What Is Economic Nexus? A Plain-English Guide for Online Sellers
Last updated: April 2026
Researched by the NexusFlag Research Team
Economic nexus is a legal obligation to collect and remit sales tax in a state where your business has no physical presence but exceeds that state's revenue or transaction thresholds from remote sales.
The Wayfair Decision That Changed Everything
In South Dakota v. Wayfair, Inc. (2018), the U.S. Supreme Court ruled 5-4 that states can require out-of-state sellers to collect sales tax based on economic activity alone, overturning the physical presence requirement established in Quill Corp. v. North Dakota (1992).
Before Wayfair, a business had to have a physical footprint in a state — a store, warehouse, or employee — before that state could require sales tax collection. Online sellers could ship millions of dollars of goods into a state and owe nothing in sales tax as long as they had no office or staff there.
South Dakota passed a law in 2016 deliberately designed to challenge that rule. The state set a threshold of $100,000 in revenue or 200 transactions and required Wayfair, Overstock, and Newegg to collect sales tax on South Dakota sales. Those companies challenged the law, and the case went to the Supreme Court. The Court sided with South Dakota.
Within two years of the Wayfair ruling, 43 states had passed economic nexus laws. By 2023, Missouri became the last state to adopt economic nexus, completing the nationwide adoption. Today, 45 states plus Washington D.C. have active economic nexus laws. The five states without sales tax — Alaska, Delaware, Montana, New Hampshire, and Oregon — have no nexus requirements at the state level.
How Economic Nexus Thresholds Work
Every state with an economic nexus law sets a threshold — a minimum amount of sales into the state before collection is required. Most states measure this on a trailing 12-month basis, meaning the clock rolls forward continuously rather than resetting on January 1st.
The most common threshold across U.S. states is $100,000 in annual gross revenue from customers in that state. Many states also added a 200-transaction count as an alternative trigger, though the trend since 2021 has been for states to drop the transaction threshold entirely and rely only on the revenue figure. California and Texas set higher bars — both require $500,000 in annual sales before nexus is triggered. New York uses "AND" logic, requiring a seller to cross both $500,000 in revenue AND 100 transactions before the obligation kicks in.
Quick Reference: Threshold Ranges by State Group
| Threshold | States |
|---|---|
| $500,000 revenue only | California, Texas |
| $250,000 revenue only | Alabama, Mississippi |
| $100,000 revenue OR 200 transactions | Most states (majority) |
| $100,000 revenue only | Arizona, Colorado, Florida, Idaho, Iowa, Kansas, and others |
| $500,000 AND 100 transactions | New York |
| No threshold | Alaska, Delaware, Montana, New Hampshire, Oregon |
Thresholds verified against state Department of Revenue publications. Always confirm current thresholds before making compliance decisions. View full state-by-state data.
Economic Nexus vs. Physical Nexus
Both types of nexus independently create a sales tax collection obligation. You don't need both — either one is enough. Most online sellers today are dealing primarily with economic nexus, but physical nexus still matters and often gets overlooked.
Physical Nexus
- —Employees or contractors based in the state
- —Warehouse, office, or retail location
- —Inventory stored at an Amazon FBA fulfillment center
- —Trade show attendance in some states
- —Drop-shipper or third-party fulfillment partner
Economic Nexus
- —Exceeds $100,000 in annual sales to in-state customers (most states)
- —Exceeds 200 transactions in a 12-month period (states that have this rule)
- —No physical presence in the state required
- —Measured on a rolling 12-month basis in most states
A common trap for Amazon FBA sellers: storing inventory at an Amazon fulfillment center in a state creates physical nexus in that state immediately, regardless of your sales volume. Physical nexus does not have a dollar threshold — any presence can be enough.
What Happens After You Cross a Nexus Threshold?
Crossing a nexus threshold does not mean you owe tax retroactively from your very first sale. But it does start a clock. Most states give sellers between 30 and 60 days to register with the Department of Revenue after crossing the threshold. After registration, you must begin collecting sales tax from customers in that state on every future sale.
Register with the state
Apply for a sales tax permit with the state Department of Revenue. Registration is typically free. Most states have an online registration system. You have 30 to 60 days in most states before penalties begin.
Start collecting sales tax
Once registered, you must collect the appropriate sales tax rate from customers in that state on every taxable sale. Rates vary by state and often by city and county within the state.
File returns on the state's schedule
States assign a filing frequency — monthly, quarterly, or annual — based on your sales volume. New remote sellers typically start on monthly or quarterly filing. You must file even in periods with zero sales in that state.
Non-compliance penalty: The average sales tax audit results in approximately $12,000 in penalties plus back taxes and interest. States can audit remote sellers for up to three to four years of prior sales in most jurisdictions. Registering late is far cheaper than being caught during an audit.
5 States Without Sales Tax
Five states have no statewide sales tax and therefore no economic nexus requirement for remote sellers: Alaska, Delaware, Montana, New Hampshire, and Oregon. Sales to customers in these states do not require sales tax collection regardless of volume.
Alaska
No statewide tax — but local jurisdictions can impose sales tax
Delaware
No sales tax at any level
Montana
No sales tax at any level
New Hampshire
No sales tax — meals and rooms have separate tax
Oregon
No sales tax at any level
Alaska is the most nuanced of the five — while there is no statewide sales tax, Alaska allows municipalities to impose their own local sales taxes. If you sell to customers in Juneau or Anchorage, local sales tax rules may apply through the Alaska Remote Seller Sales Tax Commission.
Check your nexus exposure for free
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Frequently asked questions about economic nexus
Does economic nexus apply to my business?
Economic nexus applies to any business selling taxable goods or services to customers in states where the business has no physical presence. If your online store ships products to customers in other states, you need to track your sales totals against each state's threshold. Even small sellers can cross a $100,000 revenue threshold in a single state if they have a popular product and active customers there.
What's the most common economic nexus threshold?
$100,000 in annual gross revenue from in-state customers is the most common economic nexus threshold across U.S. states. The majority of states set their threshold at $100,000, with no transaction count requirement. A handful of states use higher thresholds — California and Texas both require $500,000 in annual sales before nexus is triggered.
Do marketplace sales count toward nexus thresholds?
It depends on the state. Most states exclude marketplace-facilitated sales (Amazon, Etsy, Walmart Marketplace) from your personal nexus threshold because the marketplace is already collecting and remitting the tax. However, some states do count all sales into the state regardless of channel. Check each state's specific rules or use NexusFlag's threshold calculator to see what counts where.
What's the difference between economic nexus and physical nexus?
Physical nexus is triggered by having a tangible presence in a state — employees, a warehouse, inventory, an office, or even a trade show booth in some states. Economic nexus is triggered purely by sales volume: revenue or transaction counts crossing a state-set threshold. Either type of nexus independently creates an obligation to collect and remit sales tax in that state.
What happens if I don't register after crossing nexus?
Failing to register after crossing a nexus threshold exposes your business to back taxes, interest, and penalties from the state Department of Revenue. States can audit remote sellers and assess tax owed going back several years. The average sales tax audit results in a $12,000 penalty plus back taxes. Most states give sellers 30 to 60 days to register after nexus is triggered — acting quickly reduces your exposure significantly.
How often should I check my nexus status?
You should check your nexus status every month if you sell in multiple states. Economic nexus thresholds are measured on a trailing 12-month basis in most states, so a strong sales quarter can quietly push you over a threshold in a state you've been safely under. NexusFlag monitors your thresholds in real time and sends alerts before you cross — so you're never caught off guard by a registration deadline.
Disclaimer: NexusFlag provides informational data about published state nexus thresholds — not tax advice. State laws change frequently. Always verify current threshold requirements with each state's Department of Revenue or a qualified sales tax professional before making compliance decisions.