on your sales volume. Some states may change your filing frequency as your business grows.
With your tracking calendar in place, there’s another important piece of the puzzle: understanding how tax rates actually work. This determines whether you’re charging customers the right amount in the first place.
Your Complete Multi-State Sales Tax Compliance Checklist
Here’s a downloadable checklist you can use to track your sales tax compliance tasks:
Monthly Checklist
☐ Review sales data for all states where you have customers
☐ Check if any state is approaching 75% of economic nexus threshold
☐ Separate and record marketplace sales vs. direct sales
☐ Document any new physical presence (employees, inventory, events)
☐ Reconcile sales tax collected vs. tax owed
☐ File returns for all states where you’re registered
☐ Make payments before state deadlines
☐ Save all filing confirmations and receipts
Quarterly Checklist
☐ Review nexus status in your top 20 sales states
☐ Check for any state law changes or threshold updates
☐ Verify sales tax software integration is working correctly
☐ Test connections between e-commerce platform and tax software
☐ Audit all exemption certificates for expiration dates
☐ Request certificate renewals from customers as needed
☐ Review local sales tax rate changes in registered states
Annual Checklist
☐ Conduct full 45-state nexus audit (both physical and economic)
☐ Complete sales tax registration by state for new nexus
☐ Update compliance calendar with all filing deadlines
☐ Review and adjust filing frequencies if sales volume changed
☐ Organize and archive previous year’s tax records
☐ Evaluate sales tax software performance and costs
☐ Schedule consultation with tax professional for audit review
☐ Project next year’s nexus based on growth trajectory
One-Time Setup Checklist
☐ Identify all current states where you have nexus
☐ Register for sales tax permits in nexus states
☐ Set up sales tax software integration
☐ Configure accounting software for state-by-state tracking
☐ Create exemption certificate management system
☐ Set up alerts for approaching nexus thresholds
☐ Document your sales tax compliance procedures
☐ Train team members on sales tax requirements
With your compliance checklist in hand, the next step is understanding which tax rate to charge on each transaction.
Where Tax Rates Come From: Destination-Based vs. Origin-Based Sales Tax
Understanding destination-based vs origin-based sales tax determines which rate you charge on each transaction.
Most states use destination-based sales tax for remote sellers, meaning you charge the rate where your customer is located. Only a few states still use origin-based sales tax, where the rate depends on your business location.
Why This Matters for E-Commerce?
This matters because with destination-based taxation, you need to track local sales tax rates for thousands of jurisdictions.
Tax rates vary by state, county, city, and special districts, and they change regularly. For a business selling nationwide, this could mean managing rates for over 10,000 different tax jurisdictions.
Why This Matters for Your Bookkeeping?
As most states use destination-based rates, your accounting system must track the customer’s full address and apply the correct local rate at the point of sale.
This is why automation tools are almost essential for nationwide e-commerce. Without software that automatically looks up rates based on postcode details or full addresses, you’ll face constant errors and potential audit issues from applying incorrect rates.
How Marketplace Platforms Handle your Tax Collection?
The marketplace facilitator sales tax rules provide significant relief for e-commerce sales tax compliance. Platforms like Amazon, eBay, and Etsy collect and remit tax on your behalf in most states.
However, you still need to:
- Track these sales for threshold calculations in some states
- Collect tax yourself on direct sales through your website
- Keep separate records for each sales channel
- Understand which states include marketplace sales in their nexus thresholds
Marketplace Sales and Nexus Thresholds:
States that typically include marketplace sales in nexus calculations: California, Connecticut, New York, Illinois, Washington, Pennsylvania, Ohio, and most others.
States that typically exclude marketplace sales from nexus calculations: Colorado, Florida, Georgia, Massachusetts.
The Split-Channel Challenge
This split between marketplace and direct sales creates an important tracking challenge, but there’s another complication: not every sale is actually taxable, and knowing which sales are exempt affects both your collections and your threshold calculations.
Handling Taxable and Exempt Sales Correctly
Understanding the taxable vs exempt sales calculation is important for accurate record-keeping. Here’s what catches many sellers off guard: exempt sales can count toward your nexus threshold in some states, so you may need to register even if you’re not collecting tax on those transactions.
Common Exempt Sale Categories
Exempt sales typically include:
Sales Tax Exemption Certificate Management
Always collect exemption certificates at the time of sale. Without proper documentation, auditors will treat these as taxable sales, and you’ll owe the tax plus penalties. Your sales tax exemption certificate management system should track expiration dates and automatically request renewals from customers before certificates lapse.
If you’re selling physical products, these exemption rules are relatively straightforward. But if you sell digital products, you’re entering territory where state rules become even more inconsistent and unpredictable.
Special Considerations for Digital Products
If you sell downloadable products, understanding sales tax nexus for digital goods in the USA adds another layer of complexity. States treat digital products inconsistently some tax them like physical goods, others don’t tax them at all, and some have specific digital product categories.
What Counts as Digital Goods?
Digital goods include software downloads, e-books, streaming services, online courses, and digital art. Research each state’s treatment of your specific products since the rules vary significantly. For example, Texas taxes data processing services but not downloaded software, while Massachusetts taxes both.
State-by-State Variations
Some states distinguish between permanent downloads and temporary access. Others tax digital subscriptions differently than one-time purchases. A handful of states still don’t tax digital goods at all, though this number shrinks each year as states look for new revenue sources.
Digital Products: Taxable vs. Exempt States (2025)
Digital products are generally taxable in: Alabama, Arizona, Colorado, Georgia, Kentucky, Maryland, Minnesota, New Jersey, New Mexico, North Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Washington, Wisconsin, Wyoming.
Digital products are generally exempt in: California, Florida, Illinois, Iowa, Kansas, Massachusetts, Michigan, Missouri, Nevada, New York, North Dakota, Oklahoma, Pennsylvania, Rhode Island, Virginia, West Virginia.
Note: Rules vary by product type and state definitions. Always verify the specific treatment of your digital products in each state.
By now, you’re probably seeing the pattern: multiple nexus types, varying thresholds, different tax rates, marketplace rules, exemptions, and digital product variations. This is exactly why automation stops being optional and starts being necessary.
Why Sales Tax Software Becomes Necessary?
Sales tax software integration automates calculations, tracks thresholds, and simplifies filing. These platforms connect to your e-commerce system and handle the complexity of multi-state sales tax nexus management.
What Software Handles?
- Real-time tax rate calculations across all jurisdictions
- Nexus threshold monitoring with automatic alerts
- Return preparation for multiple states
- Automatic rate updates when local sales tax rates change
- Exemption certificate storage and expiration tracking
Choosing Your Solution
Popular solutions include Avalara, TaxJar, and Vertex. Evaluate them based on integration with your platforms, state coverage, reporting features, and pricing structure. The investment typically pays for itself by preventing just one audit penalty or by saving you hours of manual calculation time each month.
Once your software is tracking everything properly, you still need to actually file returns. Let’s walk through how to make this process smooth and routine.
Your Step-by-Step Filing Process
Learning how to file multi-state sales tax returns monthly becomes routine with a system. Here’s how to handle your online store multi-state tax filing requirements efficiently:
The Filing Workflow
- Pull sales reports by state from your accounting software
- Calculate tax collected versus tax owed
- Log into each state’s filing portal
- Complete and submit returns electronically
- Make payments before deadlines
- Save all confirmations and filed returns
Understanding Filing Frequencies
States assign filing frequencies based on your tax collections. Use these tables for clarity:
Monthly Returns
| Due Date | Example States |
|---|---|
| 20th of following month | Alabama, Colorado, Florida, Illinois, New York, Texas (for applicable filers) |
| Last day of following month | California (for certain filers), Iowa, Wyoming (verify for limited cases) |
Quarterly Returns
| Due Dates | Notes and Example States |
|---|---|
| April 30, July 31, Oct 31, Jan 31 | Standard for prior quarter. Examples: California, Rhode Island |
| 20th of month after quarter end | Applies in some states. Example: New York (non-calendar quarters) |
Annual Returns
| Due Date | Notes and Example States |
|---|---|
| January 31 of following year | For low-volume filers. Example: under $1,000 to $1,050 annual tax in Washington |
Always verify your specific due dates with each state, as they vary based on your filing frequency assignment.
Conclusion
Managing multi-state sales tax nexus doesn’t have to overwhelm your e-commerce business. With this bookkeeping checklist for multi-state sales tax nexus e-commerce and proper systems, you can stay compliant while focusing on growth.
Start by identifying where you have nexus today based on both physical nexus triggers and economic nexus thresholds by state. Register in those states through the proper sales tax registration by state processes, and implement monthly tracking to catch new nexus situations early.
Consider investing in sales tax software integration as your business scales the time saved and errors prevented usually justify the cost. Stay organized, monitor threshold changes, and remember that proactive e-commerce sales tax compliance USA is always easier and cheaper than fixing problems after an audit. The Wayfair decision created complexity, but with the right systems and knowledge, you can manage it confidently.
Common Questions Answered
When do I need to register for sales tax?
Do exempt sales count toward nexus thresholds?
What if I only sell through Amazon?
How long should I keep sales tax records?
What happens if I file late?
Can I stop collecting tax if my sales drop below the threshold?
Parul is a dedicated writer and expert in the accounting industry, known for her insightful and well researched content. Her writing covers a wide range of topics, including tax regulations, financial reporting standards, and best practices for compliance. She is committed to producing content that not only informs but also empowers readers to make informed decisions.