Economic Nexus Thresholds Explained: When a Client Needs to Register in Another State

A client can owe sales tax in a state they've never set foot in, simply by selling enough into it. This is economic nexus, and for a multi-state e-commerce or service client, it's worth checking on a schedule — not just discovering it after the fact.

The basic rule

Since the Supreme Court's 2018 South Dakota v. Wayfair decision, states no longer need a business to have a physical presence to require sales tax collection — crossing a sales or transaction threshold is enough on its own. Most states set that threshold at $100,000 in annual sales. A few differ: California, New York, and Texas sit at $500,000; Alabama and Mississippi at $250,000. Some states also apply a transaction-count test alongside or instead of the dollar figure, though a number of states have been dropping that test in recent years — Alaska, Illinois, and others have removed it as of 2025–2026.

What counts toward the threshold

This is where clients get tripped up. Many states count gross receipts, not just taxable sales — so a client selling $120,000 of exempt goods into a state with a $100,000 threshold can still trigger nexus there, even though none of those sales were themselves taxable. Whether marketplace sales (Amazon, Etsy, Walmart) count toward the threshold also varies by state, since marketplace facilitator laws generally shift the collection obligation to the platform, not the seller, for those specific sales.

Why this isn't a once-a-year check

Unlike a 1099-K, which arrives once annually, a client can cross a nexus threshold in any month — a good Q3 doesn't wait for tax season to matter. Checking cumulative sales by state periodically, rather than only at year-end, is what catches a crossed threshold with enough runway to register before the exposure grows.

What crossing a threshold actually means

Once nexus is established, the client needs to register with that state's Department of Revenue before collecting, and the obligation isn't retroactive — it applies to sales made after nexus was established, not sales made before. If a threshold was crossed months ago and nothing was done about it, a voluntary disclosure agreement can often limit the lookback period and waive penalties — worth raising before the state raises it instead.

The caveat worth repeating

Thresholds, measurement periods, and marketplace rules vary by state and change over time. Treat any nexus check as a starting point for verifying with the state's own current rules, not a final answer on its own.