Multistate sales tax nexus: when you owe tax in states you never set foot in

Before 2018, a state could generally require a seller to collect sales tax only if the seller had a physical presence there — an office, employees, inventory. In South Dakota v. Wayfair, the Supreme Court overruled that rule and upheld South Dakota's law requiring remote sellers to collect when they had more than $100,000 in sales or 200 separate transactions into the state in a year. Nearly every state with a sales tax followed with its own economic nexus threshold. Thresholds and what counts toward them differ by state, so check each state's agency or our state sales tax pages.

When you have nexus but haven't registered, the state can assess the tax you should have collected on every taxable sale into the state since you crossed the threshold — plus interest and penalties. Because the tax wasn't collected from customers, the business pays it out of its own pocket. Exposure usually surfaces through:

• a state questionnaire or letter asking about your sales into the state,
• a marketplace or customer audit that traces purchases back to you,
• due diligence when you sell the business or take on investors.

Physical presence still creates nexus too: remote employees, inventory in a third-party warehouse, and trade-show sales can all count, depending on the state.

If a state hasn't contacted you yet, a voluntary disclosure agreement is usually the safest route. Under the Multistate Tax Commission's Multistate Voluntary Disclosure Program, a business files and pays tax plus interest for a limited lookback period, and participating states waive penalties for that period and tax for earlier periods. States set their own lookback periods, including separate ones for economic-nexus-only sellers. Once a state contacts you, many states no longer allow voluntary disclosure.

Register in each state where you have nexus before your next sale, configure your checkout or invoicing to charge the right tax, and file on the schedule each state assigns. The Streamlined Sales Tax program lets sellers register in all member states through one registration and offers certified service providers that can calculate, file and remit for you. Sales made through a marketplace like Amazon or Etsy are often collected by the marketplace, but your direct website sales usually aren't.

1. Total your sales into each state for the last four years, by year.
2. Compare them with each state's published threshold.
3. Rank states by exposure and decide where to file voluntary disclosures before registering.
4. Run the free business tax relief assessment and select "we owe in multiple states".