Sales Tax & Nexus Explained for Online Businesses
Businesses with customers in the United States may create state-level sales tax obligations depending on activity thresholds. Learn about economic nexus, when you need to collect sales tax, and how to stay compliant.
Key Takeaways
- What is sales tax nexus
- Types of nexus
- Economic nexus thresholds
- SaaS and digital services
- Compliance steps
What is sales tax nexus
Nexus is a legal term meaning you have sufficient connection to a state to be required to collect and remit sales tax. Since the 2018 Wayfair decision, 'economic nexus' means even remote sellers may have obligations based on sales volume.
Sales tax nexus reflects a business's economic or physical activity within a state and is assessed independently by each jurisdiction.
Types of nexus
| Type | Description | Examples |
|---|---|---|
| Physical nexus | Physical presence in state | Office, warehouse, employees |
| Economic nexus | Sales volume thresholds | Commonly $100K in sales; a growing number of states have dropped the 200-transaction test |
| Affiliate nexus | Related entities in state | Subsidiaries, affiliates with presence |
| Click-through nexus | Online referral arrangements | Affiliate marketing programs |
Economic nexus thresholds
Most states set economic nexus at around $100,000 in annual sales into the state. Many states have repealed the separate 200-transaction trigger, so sales volume alone is usually the deciding factor. Thresholds and measurement periods still vary by state and change often — confirm the current rule with each state before relying on it.
SaaS and digital services
Sales tax on software and digital services varies significantly by state. Some states tax SaaS; others don't. Some tax based on where the service is used; others where it's accessed from.
Sales tax for digital products and SaaS is one of the most complex areas of US tax law. Different states have different rules, and they change frequently. Get professional help.
Compliance steps
- Determine which states you have nexus in
- Register for sales tax permits in those states
- Configure your checkout to collect appropriate taxes
- File sales tax returns according to state schedules
- Remit collected taxes to each state
- Maintain transaction records and system reporting that support state-by-state tax determination
Tools for sales tax compliance
Companies often rely on third-party systems to automate calculation, reporting, and filing obligations.
- TaxJar: Automated calculation and filing for e-commerce
- Avalara: Enterprise-level sales tax automation
- Stripe Tax: Built into Stripe for simpler setups
- Manual tracking: Possible but error-prone at scale
Common mistakes to avoid
- Ignoring sales tax until you're audited
- Assuming remote businesses don't have obligations
- Not registering before collecting sales tax
- Collecting sales tax without remitting it
- Underestimating the complexity of digital goods taxation
Ready to start your US company?
If you want, EasyBrise can handle formation, EIN, and compliance end-to-end.
Related guides
Continue learning with recommended next steps in Taxes.