Let’s be honest. Sales tax is about as exciting as watching paint dry. But for an online seller, ignoring it is like ignoring a leak in your roof—sooner or later, the damage will be costly and overwhelming. The concept of “nexus” is the core of it all. It’s the connection between your business and a state that triggers a tax collection duty.
And here’s the deal: the old rules went out the window with the 2018 South Dakota v. Wayfair Supreme Court case. Now, physical presence isn’t the only thing that matters. Economic activity—your sales into a state—can create nexus too. This flipped the script for every small e-commerce and dropshipping shop out there.
What Exactly Creates a Sales Tax Nexus Today?
Think of nexus as a web of connections. You can get tangled in it in more ways than you might think. It’s not just about having a warehouse somewhere.
The Physical Nexus Triggers (The Old Standbys)
These are the traditional ties. If you have any of these in a state, you’ve got nexus. No question.
- Your business location: Home office, storefront, warehouse.
- Employees or contractors: Even a single remote employee living in another state can create a filing requirement there. Seriously.
- Inventory stored in a state: This is the big one for dropshippers using third-party logistics (3PL) providers. If your products sit in an Amazon FBA warehouse in Nevada, you likely have nexus in Nevada.
- Attending trade shows or sales events: Some states consider even temporary physical presence enough.
The Economic Nexus Triggers (The New Reality)
This is the game-changer post-Wayfair. Most states now have economic nexus laws. They set two thresholds: a sales dollar amount and/or a number of transactions. Hit either one, and boom—you’re on the hook.
For example, a common threshold is $100,000 in sales or 200 separate transactions into the state in a year. But—and this is crucial—these thresholds vary wildly. Some states, like California, only look at the sales dollar amount ($500,000). Others still use the transaction count, which is a huge pain point for businesses selling lots of low-cost items.
| State Example | Economic Nexus Threshold | Notes |
| Texas | $500,000 in sales | No transaction count. Phew. |
| New York | $500,000 in sales AND 100+ transactions | Must hit both. A bit less common. |
| Colorado | $100,000 in sales | Transaction count repealed. |
| Massachusetts | $100,000 in sales AND 100+ transactions | Again, must hit both. |
The Dropshipping Tax Tangle: A Special Kind of Headache
If you’re dropshipping, you’re playing nexus on hard mode. The supply chain has more links, and each one can create a tax obligation… sometimes for multiple parties. Here’s where it gets messy.
You, the retailer, can create nexus through economic activity in a state. But your supplier also has nexus where their warehouse is. In many states, if your supplier ships to your customer on your behalf, you are responsible for the tax based on your nexus. The supplier might also have a duty to collect, depending on their registration. It’s a potential double-collection scenario that requires clear communication.
Your absolute must-do? Get a valid, updated resale certificate from your supplier. This tells them you’re the retailer and will handle the sales tax (where you have nexus). If they don’t accept it, you might pay tax upfront and then need to collect it again from your customer. A real accounting nightmare.
A Practical Roadmap: Steps to Get This Under Control
Feeling overwhelmed? Don’t panic. You can tackle this systematically. Think of it like cleaning a cluttered garage—one box at a time.
- Audit Your Nexus Footprint. List every state where you have physical ties (employees, inventory, yourself). Then, use your e-commerce platform reports to see where you’re hitting economic thresholds. This is your nexus map.
- Register for a Sales Tax Permit. In each state where you have nexus, you must register before you start collecting. Do not collect sales tax without a permit. It’s illegal.
- Collect Tax Correctly. Set up tax collection in your shopping cart (Shopify, BigCommerce, etc.) for those nexus states. Rates are based on the destination (your customer’s address), not your location. You’ll need software or a service to keep up with zip-code-level rates.
- File and Remit. Each state has its own filing frequency (monthly, quarterly, annually). Mark the deadlines. You’ll file a return and send the money you’ve collected. Even if you collected zero, you often still have to file—a “zero return.”
- Document Everything. Keep records of your nexus determinations, exemption certificates, and filings. If a state ever comes knocking, good records are your best defense.
Common Pitfalls to Sidestep (Learn From Others’ Mistakes)
We all make mistakes, but some are costlier than others. Here are a few to avoid:
- Assuming Your Platform Handles It All: Platforms like Amazon or Etsy might collect and remit for you in certain states under marketplace facilitator laws. But that doesn’t automatically cover your direct sales or sales on other channels. You know, you still need to understand your own liability.
- Ignoring the Transaction Threshold: Selling 200 $5 items to Pennsylvania ($1,000 total) can create nexus because of the 200-transaction rule. It trips up so many small sellers.
- “Set It and Forget It” Tax Settings: Nexus laws and tax rates change. Your software should update, but you need an annual check-in on your nexus status. A quick review each Q4 saves Q1 chaos.
Wrapping Up: Embracing the Inevitable
Look, sales tax compliance for e-commerce isn’t a fun part of the journey. It’s administrative, it’s complex, and it feels far removed from the passion that started your business. But in today’s landscape, it’s also a non-negotiable sign of a mature, legitimate operation.
Getting it right protects you from paralyzing back-tax bills and penalties. It builds a foundation of operational integrity. And honestly, it lets you focus on what you do best—finding amazing products and connecting with customers. The tax web might be intricate, but you don’t have to be the spider caught in it. You can be the one who skillfully navigates its strands.
