What is Economic nexus?

Before 2018, a US state could generally require a business to collect its sales tax only if the business had a physical presence there, such as a store, warehouse or employees. The Supreme Court’s South Dakota v. Wayfair decision changed that, allowing states to impose collection duties based on sales volume alone. That standard is called economic nexus, and every state with a statewide sales tax now has one.

Thresholds vary by state. A common test is $100,000 of sales into the state in the current or previous calendar year, though some states use higher dollar amounts, some count only taxable sales, and several have dropped the older 200-transaction test. Once a seller crosses the line, it must register with that state, collect tax on taxable sales, and file returns on the state’s schedule. Marketplace facilitator laws mean platforms like Amazon usually collect on sales made through them, but those sales may still count toward your threshold.

Canadian businesses selling into the US are subject to these rules the same way US sellers are. Tracking sales by destination state, month by month, is the only reliable way to know when you are approaching a threshold. Separately, physical nexus can still arise from inventory stored in a state, including stock held in a fulfilment centre. Amazon FBA sellers in particular should know which states hold their inventory, because a single pallet in a warehouse can create a registration duty.