What Is Sales Tax Nexus?
The Basics
Sales tax nexus is the connection between your business and a state that creates a tax collection obligation. Once that connection exists, you're required to collect sales tax from buyers in that state and remit it to the state government.
There are two main types:
Physical Nexus arises from having something tangible in a state — a store, warehouse, office, or employees. For Amazon FBA sellers, this is particularly relevant: when Amazon stores your products in their fulfillment centers, you have physical nexus in those states regardless of where your business is located.
Economic Nexus arises from sales volume alone — no physical presence required. This is what tends to surprise sellers after a strong Q4, because it can appear quickly once you cross a state's threshold.
The Case That Changed the Rules
On June 21, 2018, the Supreme Court ruled in South Dakota v. Wayfair — a decision that fundamentally changed how states can tax online sellers.
Before that ruling, states could only require tax collection from businesses with a physical presence. The Court found this standard no longer reflected the reality of eCommerce. By 2017, online sales had reached $453.5 billion — a market far beyond what the old rules were designed to address.
The Court upheld South Dakota's law, which established economic nexus at $100,000 in sales or 200 transactions. Within months, all 45 states with a sales tax adopted similar laws.
2025 Sales Tax Thresholds by State
Each state sets its own rules. Most use $100,000 in annual sales as the threshold, but some differ significantly.
Note: These thresholds reflect state rules as of tax year 2025. Economic nexus laws are updated regularly — if you're reading this in a later year, confirm current thresholds with your tax advisor.
State | Sales Threshold | Transaction Threshold | Period |
|---|---|---|---|
California | $500,000 | None | Current or prior year |
New York | $500,000 | 100 orders | Last 4 quarters |
Texas | $500,000 | None | Last 12 months |
Alabama | $250,000 | None | Prior year |
Most Other States | $100,000 | Varies or none | Varies |
As of 2026, over a dozen states have eliminated the 200-transaction threshold for economic nexus entirely, relying solely on gross sales revenue to determine tax obligations. States that made this change include Alaska and Utah, among others. For sellers in those states, only the dollar threshold now applies — which simplifies tracking but also means nexus can be triggered based on sales volume alone, without needing to count individual transactions. Because this list continues to grow, it's worth confirming current requirements in each state where you sell, or working with a tax professional who monitors these changes.
How Q4 Sales Can Create New Obligations
How Fast Things Can Change
Here's a realistic look at how nexus can shift during the holiday season.
Morgan sells home goods through Amazon FBA and her own Shopify store. Through September, she has tax obligations in three states: her home state, California, and Texas — both of which have Amazon fulfillment centers holding her inventory.
Her year-to-date sales by state as of September 30, 2025:
Florida: $65,000
New York: $45,000
Pennsylvania: $38,000
Illinois: $32,000
Georgia: $28,000
None of these have crossed the $100,000 threshold yet.
Then Q4 arrives. A Black Friday promotion drives 400% of her normal sales volume. Cyber Monday adds more. By December 31, her totals look like this:
Florida: $142,000 ✓ Threshold crossed
New York: $118,000 ✓ Threshold crossed
Pennsylvania: $106,000 ✓ Threshold crossed
Illinois: $89,000 — approaching threshold
Georgia: $78,000 — approaching threshold
Morgan went from obligations in three states to six in a single quarter — and Illinois and Georgia are likely to follow in early Q1.
What About Amazon Collecting Tax?
This is where many sellers get confused. Amazon does collect and remit sales tax on marketplace sales — so why does this matter?
Two reasons:
1. Sales outside of Amazon. If Morgan also sells through Shopify, wholesale, or direct channels, she's responsible for collecting tax on those sales herself. Amazon's marketplace facilitator role only covers transactions made through Amazon.
2. Registration requirements still apply. Many states require sellers to register even when Amazon is collecting on their behalf. Some also require periodic filings — including zero-dollar returns — to stay in good standing.
California, in particular, is proactive about enforcement. They obtain seller data directly from Amazon. Sellers who began selling into California in 2025 can expect outreach starting around 2029 if they haven't registered.
What Non-Compliance Actually Costs
States treat sales tax seriously — it's a primary revenue source, and the penalty structure reflects that.
The Types of Penalties
Failure to File: Typically 5–25% of tax owed per period, capped at 25% in most states. Some states charge a flat fee per missing return.
Failure to Pay: Typically 10–25% of unpaid tax, added on top of filing penalties.
Interest: Charged from the original due date, usually at 5–12% per year, compounding on the unpaid balance, penalties included.
Fraud Penalties: If a state determines sales were intentionally concealed, penalties can reach 75–100% of tax owed, with potential for criminal charges.
A simple example of how this compounds:
You should have collected tax on $12,000 in sales. At an 8% rate, that's $960 owed.
Year | Balance |
|---|---|
Year 1 | $960 + 25% filing penalty ($240) + 25% payment penalty ($240) + 8% interest = ~$1,555 |
Year 2 | $1,555 + 8% compounding interest = ~$1,679 |
Year 3 | ~$1,814 |
Year 5 | ~$2,116 |
That's a single state. Across four or five states, a $5,000 tax obligation can become $25,000 or more.
Why Acting Early Matters
For sellers who never registered, many states have no statute of limitations. They can go back to the very first sale that created nexus — potentially seven, eight, or ten years. With compounding interest and penalties across multiple states, the total exposure grows significantly the longer it goes unaddressed.
Voluntary disclosure programs exist precisely for this situation. Coming forward now costs a fraction of what a state-initiated audit would. Once a state contacts you, those programs are no longer available.
Your Step-by-Step Plan
Step 1: Identify Where You Have Obligations
Start by gathering your sales data across every channel.
Pull sales reports from Amazon, Shopify, eBay, Etsy, and any other platform — broken down by state
For Amazon FBA, download the Inventory Event Detail report in Seller Central to see which states hold your products
Compare your state totals to each state's current threshold
Note each state, its threshold, your sales amount, and whether you've crossed the line
If your sales data is already flowing into QuickBooks through Link My Books, this step becomes much faster — your state-level sales are already organized and ready to review rather than needing to be manually compiled from multiple exports.
Step 2: Choose Your Path Forward
Once you know where obligations exist, you have two main options:
Option A — Register Directly: Apply for a sales tax permit with the state. This works well when you crossed the threshold recently (within the past few months) and your potential back obligation is minimal. Most states have online registration, with processing taking 2–4 weeks.
Option B — Voluntary Disclosure Agreement (VDA): A VDA is a formal agreement with the state where you come forward proactively. In exchange, states typically limit the look-back period to 3–4 years and waive most or all penalties.
A VDA is generally the better path when you've had nexus for more than a year, when potential back obligations exceed $5,000, or when you have exposure across multiple states.
Step 3: How VDAs Work
VDAs offer several meaningful benefits:
Shorter look-back period: Most states limit review to the last 3–4 years, regardless of when nexus actually began
Penalty waiver: Most states waive penalties entirely for sellers who come forward — a savings of 25–50% on the total balance
Anonymous negotiation: Many states allow you to negotiate terms through a representative before disclosing your identity
Clean resolution: Once complete, the disclosed years are settled with no ongoing audit risk
One critical note: VDAs are only available before a state makes contact. Once you receive an audit letter or state inquiry, this option is no longer on the table. Timing matters.
Step 4: Register and Begin Collecting
After resolving any past obligations, set up compliant collection going forward:
Register for a sales tax permit in each state where you have nexus
Update your tax settings in Amazon Seller Central, Shopify, and any other platforms
Review product-specific tax rules — some categories (clothing, groceries, supplements) are taxed differently by state
Keep copies of all registrations, filing schedules, and collected tax records
QuickBooks makes this ongoing tracking straightforward — each state's collected tax is categorized separately, so your records are always audit-ready.
Step 5: File Returns and Stay Current
Registration is only the first step. Returns must be filed on every state's schedule — even if Amazon collected everything on your behalf.
Build a filing calendar with every state's due date
File zero-dollar returns where required (missing these can still generate penalties)
Reconcile Amazon's tax reports in Seller Central against your own records each period
Tools and Professional Support
Sales Tax Automation
For sellers with nexus in multiple states, sales tax software can handle rate calculation, threshold monitoring, and return filing across all 13,000+ U.S. tax jurisdictions. Well-known tools in this space include TaxJar, Avalara, TaxCloud, and Vertex, with pricing typically ranging from $100 to $500+ per month depending on sales volume.
When to Work with a Professional
Professional guidance is worth considering when:
You have nexus in more than five states
Potential back obligations exceed $10,000
You sell across multiple channels beyond Amazon
Your products have complex tax classifications
You've already received a state inquiry or audit letter
VDA work typically costs $3,000–$7,000 in professional fees — but the savings in waived penalties and reduced look-back period frequently exceed that many times over.
At Tall Oak Advisors, we work exclusively with eCommerce sellers navigating exactly these situations. We can assess where you have nexus, guide you through the VDA process, and help you set up systems that keep you compliant as your business grows.
Take Action Before the Window Closes
A strong Q4 is worth celebrating. It's also worth reviewing carefully — because the same sales volume that marks your best quarter can create new obligations that are easiest to address now, while the most options are still available.
The core takeaways: sales alone can trigger nexus; most states use $100,000 as the threshold; voluntary disclosure programs offer significant savings compared to audit resolution; and once a state initiates contact, those programs close.
Acting now — even just completing a nexus review — keeps you in the best possible position.
Ready to understand your Q4 exposure? Schedule a free consultation with Tall Oak Advisors and we'll walk through your state-by-state picture together:
This article is for educational purposes only and does not constitute tax, legal, or financial advice. Tax laws and state thresholds change frequently. Always consult a qualified tax professional before making compliance decisions for your specific situation.
