Last reviewed October 7, 2026 · By the NYBACS advisory team
Short answer
Economic nexus is the rule that lets a US state require an out-of-state seller to collect its sales tax once the seller's sales into that state exceed a set threshold, even with no office, staff or inventory there. It was made possible by the Supreme Court's 2018 South Dakota v. Wayfair decision. Most states use $100,000 of annual sales, some use $500,000, and a shrinking number also count transactions.
Key takeaways
- South Dakota v. Wayfair (June 2018) overturned the rule that a state could only tax sellers with a physical presence.
- Every state with a statewide sales tax now has an economic nexus threshold for remote sellers.
- California and Texas use $500,000 of sales; New York uses more than $500,000 and more than 100 sales in the preceding four sales tax quarters.
- Illinois dropped its 200-transaction test from January 1, 2026, joining a growing list of states that rely on a dollar threshold alone.
- Thresholds are measured over different periods and on different sales bases, so the same seller can cross one state's line and not another's.
What Wayfair changed for remote sellers
Before 2018, the Supreme Court's Quill rule meant a state could require a seller to collect its sales tax only if the seller had a physical presence there. Online sellers without warehouses or staff in a state could sell into it tax-free from the seller's side.
In South Dakota v. Wayfair, decided on June 21, 2018, the Court upheld South Dakota's law requiring remote sellers with more than $100,000 of sales or 200 transactions in the state to collect tax. Within a few years every sales tax state adopted its own version. For a non-US company selling into the US online, that means sales tax exposure now follows customers, not just offices.
Thresholds in practice: a few representative states
Thresholds look similar but differ in the details that decide whether you have crossed them.
| State | Threshold | Measured over |
|---|---|---|
| South Dakota | $100,000 of sales (transaction count removed in 2023) | Current or previous calendar year |
| Illinois | $100,000 of gross receipts (200-transaction test removed from January 1, 2026) | 12-month lookback period |
| California | $500,000 of sales, including sales by related entities | Current or preceding calendar year |
| Texas | $500,000 of Texas revenue | Preceding 12 calendar months |
| New York | More than $500,000 and more than 100 sales | Immediately preceding four sales tax quarters |
Two lessons follow. First, some tests are "or" (either measure triggers) and some are "and" (both must be met). Second, a rolling 12-month test can be crossed in any month, while a calendar-year test is usually checked once the year's totals are known.
Which sales count toward the threshold
States do not all measure the same thing. Before deciding you are under a threshold, check:
- Gross, retail or taxable sales. Some states count all sales into the state, including exempt and wholesale sales; others count only retail or taxable sales.
- Marketplace sales. Several states include sales made through Amazon or other marketplace facilitators in your total even though the marketplace collects the tax; others exclude them.
- Related entities. California aggregates sales by the retailer and related persons, so splitting sales across group companies does not avoid its threshold.
- Services and digital goods. If the state taxes SaaS or digital products, those sales usually count.
A seller who counts only taxable website sales can easily understate its position in a state that measures gross sales.
What to do when you cross a threshold
Crossing a threshold starts a clock, and the length of that clock varies. Texas, for instance, expects a remote seller to obtain a permit and start collecting by the first day of the fourth month after the month the threshold is exceeded. Other states expect collection from the next transaction or the start of the next month or year.
A workable routine for a growing ecommerce or SaaS business:
- Export sales by ship-to state every month, split by direct and marketplace channels.
- Compare running totals against each state's threshold on that state's measurement basis.
- Flag states at roughly 75% of the threshold so registration can be prepared in advance.
- Register, configure tax collection in your checkout, and set the filing calendar before the deadline.
- Revisit taxability of your products when you enter a new state.
Economic nexus beyond sales tax
Some states apply similar thinking to income and franchise taxes, using sales, property or payroll thresholds to decide whether an out-of-state company must file. The federal law known as Public Law 86-272 protects sellers of tangible goods whose only in-state activity is soliciting orders, but it does not cover services, SaaS or digital products. A remote seller that crosses a sales tax threshold should therefore also ask whether the same state expects an income or franchise tax return.
Common mistakes to avoid
- Counting only taxable sales when the state measures gross sales into the state.
- Excluding Amazon or Etsy sales from the total in a state that counts marketplace sales toward the threshold.
- Checking thresholds once a year in a state that uses a rolling 12-month period.
- Relying on an old list that still shows a 200-transaction test the state has since repealed.
- Assuming economic nexus applies only to physical products and ignoring taxable SaaS revenue.
NYBACS 360° support
How NYBACS helps
- Builds a monthly report of sales by state and channel, measured the way each state counts its threshold.
- Flags states approaching their thresholds so registration is ready before the deadline.
- Reconciles marketplace and website sales to bank deposits so threshold calculations are reliable.
- Coordinates with sales tax specialists on product taxability and any voluntary disclosure for past periods.
- Highlights where crossing a sales threshold may also raise state income or franchise tax questions.
Frequently Asked Questions
If I am below every threshold, do I have no sales tax obligations at all?
Not necessarily. Economic nexus is only one route. Inventory in a warehouse, an employee or an office in a state creates physical nexus regardless of how little you sell there.
Do I owe tax on the sales that took me over the threshold?
Generally no; collection usually starts after the threshold is crossed, on the timeline the state sets. Some states expect collection from the next transaction, so read the specific state's rule.
Can I deregister if my sales drop below the threshold?
Many states allow it after a full measurement period below the threshold, but you must formally close the account. Until you do, returns remain due.
Does economic nexus apply to sales from outside the US?
Yes. A company based in India, the UK or the UAE that sells to US customers is a remote seller in the same way as a company in another US state, and the same thresholds apply.
Do local taxes have their own thresholds?
Usually the state threshold governs, and once you are registered you collect state and local tax together. A few home-rule jurisdictions, notably in Colorado, Louisiana and Alaska, have additional local administration to consider.
