Economic nexus thresholds for DTC sellers, by state

Before 2018 a state generally could not require an out-of-state seller to collect its sales tax without physical presence. South Dakota v. Wayfair removed that limit, and every state with a sales tax now has some form of economic nexus rule.

What the thresholds look like

The most common shape is $100,000 of sales into the state in the current or previous calendar year. Beyond that, states vary in ways that matter:

• Some set a higher figure, and a small number set it considerably higher.
• Some add a transaction count — a number of separate sales, regardless of value. A shrinking group still do; several have repealed it because it caught tiny sellers.
• Whether it is gross sales, retail sales or taxable sales differs, which changes the arithmetic if you sell exempt items.
• The measurement period differs — current year, previous year, or a rolling twelve months.
• When collection must start after crossing differs too: immediately, from the next transaction, or from the next month or quarter.

The review that takes twenty minutes

1. 1Pull sales by state for the trailing twelve months, and separately for the current calendar year.
2. 2Include every channel, flagged by whether a marketplace collected.
3. 3Compare each state against its own threshold, not against a single remembered number.
4. 4Register where you have crossed, and note where you are within about 20% so you are not surprised next quarter.
5. 5Do this every quarter. It is the entire control.

Automation software will calculate rates and can flag approaching thresholds, which is worth the subscription once you are in several states. It does not register you, and it does not decide whether your particular product is taxable in a particular state — those are determinations, not calculations.

What happens if you were late

Uncollected tax becomes a liability of the business with interest and penalties, and it does not expire while you remain unregistered. Most states operate voluntary disclosure programmes that limit the look-back period and often waive penalties for sellers who come forward before being contacted. That option disappears once the state contacts you first, which is the practical argument for dealing with it early.

It is also the first thing an acquirer's accountant looks for. A brand with three years of unregistered nexus in eight states is not a business people want to buy at full price.