E-commerce tax debt: multistate nexus, marketplaces and 1099-K

Since South Dakota v. Wayfair, states can require remote sellers to collect sales tax once sales into the state pass a threshold. Thresholds vary by state. A store that grows fast can cross several in one year without noticing. Use the multistate nexus checker and read the nexus guide.

Most states with a sales tax now require marketplace facilitators — large platforms that process sales for third-party sellers — to collect tax on sales made through them. That doesn't cover sales on your own website or wholesale orders. Some states also count marketplace sales toward your own threshold. See the marketplace facilitator guide.

Payment processors and marketplaces report payments to sellers on Form 1099-K. The amount is gross — before refunds, fees and shipping — so your return should reconcile it with your actual income. A big unexplained gap is a common reason for IRS letters to online sellers.

• Never registered in states where nexus was reached.
• Inventory stored in third-party warehouses creating physical nexus.
• Income under-reported because 1099-K totals weren't reconciled.
• Estimated tax payments skipped as profits grew, leaving a large IRS balance.

Rank states by sales, then consider voluntary disclosure for the largest exposures before registering — many states limit lookback and waive penalties for sellers who come forward first. For federal balances, compare the business payment plan. The free business tax relief assessment has a "we owe in multiple states" option.