Economic nexus: the thresholds that decide where you must register

Economic nexus is the rule that a business can be required to register for and collect sales tax in a state purely because of the volume of its sales there, with no office, no staff and no property in the state at all. It replaced the older position, under which a physical presence was needed, after the Supreme Court decision in Wayfair, and every state with a sales tax now applies some version of it.

For a seller shipping across the country, the consequence is administrative rather than conceptual. The tax was always owed by somebody; what changed is who has to collect it, and how many jurisdictions a mid-sized business now has to keep track of. The failure mode is not disagreement with the rule — it is crossing a threshold in a state nobody was watching and finding out eight months later.

How economic nexus thresholds work

• Each state sets its own threshold, commonly expressed as sales revenue into the state over a measurement period, and historically sometimes as a number of separate transactions.
• The transaction-count element has been dropped by a number of states, on the grounds that it caught small sellers with many cheap orders. Where it survives it can be reached long before the revenue figure.
• The measurement period differs: previous calendar year, current year, or a rolling twelve months. A rolling period means the answer changes every month.
• What counts towards the threshold differs too — gross sales, retail sales, or taxable sales only, and whether marketplace sales are included.
• Once crossed, registration is required within a short window, and collection begins from a date the state specifies.

Marketplace sales are usually somebody else’s problem

Where you sell through a marketplace, marketplace facilitator laws generally put the collection obligation on the marketplace rather than on you. That removes a great deal of work, and it introduces a trap: some states count those marketplace sales towards your own threshold even though the marketplace collects the tax, which means you can be required to register on the strength of sales you never had to collect on. Check the treatment per state before concluding that a marketplace-heavy business has no obligations.

Do not register early "to be safe". Registration creates a filing obligation in that state for every period afterwards, including periods with no sales, and unwinding it takes effort. Register when the threshold is crossed, not when it is approached.

What to do when you find you crossed months ago

This is common, and panicking into a plain registration is usually the wrong move: registering makes you visible for the periods you did not collect. Most states run voluntary disclosure programmes offering a limited look-back and abatement of penalties in exchange for coming forward before being contacted, and the choice between that route and simple registration depends on how much uncollected tax is at stake and how long ago it started. That is a decision to take with an adviser, quickly, rather than a form to fill in.

Tracking it without a tax engine

A small seller does not need software to know where it stands; it needs one table, updated monthly: state, threshold, measurement basis, sales in the period, percentage of threshold, registered or not. Ettex Sheets holds that table with the running totals, so a state at eighty per cent is visible before it is at a hundred and ten; Ettex Records keeps the registrations, filing frequencies and confirmations per state; and the certificates that make some of those sales exempt are covered in exemption certificate.

To be direct: this is a spreadsheet, not a tax engine, and none of it is tax advice. Rates, sourcing rules and returns are what tax software exists for, and past a handful of states it is the right purchase. Thresholds and their measurement change by legislation; verify per state rather than relying on any list, including a recent one.