When growth quietly creates a sales tax problem

The most expensive tax problems are the ones that accumulate silently. Economic nexus is the clearest example: an obligation created by revenue alone, in states you have never visited, with no notification and a statute of limitations that may never start running.

What changed in 2018

Before South Dakota v. Wayfair, a state could only require you to collect sales tax if you had physical presence there: an office, employees, inventory. Mail-order and online sellers could ship nationwide and collect nothing.

The Supreme Court removed the physical presence requirement. Within about two years, effectively every state with a sales tax had enacted an economic nexus standard: cross a revenue or transaction threshold and you must register, collect and remit, regardless of presence.

The common threshold is $100,000 in sales into the state, or 200 separate transactions, measured over the current or preceding calendar year. But the details vary considerably: some states use $500,000, several have dropped the transaction count entirely, and states differ on whether the measure is gross sales, retail sales or taxable sales only. Those distinctions matter enormously to a business with high volumes of exempt wholesale sales.

Marketplace facilitator rules

Every state with economic nexus also has marketplace facilitator legislation, which shifts collection responsibility to platforms like Amazon, Etsy and eBay for sales made through them.

This is genuine relief, and it means many sellers have a far smaller problem than they fear. But two traps persist. First, marketplace sales may still count toward your threshold in some states even though the platform collects, so they can push your direct sales into an obligation. Second, and more commonly missed: any sales through your own website are entirely your responsibility. A business selling 80% through Amazon and 20% direct has a real obligation on that 20%, and mixed-channel sellers are where we see this go wrong most often.

Physical presence still applies

Economic nexus was added to the physical presence test, not substituted for it. Physical presence still creates nexus immediately, with no threshold at all. That includes:

• An employee working remotely from that state, including someone who moved without telling anyone
• Inventory held in a third-party warehouse, which is how many fulfillment programs create nexus in a dozen states at once
• Contractors performing services on your behalf
• Equipment, trade show attendance, or crews performing installation work

Businesses that went remote after 2020 are the group most likely to have unrecognized obligations, and the exposure is rarely limited to sales tax: it usually brings payroll withholding, unemployment insurance registration and income tax nexus with it.

Why exposure compounds

Here is the part that turns an oversight into a serious number. In most states, the statute of limitations on an assessment only begins to run when a return is filed. If you never registered and never filed, there is no return, and the assessment period stays open indefinitely.

An obligation that began in 2021 is therefore still fully exposed, with penalties and interest accrued on every period since. And because sales tax is money collected on the state's behalf, or money that should have been collected, it is treated as a trust fund. States can and do assess responsible persons personally, and that liability generally survives both dissolution of the company and personal bankruptcy.

What to do if you are already past it

The sequence matters more than the speed.

1. Quantify before you act. Pull sales by state by year and test each against that state's threshold and its measurement basis. Separate marketplace from direct sales. The number is frequently smaller than feared once marketplace volume is stripped out.
2. Check taxability, not just nexus. Having nexus is not the same as owing tax. If your product is exempt in a state, as many services and some SaaS are, the exposure may be a registration and filing obligation with little or no tax attached.
3. Choose the route deliberately. Where exposure is material, a voluntary disclosure agreement typically caps the look-back at three or four years and abates penalties. Where it is small, prospective registration may be sensible. Where you have a genuine argument against nexus, document it.
4. Do not simply register and start filing. Registering without addressing prior periods can prompt a state to ask what you were doing before, and you will have just told them exactly where to look.

The last point is the one businesses get wrong most often. Registration feels like the responsible thing to do, and in isolation it is. But a voluntary disclosure is only available before the state contacts you, and registration can be the thing that starts that conversation. Get the sequencing right and a frightening number usually becomes a manageable one.