Key Takeaways
- Economic nexus means a state can require you to collect and remit sales tax once your sales to customers in that state cross a revenue or transaction threshold, even without a physical presence there.
- Most states set the threshold around $100K in sales or 200 transactions per year. However, thresholds can vary by state.
- The 2018 Wayfair decision made this legal nationwide. If you’re an NYC online business shipping to multiple states, you likely have nexus in several.
- If you’ve already crossed thresholds and haven’t been collecting, voluntary disclosure programs in most states can waive penalties if you come forward before they find you.
What Is Economic Nexus?
Economic nexus is a state’s right to require sales tax collection from out-of-state sellers once their sales into that state cross a threshold. Before 2018, states could only require collection from sellers with a physical presence (office, warehouse, or employees) in the state. The 2018 Wayfair decision changed that.
Now, if you ship enough product or run enough transactions into a state, that state can require you to register, collect sales tax from those customers, and remit it back to the state, even if you’ve never set foot there.
What Triggers Economic Nexus?
Most states use one of two triggers:
- Revenue threshold. Usually, around $100,000 in sales in that state per calendar year.
- Transaction threshold. Usually 200 separate transactions into that state per year.
Post South Dakota vs. Wayfair ruling, states can enforce nexus for sales tax without physical presence. Most states have moved to Revenue-only thresholds (CA, TX, NC are some examples); that is the trend. Some states use revenue OR transaction. A few states use revenue AND transaction. SOURCE
Some states use both (you hit either one to trigger). Some use only one. A few use a higher threshold. The thresholds are state-specific, and they change. If you’re an NYC Shopify seller shipping to 50 states, assume you have nexus somewhere.
How to Check Your Exposure
- Pull your Shopify or Amazon sales report by shipping state for the past 12 months.
- Flag any state where you’re over $100K in sales or 200 transactions.
- Cross-reference against the current threshold for that state. https://www.salestaxinstitute.com/resources/economic-nexus-state-guide
- For flagged states, determine when you crossed. That’s when your obligation started.
What to Do If You’re Past the Threshold
So for whatever reason, you’ve crossed the threshold in a state and you haven’t been collecting. What do you do?
Most states have voluntary disclosure programs. If you come to them before they come to you, the chances of getting penalties waived are much, much, much greater. If you already received a bill or a notice, it’s much harder to get penalties abated because in the government’s mind, they’ve already given you enough time.
All you can do for right now is track whatever you can going forward. Start collecting and remitting going forward, and then be prepared in case you get a letter from a state about previous taxes. 212 Tax offers consultations on voluntary disclosure programs and look-back periods across several states.
Marketplace Facilitators (Amazon, eBay, Etsy)
If you sell on Amazon, eBay, or Etsy, the platform is usually the “marketplace facilitator,” and they collect and remit sales tax on your behalf in most states. That doesn’t eliminate your obligation entirely (some states still require you to register), but it shifts the collection burden.
Shopify is different. Shopify is a tool, not a marketplace. You’re responsible for collecting and remitting. If you sell directly on Shopify, the nexus obligation lives with you.
Frequently Asked Questions
What is economic nexus?
A state’s legal authority to require sales tax collection from out-of-state sellers once their sales into that state cross a threshold, usually around $100K or 200 transactions per year. Established by the 2018 Wayfair Supreme Court decision.
What triggers nexus in NY?
Both sales of $500,000 AND 100 transactions in the state. Marketplace sales are included, and the measurement period is the previous 4 sales tax quarters
Do I have to file in every state I sell to?
No. You only have to register and collect in states where you cross the economic nexus threshold, plus any state where you have physical presence (office, warehouse, employees, inventory). Most NYC online sellers have nexus in 5 to 15 states, not 50.
Case Story: Multi-State Music Business
“If you’re a self-employed or business owner with a multi-state business, you want to go with someone who knows. Not all accountants know it.” (Anil Melwani, Taxless Show)
The situation: Two partners headquartered in NYC and California, booking talent across the US, Canada, and Mexico. Previous accountant couldn’t even figure out their filing deadline.
What Anil did: Allocated their income across the multiple states where they actually did business. Set them up with a defined benefit pension plan.
Outcome: 5 to 7 percent tax savings on total income from multi-state allocation alone, every year. Defined benefit plan saved ~$200,000 in one year on a $500K contribution.
→ Watch the full story on the Taxless Show
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