Sales Tax for US Online Sellers: What You Need to Know About Economic Nexus

Understanding economic nexus is critical for US online sellers to ensure they comply with sales tax requirements across various states. Economic nexus refers to the obligation to collect sales tax in a state due to the amount of sales or transactions made in that state, even if the seller doesn’t have a physical presence there. With this in mind, it’s essential to understand the nuances of economic nexus laws to avoid penalties and streamline your business’s tax processes.

What is Economic Nexus?

Economic nexus is the legal standard for determining whether a business has a sales tax obligation in a state. It refers to the need to collect and remit sales tax based on the volume of sales or number of transactions, regardless of having a physical presence in that state. This requirement was solidified by a 2018 Supreme Court ruling and has been enforced by states across the US.

• Sales Thresholds: Most states have set annual sales or transaction thresholds that determine whether sales tax collection is required.
• No Physical Presence Needed: You can trigger nexus by making enough sales, regardless of whether you have a store, office, or warehouse in the state.

Economic Nexus Thresholds Vary by State

Each state has its own criteria for economic nexus. While some states base it on sales revenue, others look at the number of transactions. Staying on top of these thresholds is vital for US online sellers.

• State-Specific Requirements: States have different thresholds for sales and transactions, making it crucial to track your sales.
• Common Thresholds: Many states consider sales over $100,000 or 200 transactions as the tipping point for nexus.

Sales Tax Collection After Establishing Nexus

Once economic nexus is established in a state, you are required to collect sales tax on taxable goods or services sold to customers in that state. The rate will vary depending on the state’s laws.

• Tax Collection: After meeting nexus thresholds, you must start collecting sales tax.
• Tax Remittance: You must remit the collected tax to the state’s tax authority on a regular basis.

Tools for Managing Economic Nexus

Tracking nexus manually is complex, especially for businesses selling in multiple states. Fortunately, automation tools can simplify this process and help ensure compliance.

• Sales Tax Automation Software: Tools help track nexus and automatically calculate the correct tax rates.
• E-commerce Platform Integrations: Many e-commerce platforms have built-in features to track nexus and apply sales tax accurately.

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How to Register for Sales Tax in a State

Once you’ve met the economic nexus requirements in a state, you must register for a sales tax permit to legally collect sales tax.

• Sales Tax Permits: You need to apply for a permit in each state where you meet the nexus threshold.
• Penalties for Non-Compliance: Failing to register and collect sales tax can result in fines, interest charges, or other penalties.

Keeping Up with Changing Economic Nexus Laws

Sales tax laws, including nexus thresholds and rates, can change frequently. Keeping track of these changes ensures your business stays compliant and avoids unexpected penalties.

• Monitor Legislative Changes: Stay updated through state tax authority websites and industry news sources.
• Work with Tax Professionals: A tax professional can help you navigate changes and ensure compliance.

Working with a Tax Professional

Given the complexity of economic nexus, many online sellers benefit from consulting a tax professional or accountant. Professionals help ensure compliance, track nexus thresholds, and manage tax filings.

• Expert Guidance: Tax professionals provide expert advice to avoid costly mistakes.
• Ongoing Monitoring: They can help you stay on top of changing sales tax laws and nexus requirements.

Summary

Economic nexus is an essential concept for US online sellers in 2025. By understanding the sales thresholds in each state and using automation tools, you can stay ahead of compliance requirements. Regularly tracking your sales, staying updated on changes to state laws, and consulting with a tax professional will help you avoid penalties and keep your business running smoothly. Navigating economic nexus doesn’t have to be complicated—with the right tools and knowledge, you can confidently meet your tax obligations and grow your online business.

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