Key Takeaways
- South Dakota v. Wayfair (2018) was the Supreme Court decision that let states require sales tax collection from out-of-state sellers based on economic nexus, not just physical presence.
- Every state followed. If you’re an NYC online seller shipping nationwide, you likely have sales tax obligations in multiple states right now.
- If you’ve been selling since 2018 and haven’t been collecting, most states have voluntary disclosure programs that waive penalties if you come forward first.
- Marketplace facilitators (Amazon, eBay, Etsy) handle collection for you in most states. Shopify does not.
What Wayfair Changed
Before 2018, the rule was simple: states could only require sales tax collection from sellers with a physical presence (office, warehouse, employees) in that state. This came from a 1992 Supreme Court case, Quill v. North Dakota.
In 2018, the Supreme Court reversed Quill with South Dakota v. Wayfair. The Court said states could require collection from sellers with enough economic activity in the state (economic nexus), even with no physical presence.
Within two years, every state with a sales tax had adopted economic nexus rules. Most set the threshold around $100,000 in sales or 200 transactions per year into that state.
Why NYC Online Sellers Got Hit Hardest
NYC has a high concentration of online sellers selling nationwide. Shopify brands, DTC e-commerce, agency owners with physical product lines, SaaS founders, creators with merch. All of them shipping to customers in every state.
Pre-2018, you collected sales tax in New York (where you lived) and maybe a few other states where you had inventory. Post-2018, you probably have nexus in 10+ states.
What You Must Do Now
Step 1: Run a nexus study
Pull your sales by shipping state for the past three years. Identify every state where you’ve crossed the economic nexus threshold, and when you crossed it.
Step 2: Register where you have nexus
For each state where you’ve crossed, register for a sales tax permit. Most states let you register online in under 30 minutes.
Step 3: Start collecting going forward
Configure your billing system (Shopify, Stripe, your own checkout) to collect sales tax in every registered state. Most platforms integrate with Avalara, TaxJar, or Stripe Tax.
Step 4: Deal with the past
This is where most owners get stuck. If you crossed the threshold in a state in 2020 and haven’t been collecting since, you technically owe back sales tax (plus penalties and interest) for every year since.
So for whatever reason, you have back taxes to a state and you don’t apply for the Voluntary Disclosure Program, and then eventually you get a notice, then it’s going to be very hard, almost impossible, to get the penalties waived.
Because again, if you haven’t been approached yet, if you haven’t received a letter or visit, then you have that golden opportunity to apply. Be proactive and get those penalties abated. But if you wait too long and they come to you first, it’s going to be very tough and probably cost you a lot more money than it would have.
212 Tax offers consultations on voluntary disclosure programs across several states.
Marketplace Facilitators Do Most of the Work
If you sell on Amazon, eBay, Etsy, or Walmart Marketplace, the platform collects and remits sales tax on your behalf in most states. You still may need to register, but you don’t have to run the collection yourself.
Shopify is different. Shopify is a tool, not a marketplace. If you sell direct on Shopify, the full collection obligation is yours.
Frequently Asked Questions
What is the Wayfair decision?
South Dakota v. Wayfair (2018) is the U.S. Supreme Court decision that overturned the physical-presence requirement for sales tax collection. After Wayfair, states can require out-of-state sellers to collect and remit sales tax based on economic activity alone.
Do I have to collect sales tax in every state?
No, only in states where you have nexus: physical presence (office, warehouse, employees) or economic nexus (sales over the state’s threshold, typically $100K or 200 transactions). Most NYC online sellers have nexus in 5 to 15 states.
What happens if I ignore Wayfair?
Eventually, a state finds you. Shopify and payment processor data is increasingly shared with state revenue departments. Once a state sends you a notice or bill, voluntary disclosure is no longer available, and you owe back tax, penalties plus interest. Come to them before they come to you.
▶ Watch: Do E-commerce Businesses Have to File Back Sales Taxes in NYC?
Watch: Do E-commerce Businesses Have to File Back Sales Taxes in NYC?
Watch Anil explain what to do if you’re behind on sales tax in multiple states
Voluntary disclosure programs, look-back periods, and state-by-state cleanup.
Case Story: Multi-State Music Business
The situation: Two partners in NYC and California, booking talent across multiple states. Previous accountant couldn’t even figure out their filing deadline.
What Anil did: Multi-state income allocation + defined benefit pension plan.
Outcome: 5-7% tax savings on total income annually, plus ~$200K saved in one year via the DB plan.
→ Watch the full Taxless Show episode
See How 212 Tax Handles Business Taxes Differently
How 212 Tax Handles Business Taxes Differently Than Your Normal CPA
Learn how 212 Tax handles business taxes differently than your normal CPA to make sure you pay not only the least amount of taxes but also increase your wealth.
→ Subscribe on 212 Tax YouTube
See If the 212 Tax Business Blueprint Is Right for You
We’re not just tax preparers. We’re tax, business, and finance strategists who help our clients not only save on taxes but also grow their wealth.
The 212 Tax Business Blueprint includes: Accountant Quality Control Review, Tax Gap Compliance Review, Entity Structure Review, Quarterly Cash Flow Strategy, Multi-State Profit Protection Analysis, Family Wealth Transfer Strategy, and Year-End Tax Reduction Playbook.
Call 646-933-9534 or fill out the form to see if the 212 Tax Business Blueprint is right for you.