Sales tax is the obligation most growing businesses discover late, and the reason is structural. Nothing announces it. You cross a threshold in a state you have never visited, the duty to collect begins, and the first time anybody mentions it is often during diligence, when a buyer's advisers ask which states you are registered in.
Nexus, in one sentence
Nexus is the connection between your business and a state that gives that state the right to make you collect its sales tax. There are two kinds and you can have either.
Physical nexus
The older test, and easier to trigger than founders expect. An office or a warehouse obviously counts. So do things that feel incidental: an employee working remotely from that state, inventory held in a fulfilment centre there, sometimes attending a trade show. The remote employee case is the one that has caught the most businesses since 2020. Hiring one person in a new state can create an obligation on all your sales into that state.
Economic nexus
Since South Dakota v. Wayfair in 2018, states can require collection based on sales volume alone, with no physical presence at all. Most states use a threshold around $100,000 in sales or 200 transactions in a twelve month period, though the figures and the measurement period vary, and some states have dropped the transaction count entirely.
The variation is the difficulty. There is no single national threshold to track, and a business selling nationally may be over the line in six states and under it in forty.
The obligation begins when you cross the threshold, not when you notice. Uncollected tax does not disappear, it becomes a liability you owe out of margin you already spent.
The marketplace trap
Marketplace facilitator laws require Amazon, Etsy, eBay and similar platforms to collect and remit sales tax on the sales they facilitate. Genuinely helpful, and widely misread.
Two things it does not do. It does not cover sales through your own website, which remain entirely your responsibility. And in many states marketplace sales still count toward your economic nexus threshold even though the platform handled the tax, which means a seller can be pushed over the line in a state by marketplace volume and then owe collection on their direct sales there.
What actually has to happen
Once you have nexus in a state, the sequence is:
- Register with that state's revenue department before you start collecting. Collecting without a permit is its own problem.
- Collect at the correct rate, which is frequently not one rate. Many states layer county, city and district rates, and the correct one usually depends on the delivery address.
- Know what is taxable. Taxability is not uniform. Software as a service is taxable in some states and not others. Clothing, food and digital goods all have state-specific treatments.
- File on the schedule they assign, monthly, quarterly or annually, and file even in periods with no sales. Missed zero returns are a common source of penalties.
If you should have registered and did not
This is more common than not, and the instinct to quietly start collecting from now on is the wrong one, because the back liability stays.
Most states offer a voluntary disclosure agreement. You approach them, usually anonymously through an adviser, and in exchange for coming forward you typically get a limited look-back period instead of unlimited exposure, and penalties reduced or waived. Interest is generally still due.
The reason to do this rather than wait is that a VDA is only available before they find you. Once a state opens an audit, the option is gone.
Why buyers care
Unregistered sales tax exposure is a standard diligence finding and it has real consequences in a transaction. It is quantifiable, it is a known liability rather than a risk, and it usually comes straight out of the purchase price or into escrow. A business with clean multi-state registration is worth more than the same business without, by roughly the size of the exposure plus a discount for the uncertainty.
Keeping it manageable
Do not try to track fifty states by hand. What works:
- Monitor where you are approaching thresholds, rather than reacting after crossing. Sales by ship-to state, reviewed quarterly, is enough to see it coming.
- Use software for calculation once you are registered in more than two or three states. Rates change constantly and manual rate tables go stale immediately.
- Tell your accountant when you hire in a new state. This is the single most useful habit, because payroll and nexus are connected and nobody thinks to mention it.
A note on dates
Thresholds, taxability rules and filing frequencies change regularly, and this piece describes the general position as of the date at the top rather than a maintained reference. Confirm current requirements with each state or with a sales tax specialist before registering or filing.
We track nexus exposure as part of the monthly work for the companies we support, so that crossing a threshold is something you decide about rather than discover. More on controls as you grow, or get in touch about a nexus review.