United States / Blog / Economic nexus for ecommerce: when a store has to register
United States · noteEconomic nexus for ecommerce: when a store has to register
Physical presence used to be the whole test
For decades, a state could only make a business collect its sales tax if the business had something physically there — a store, a warehouse, an employee working a route. That rule traced back to two older Supreme Court decisions, and it meant a mail-order or early ecommerce seller with no people or property in a state generally had no obligation to that state's tax authority, no matter how many orders it shipped there.
South Dakota tested that rule directly. In 2016 it passed a law asserting sales tax authority over any remote seller crossing a set dollar or transaction count into the state, with no physical presence required — a law written to be challenged in court. Wayfair, Overstock, and Newegg took the bait, and on June 21, 2018 the Supreme Court ruled 5-4 in South Dakota's favor in South Dakota v. Wayfair, Inc., calling the old physical-presence rule "unsound and incorrect" for an economy where a seller can have substantial contact with a state's market without a building or a person in it.
What economic nexus actually added
Wayfair did not remove physical-presence nexus — a store with an office, a warehouse, or remote employees in a state still has nexus there the old way. What it added is a second, independent trigger: economic nexus, where crossing a state's own statutory threshold on sales into that state creates a collection obligation with zero physical footprint.
Every state that levies a general sales tax has since passed its own economic nexus statute, and every one of those statutes is its own document. States set their own dollar figure, decide independently whether a transaction count applies on top of it, define differently what counts toward the number — gross sales, taxable sales, marketplace-facilitated sales — and picked their own effective dates. "Modeled on South Dakota's law" does not mean identical to it, and several states have gone back and changed their own rule since 2018.
South Dakota is the clearest example of that drift, because it changed its own law. The original 2016 statute set the threshold at $100,000 in gross sales or 200 separate transactions — either one triggered the obligation. Effective July 1, 2023, South Dakota removed the transaction-count leg entirely, leaving a single $100,000 gross-sales test. The state that started the entire framework decided five years later that a seller with 250 small transactions and no meaningful revenue didn't need to register after all.
The thresholds vary by state — and by a lot more than the transaction count
Most states settled near the $100,000 figure South Dakota started with, but "near" covers real variation, and a few states are outliers on the dollar amount itself. California requires an out-of-state retailer to register once combined sales of tangible personal property delivered into the state exceed $500,000 in the current or preceding calendar year — sales-only, no transaction count, and that figure has applied since April 1, 2019. Texas runs the same shape: a $500,000 safe harbor on total Texas revenue in the preceding twelve months, with registration required by the first day of the fourth month after the seller crosses it.
Georgia sits at the more common $100,000 mark, but keeps a transaction-count leg South Dakota dropped: a remote seller crosses Georgia's economic nexus threshold at more than $100,000 in gross sales or 200 or more separate transactions in the current or prior calendar year, whichever comes first. A seller running a high volume of low-dollar items — a $12 accessory sold 250 times — can trip Georgia's transaction count while sitting well under its dollar figure, which is exactly the scenario South Dakota's 2023 change was written to stop happening under South Dakota's own law.
None of that generalizes cleanly to a fifth state, and that is the actual operating reality: a seller shipping into a dozen states is checking a dozen separate statutes, not one federal number. Whether a specific store has crossed a specific state's current threshold — on this year's sales, measured the way that state measures it — is a determination made against that state's statute as written today, not something read off a table built for a different state or a prior year.
Marketplace facilitator laws move the collection duty, not the whole filing duty
Most states now also require marketplaces themselves — Amazon, Etsy, Walmart Marketplace — to collect and remit sales tax on behalf of third-party sellers, under marketplace facilitator statutes passed alongside the economic nexus rules. Georgia's version sets its own threshold for this: a marketplace facilitator must collect and remit once the combined taxable retail sales it facilitates into Georgia, across every seller on its platform plus its own direct sales, reach $100,000 in the current or prior calendar year — a dollar-only test, with no transaction-count leg on the facilitator side even in a state that keeps one for direct remote sellers.
What that collapses is the collection mechanics, not necessarily the filing obligation. A seller can have marketplace-collected tax on its Amazon channel and a live, unresolved economic nexus question on its own Shopify storefront in the same state in the same month — the marketplace's collection duty covers what it facilitates, not sales the seller makes directly. A seller who assumes "the marketplace handles sales tax" and stops tracking direct-channel sales by state can cross a registration threshold on the direct channel alone and not notice, because nothing about the marketplace side flagged it.
The mechanical fix is keeping the two revenue streams visible separately in the ledger — marketplace-collected sales tagged by channel, direct-channel sales tagged by destination state — so the question "have we crossed a threshold on the sales nobody else is collecting for us" has an answer sitting in the books instead of buried inside a combined deposit total.
What ignoring it actually costs
A missed threshold does not surface as a bill on the day it happens. It surfaces later — a state audit, a data-sharing tip from a marketplace, a diligence request ahead of a raise or a sale — asking for sales tax the business should have been collecting from customers going back to the month it crossed the line. Because the tax was never charged at checkout, the exposure is not "we owe tax we already collected and can now remit" — it is tax the business now has to fund out of its own margin, for a period that can run back multiple years depending on the state's look-back window, plus penalties and interest layered on top.
That exposure compounds the longer a threshold crossing goes unnoticed, because every month of sales after the trigger date adds to the base the state can eventually assess against. A store that crossed a $100,000 threshold in month three of a year and doesn't register until an audit letter arrives in month eighteen has fifteen months of uncollected tax sitting on the table, not three. Registering promptly after a threshold is crossed — and starting collection at checkout going forward — is what keeps the exposure to the gap between the crossing date and the registration date, instead of letting it run indefinitely.
The ledger discipline that makes registration a non-event
The businesses that handle this cleanly are not the ones with a lawyer on retainer for every new state — they're the ones whose books already answer the question the moment it needs asking. That means gross sales and transaction counts broken out by destination state, updated every close, not reconstructed from a year of Shopify exports when a CPA finally asks. It means marketplace-collected revenue tagged separately from direct-channel revenue, so the "who is already collecting on this" question doesn't require re-deriving it from raw settlement data. And it means that data is exportable on request — to a CPA, to a sales tax compliance service, to whoever is making the actual registration call — instead of living inside a dashboard nobody else has login access to.
Where that data goes from there is not a bookkeeping decision. Which state's threshold has been crossed, whether a state's specific statute treats a given fact pattern differently than the general shape described here, when to register, and what to file once registered are calls for the business's CPA or a sales tax specialist working from current numbers. What keeps that call fast instead of a multi-week reconstruction project is whether the state-by-state data was being kept current the whole time — the same distinction that separates a five-minute monthly update from a scramble every other part of financial cleanup runs into when a schedule gets left for a year.
Sources
- Supreme Court of the United States — South Dakota v. Wayfair, Inc., 585 U.S. ___ (2018)
- South Dakota Department of Revenue — 2023 Legislative Updates (SB30, removal of the 200-transaction threshold)
- California Department of Tax and Fee Administration — Tax Guide for Out-of-State Retailers
- Texas Comptroller of Public Accounts — Remote Sellers
- Georgia Department of Revenue — Out-of-State Sellers (remote seller economic nexus)
- Georgia Department of Revenue — Marketplace Facilitators
Reading about it is optional. The books aren’t.
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