Sales Tax Nexus and Economic Nexus

If you sell products or taxable services to customers in other states, you may have to collect sales tax there, even if you have never set foot in the state. The rule that decides it is called nexus, and since 2018 it has been driven largely by how much you sell into a state. Sales tax is a state and local tax, so the rules come from each state's revenue department, not the IRS. This guide explains the framework and a practical process. It is general information, not advice for any one state.

Two ways to create nexus

Physical presence. An office, store, warehouse, employees, sales representatives or inventory in a state generally creates nexus. In some states that includes inventory stored in a marketplace's fulfillment centers.

Economic nexus. Selling enough into a state creates nexus even with no physical presence. The Supreme Court allowed this in South Dakota v. Wayfair, Inc., which overruled the earlier physical presence rule from Quill and National Bellas Hess v. Department of Revenue of Illinois. The Court noted that South Dakota's law applied only to sellers with more than $100,000 in annual sales or 200 or more transactions, did not apply retroactively, and that South Dakota participated in the Streamlined Sales and Use Tax Agreement, which reduced compliance burdens.

After the decision, nearly every state with a sales tax adopted an economic nexus rule. Many copied the South Dakota pattern, but the details differ.

What varies from state to state

Treat any single number as a starting point, and use the state revenue department's own guidance for your product and period.

An Illinois example

The Illinois Department of Revenue explains that sales tax there has two parts: the Retailers' Occupation Tax paid by sellers, and the Use Tax paid by buyers when no tax is collected. For remote retailers it uses a 12-month test of $100,000 or more in Illinois gross receipts, or 200 or more Illinois transactions. Remote retailers are told to check this quarterly, and once the test is met they collect and remit tax at the rate for the buyer's destination. Marketplace facilitators use the same thresholds.

Illinois also offered a limited-time remote retailer amnesty in 2026, with applications accepted from August 1 to October 31, 2026, covering periods from January 1, 2021 through June 30, 2026. The tax still had to be paid, but penalties and interest were waived. Guidance changes, so verify current rules. Our page on Illinois has more on state taxes.

Marketplace facilitators

A marketplace facilitator is a platform that lists and sells products for third-party sellers and processes payment. Most states with a sales tax now require the facilitator to collect and remit tax on those sales. That does not end a seller's duties. Sales through your own website or direct channels are still yours, some states still require sellers to register even if the marketplace collects, and sellers may need to document exempt sales. Keep marketplace sales separate in your records. See our page for ecommerce and online sellers.

Registration steps

1. Map your sales by state. Use the past 12 months and the current year to date: dollars, transactions and any physical presence.
2. Check each state's threshold and measuring period on its revenue department's website.
3. Check taxability of your products or services there, and whether shipping is taxed.
4. Register before you collect. In Illinois, businesses register through MyTax Illinois using Form REG-1, which takes about one to two business days online.
5. Set up rates and sourcing. Many states tax based on the buyer's address. Illinois remote retailers look up local rates by delivery address in MyTax Illinois.
6. Handle exemptions. Collect resale or exemption certificates for tax-free sales, such as Illinois Form CRT-61 for resale.
7. File and pay on schedule. Even a return with no tax due is usually required once you are registered.
8. Monitor quarterly, since new states can cross their thresholds over time.

If you discover you were over a threshold without collecting, ask a professional about voluntary disclosure or amnesty options before contacting the state. Where no return was filed, the time limit for a state to assess tax often does not start running.

Sales tax nexus is not income tax nexus

A state may also tax your income, but that follows different rules, including a federal law that limits income tax on out-of-state sellers of tangible goods whose only activity in the state is soliciting orders. Our multi-state tax services cover that separately.

Common mistakes

• Waiting for a state notice before checking thresholds.
• Assuming the marketplace handles every state and channel.
• Charging tax before registering.

How we can help

We can review your sales by state, identify where you may have nexus, help with registration and filing, and set up your books to track taxable, exempt and marketplace sales. See our sales and use tax and multi-state tax services, or contact us.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.