Sales Tax: Registration, Collection, and Nexus

intermediate7 min read · updated 2026-06-20

Sales Tax: Registration, Collection, and Nexus

Sales tax is the single most misunderstood compliance obligation for small businesses, because it is not one tax. It is a patchwork of state and local taxes administered separately, with over 12,000 distinct taxing jurisdictions across the United States. The job has three parts: figure out where you owe (nexus), register there, then collect and remit on schedule. Get any one wrong and the unpaid tax usually comes out of your margin, not the customer's wallet.

The one concept that changed everything: economic nexus

"Nexus" is the legal connection that obligates you to collect a state's sales tax. For decades you only had nexus where you had a physical presence — an office, a warehouse, employees, or inventory. That changed in 2018.

In South Dakota v. Wayfair, Inc., the U.S. Supreme Court ruled that a physical presence is no longer required. A state can require an out-of-state seller to collect sales tax based purely on economic activity in the state. South Dakota's upheld thresholds were gross revenue exceeding $100,000 or 200 or more separate transactions delivered into the state. Nearly every state with a sales tax adopted a version of these thresholds. Note the "or" — in many states a high volume of low-dollar orders trips nexus even if total revenue is modest.

Two kinds of nexus to track:

• Physical nexus — an office, employees, contractors, inventory (including goods stored in a fulfillment warehouse like Amazon FBA), or even attending trade shows in some states.
• Economic nexus — crossing a state's dollar or transaction threshold. Thresholds vary; many use $100,000, some use $500,000, and several have dropped the transaction count entirely.

Marketplaces collect for you, but you are not off the hook

If you sell through Amazon, Etsy, Walmart, or similar platforms, marketplace facilitator laws require the platform to collect and remit sales tax on those marketplace sales on your behalf. These laws exist in every state that has a sales tax. That is a real relief — but two traps remain:

• Direct sales still count. Sales through your own Shopify store, your website, a trade show, or a physical location are your responsibility to collect on.
• You may still have to register and file zero-dollar returns. In many states, once you have nexus you must register and file periodic returns even when the marketplace already remitted the tax. A missed "$0 due" return can still trigger penalties.

Five states have no statewide sales tax

There are 5 states with no statewide sales tax — the "NOMAD" states: New Hampshire, Oregon, Montana, Alaska, and Delaware. Caveat: Alaska has no state tax but lets local municipalities impose their own, so "no sales tax" is not the same as "no filing obligation" there.

How to get compliant: a step-by-step guide

• Inventory where you have physical nexus. List every state with your employees, contractors, offices, and inventory (including third-party fulfillment warehouses). Physical presence creates nexus immediately — there is no threshold to cross.
• Run an economic nexus study. Pull your sales by ship-to state for the trailing 12 months. Compare each state's revenue and transaction counts against that state's current thresholds (most are at the $100,000 / 200-transaction level, but confirm each one — they differ and change).
• Separate marketplace sales from direct sales. Marketplace-facilitated sales are generally collected by the platform. Your registration and collection duty is driven mainly by your direct channels, but check each state's rules on whether marketplace sales still count toward your threshold.
• Register before you collect — never the reverse. Collecting sales tax without a valid permit is illegal in most states. Register through each state's Department of Revenue, or use the free Streamlined Sales Tax Registration System to register in many member states with a single application at $0 registration fee. (Big markets like California, Texas, Florida, and New York are not SST members — register with them directly.)
• Configure correct rates and product taxability. Rates combine state, county, city, and special-district levels and are address-specific. Whether an item is taxable (e.g., clothing, groceries, SaaS, digital goods) varies by state. Use tax-calculation software wired to your cart rather than hand-keying rates.
• Collect tax as a separate line item. Tax you collect is held in trust for the state — it is not revenue. Keep it segregated mentally and in your books so you are not spending money you owe.
• File and remit on each state's schedule. States assign a filing frequency (monthly, quarterly, or annually) based on your volume. File every assigned period, including zero-due returns, and remit on time to avoid penalties and interest.
• Re-run the nexus study quarterly. Growth, a new warehouse, a new hire in another state, or a state law change can create new obligations. Compliance is a recurring process, not a one-time setup.

Common mistakes that cost real money

• Treating marketplace collection as full coverage and ignoring direct-channel and registration/filing duties.
• Collecting before registering, which is itself a violation in many states.
• Spending collected tax because it landed in the operating account and looked like income.
• Skipping zero-dollar returns, which still draw penalties.
• Setting one flat rate instead of address-level rates across state, county, city, and district.

The takeaway

Map your nexus first, register before you collect, automate rate calculation, and file on schedule — including the zero returns. The mechanics are tedious but knowable. The expensive part is discovering, during an audit, that you owed tax in a state you never registered in, because by then it comes out of your pocket plus penalties and interest.

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Sources: Sales Tax Institute — Wayfair FAQ, Avalara — U.S. sales tax jurisdictions, Streamlined Sales Tax Registration (SSTRS), Avalara — Marketplace facilitator laws, Kiplinger — Five states with no sales tax in 2026.