Sales tax nexus is the link between your business and a U.S. state that gives that state the power to make you do three things: register with it, collect its sales tax from your customers, and send that money in on a schedule.
Two things make this hard for founders. The first is that sales tax is a state tax, not a federal one. There is no single national rule, no single national threshold, and no single government page that answers the question for the whole country. Each state writes its own law, and you have to check each state you sell into.
The second is that nexus does not care who you are. It does not read your passport, and it does not read the two tests that decide whether the IRS counts you as a U.S. person. A founder in Ohio and a founder in Seoul selling the same product to the same customer in Texas are in exactly the same position. This is the rare page in this guide where the two lanes give the same answer, and knowing that is worth more than any of the numbers below.
What the rule actually asks for
For 26 years, the rule was physical presence. Under Quill Corp. v. North Dakota (1992), a state could only make you collect its sales tax if you had a physical footprint there. Mail-order and, later, online sellers with no office and no staff in a state simply did not have to collect.
That ended on 21 June 2018, when the Supreme Court decided South Dakota v. Wayfair, Inc. The Court threw out the physical presence rule, saying that Quill's rule "is unsound and incorrect." After Wayfair, a state may require an out-of-state seller to collect its sales tax based on the seller's economic activity in the state alone. This is what people mean by economic nexus: enough sales into a state, by itself, creates the duty to collect.
The law the Court was looking at was South Dakota's. It applied to sellers who, in a year, delivered more than $100,000 of goods or services into South Dakota or engaged in 200 or more separate transactions for delivery into South Dakota. On those facts the Court said "the nexus is clearly sufficient." It did not go further and bless the whole statute: it vacated the judgment below and sent the case back, noting that other Commerce Clause questions could still be raised on remand.
Here is the part that most articles get wrong. Wayfair did not set a national threshold. It removed the physical presence barrier and found South Dakota's sales figures enough to create nexus. Every other state then wrote its own version, and those versions do not match.
You can see this most clearly in South Dakota itself. The state repealed the 200-transaction test with SB 30, effective 1 July 2023. South Dakota now uses the sales figure alone: more than $100,000 in gross sales into the state in the previous or current calendar year. The famous "$100,000 or 200 transactions" line that everyone quotes from Wayfair is no longer the rule even in the state that the case is named after.
A worked example: Texas
Texas is a useful example because its rule is written plainly. A remote seller with total Texas revenue of less than $500,000 in the preceding twelve calendar months has no obligation in Texas: no permit, no collecting, no filing. That is the state's safe harbor.
When you go over $500,000, the duty does not land the next day. The Comptroller requires you to get a permit and begin collecting no later than the first day of the fourth month after the month in which you exceeded the safe harbor amount. So if you pass $500,000 during March, you must be registered and collecting by 1 July. That gap is your window to register and set up collection.
Note what the $500,000 measures. It is your revenue from sales into Texas, not your worldwide revenue. A company with $4 million in global sales and $60,000 of Texas sales is under the Texas threshold.
Two things to keep straight
- Thresholds differ by state. Some states use a sales figure only. Some also count transactions. The numbers themselves are different. Texas uses $500,000. South Dakota uses $100,000. There is no shortcut here. For each state you sell into, you read that state's own page.
- Physical presence did not disappear. Wayfair removed physical presence as the only way a state can reach you. It did not remove it as a way. If you have people or property in a state, you can have nexus there without selling a single dollar over any threshold. States define for themselves what counts as physical presence, so check the state's own definition.
🇺🇸 If the IRS counts you as a U.S. person
Nothing on this page changes for you. Your federal income tax status is not an input to the sales tax nexus rules, and the state does not ask about it.
What is likely to be true for you, in practice, is that you have a physical presence somewhere. If you run the business from your home or an office in a state, you are physically in that state, and physical presence is still a basis for nexus after Wayfair. That state can reach you without you crossing any sales threshold at all.
Every other state is a separate question, answered by that state's own threshold. Being American does not create nexus in the other 49.
🌏 If it does not
Nothing on this page changes for you either, and that is the point people miss.
Wayfair is about the seller's economic activity in a state. It is not about where the seller sits, and it says nothing about citizenship or residency. If you live in Seoul, run an LLC formed in Wyoming, and sell $600,000 into Texas over twelve months, you are a remote seller who has crossed the Texas threshold. You register with the Texas Comptroller, you collect Texas sales tax from your Texas customers, and you file. The fact that you have never entered the United States does not enter the analysis.
This is the trap for founders who think in federal terms. You can spend months working out whether your income is connected to a U.S. trade or business, conclude that your federal income tax exposure is small, and then discover that a state has been expecting sales tax returns from you the whole time. Sales tax and federal income tax are two different taxes with two different rulebooks. Answering one tells you nothing about the other.
Where the two lanes go
For almost every other term in this guide, the two lanes give different answers. Here they do not. The table below shows what is the same, and it is the same all the way down.
| 🇺🇸 U.S. person | 🌏 Not a U.S. person | |
|---|---|---|
| Which law decides it | State law, one state at a time | State law, one state at a time |
| Does your passport matter? | No | No |
| Does your IRS residency status matter? | No | No |
| What creates the duty to collect | Physical presence in the state, or sales into it above that state's threshold | Physical presence in the state, or sales into it above that state's threshold |
| The threshold you watch | The one written by each state you sell into | The one written by each state you sell into |
| What you do above the threshold | Register, collect, file | Register, collect, file |
The single practical difference is not in the rules. It is that a U.S. founder usually has a physical presence in at least one state from the first day, and a founder abroad may have none anywhere. That changes which state comes for you first. It does not change the test.
Common mistakes
🇺🇸 If the IRS counts you as a U.S. person
- Assuming that because you file and pay federal tax properly, the state side is handled. Sales tax is collected from your customer and passed on by you. It is not part of your income tax return.
- Treating "$100,000 or 200 transactions" as the national rule. It is one state's law from 2018, and South Dakota itself dropped the 200-transaction half of it on 1 July 2023.
- Watching only the sales thresholds and forgetting physical presence. Physical presence still creates nexus, with no threshold to cross.
🌏 If it does not
- Believing that being outside the United States puts you outside the reach of state sales tax. Wayfair looks at your sales into the state, not at where you are.
- Measuring the threshold against your worldwide revenue. States measure sales into their own state. Texas asks about Texas revenue.
- Assuming one registration covers the country. There is no national sales tax registration. Each state is its own filing.
FAQ
Does sales tax nexus depend on whether the IRS treats me as a U.S. person?
No. Sales tax is a state tax and the nexus rules do not look at your federal residency status at all. A non-resident founder and a U.S. founder with identical sales into the same state have identical obligations there.
Is "$100,000 or 200 transactions" the national threshold?
No. That was South Dakota's law, and in Wayfair (2018) the Supreme Court held that sales at that level were enough to create nexus. It was never a national rule, and the Court never imposed one. Other states wrote their own thresholds, and South Dakota itself removed the 200-transaction test effective 1 July 2023.
Does physical presence still create nexus after Wayfair?
Yes. Wayfair ended the rule that physical presence was required. It did not end physical presence as a basis for nexus. If you have people or property in a state, that state can reach you regardless of how much you sell there.
My company is registered in Delaware or Wyoming. Does that decide where I collect sales tax?
No. Where you formed the company and where you have sales tax nexus are two separate questions. Nexus comes from physical presence in a state, or from sales into that state above its threshold. You have to check every state you sell into.
When exactly do I have to start collecting in Texas?
Texas gives you a window. If you exceed the $500,000 safe harbor during, say, March, you must have a permit and be collecting no later than the first day of the fourth month after that month, which is 1 July. Other states set their own start dates, so do not carry the Texas timing to another state.
Do the thresholds count all my sales, or only the ones into that state?
Only the ones into that state. Texas asks about your total Texas revenue in the preceding twelve calendar months. A large global business with small sales into one state can be under that state's threshold.
I live abroad and my company owes little or no U.S. federal income tax. Do I still have to collect sales tax?
Possibly, yes. They are different taxes. Your federal income tax position has no effect on whether a state can require you to collect its sales tax. The state looks at your presence there and your sales into it.
How many states do I have to check?
Every state with a sales tax that you sell into. There is no single national list and no single national threshold, which is why this term causes more surprise bills than almost anything else on this site.