Sales Tax Nexus And Remote Sellers: When States Can Require Collection

Sales Tax is a transaction tax generally charged on taxable retail sales and remitted by registered sellers or marketplaces. For remote sellers, the critical question is nexus — the connection to a state that gives that state the legal authority to require collection and remittance.

What Triggers Sales Tax Nexus

Nexus can be physical (a warehouse, office, employee, trade show presence) or economic (meeting sales or transaction thresholds). After the U.S. Supreme Court’s decision in South Dakota v. Wayfair (2018), states may use economic thresholds (for example, $100,000 in sales or 200 transactions) to require out-of-state sellers to collect sales tax even without physical presence.

How Economic Nexus Rules Differ

Each state sets its own economic-nexus thresholds and effective dates. Thresholds typically use gross sales into the state, but some states count the number of transactions or taxable transactions. Sellers must monitor thresholds in each state where they sell because crossing a single state’s threshold creates registration and collection duties in that state from the effective date established in law or regulation.

Temporary And Physical Presence Considerations

Short-term warehouse usage (fulfillment centers), in-state employees or contractors, trade-show booths, or inventory stored with a third-party logistics provider (3PL) can create physical nexus. States often issue guidance explaining how temporary or limited activities are treated; sellers using third-party warehouses should require written confirmation from the warehouse about locations where inventory is stored and assess nexus exposure accordingly.

How Sellers Should Respond

Remote sellers should implement a compliance workflow: track marketplace and direct-sales volume by state, review contracts and fulfillment arrangements for physical presence, register timely when thresholds are met, and collect and remit tax using appropriate sourcing rules. Where a marketplace facilitator collects and remits tax, the seller should confirm whether the marketplace reports sales and provides tax remittance records for its sellers.

• Monitor Sales: Automate state-level sales tracking to detect when economic nexus thresholds are crossed.
• Inventory Mapping: Maintain a list of warehouses and fulfillment centers to identify physical nexus risks.
• Registration Timing: Register promptly with a state once nexus is established to avoid penalties for uncollected tax.

Practical Example

An online electronics retailer headquartered in Ohio sells nationwide through its website and uses a third-party fulfillment center in New Jersey to ship to East Coast customers. The retailer must analyze: (1) whether storing inventory in New Jersey creates physical nexus in New Jersey; (2) whether its sales into California exceed the state’s economic nexus threshold and require registration there; and (3) whether marketplaces that host the retailer’s products are collecting tax and, if so, whether that relieves the retailer from collection duties in those states.

Common Pitfalls And How To Avoid Them

• Ignoring Third-Party Storage: Treat inventory in a 3PL’s warehouse as potential physical presence; review storage locations quarterly.
• Relying On Old Thresholds: States may change thresholds or start enforcement retroactively — maintain current legal tracking.
• Assuming Marketplace Coverage: Even when a marketplace collects tax, sellers may still have filing or reporting responsibilities — confirm with marketplace policies and state law.

In short, the Sales Tax obligations of remote sellers hinge on nexus: physical presence, economic thresholds, and marketplace rules. Proactive monitoring of sales, inventory locations, and platform arrangements — and prompt registration where required — are the practical steps to stay compliant.