# Sales tax nexus: physical presence, Wayfair and economic thresholds

> Physical presence, economic nexus after South Dakota v. Wayfair, and why the threshold that matters is each state's current one, worked on a year of Northwind's online orders.

Source: https://lopifi.com/learn/sales-tax-nexus-after-wayfair
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**When does a startup have to collect sales tax in another state?** Physical presence, economic nexus after South Dakota v. Wayfair, and why the threshold that matters is each state's current one, worked on a year of Northwind's online orders.

A seller has to collect a state's sales tax when it has [nexus](https://lopifi.com/md/glossary/sales-tax-nexus) there. The oldest kind is [physical presence](https://lopifi.com/md/glossary/physical-presence-nexus): a shop, a warehouse, staff. Northwind has that in its home state, which is why the walk-in sale on September 8 (JE-5) charged 8% on top of the price. Until 2018 physical presence was the only kind a state could rely on. Then the Supreme Court decided *South Dakota v. Wayfair*.

*[Journal entries: JE-5]*

## What Wayfair decided

South Dakota passed a law requiring sellers with no presence in the state to collect its sales tax once they delivered enough into it, and sued to test it. The Court upheld the law and overruled the cases that had required physical presence. States with a sales tax followed with [economic nexus](https://lopifi.com/md/glossary/economic-nexus) laws of their own: a threshold of sales into the state, sometimes with a count of transactions, past which a remote seller must register and collect.

> “Because the physical presence rule of Quill is unsound and incorrect, Quill Corp. v. North Dakota, 504 U. S. 298, and National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U. S. 753, are overruled.”

— [South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018), syllabus](https://www.supremecourt.gov/opinions/17pdf/585us1r58_pok0.pdf) (PDF), The Supreme Court ends the physical presence rule for sales tax collection (decided June 21, 2018)

> “The Act applies only to sellers that, on an annual basis, deliver more than $100,000 of goods or services into the State or engage in 200 or more separate transactions for the delivery of goods or services into the State.”

— [South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018), Part I](https://www.supremecourt.gov/opinions/17pdf/585us1r58_pok0.pdf) (PDF), The South Dakota law the Court upheld — S. B. 106 (2016)

*[Figure: economic nexus]*

A year of Northwind's online orders into South Dakota, against the law the Court upheld: more than $100,000, or 200 or more transactions.

**Northwind — Crossed by orders, then not.** Northwind's plan has $84,000 of small online orders shipped to South Dakota in a year, 212 of them. Under the 2016 law that was upheld, the sales test is not crossed but the transaction test is crossed, so Northwind would have had nexus. South Dakota removed the transaction test in 2023, and its threshold today is $100,000 in gross revenue. On that test alone the same year does not create nexus. The rule that matters is the state's current one.

| State | Economic nexus | Sales tax |
| --- | --- | --- |
| California | $500,000 in sales | 7.25% + district taxes |
| New York | Over $500,000 and over 100 sales | 4% state; 8⅞% in NYC |
| Texas | $500,000 in Texas revenue | 6.25% + up to 2% local |
| Washington | $100,000 in gross receipts | 6.5% + local |
| Florida | $100,000 in taxable remote sales | 6% + county surtax |
| Massachusetts | $100,000 in sales | 6.25% |
| Delaware | None (no sales tax) | None (gross receipts tax on sellers) |
| South Dakota | $100,000 in gross revenue | 4.2% + municipal (4.5% from Jul 2027) |

Economic nexus thresholds in eight states, from the state guides (last verified 2026-10-13). Delaware has no sales tax.

> **What counts toward the threshold varies.** States differ on whether the threshold counts gross sales, taxable sales or retail sales only, whether exempt and resale sales count, whether sales made through a marketplace count, and over which period it's measured. They differ again on how soon after crossing you must register, the [grace period](https://lopifi.com/md/glossary/remote-seller-grace-period). Read each state's own rule before deciding you're under it.

**Wrong:** We have no office in that state, so we don't collect its sales tax.

**Right:** We have no office in that state, so we check our sales and transactions into it against its threshold.

Since Wayfair, nexus is created by selling into a state, not only by being in it. Not having an office somewhere stopped being an answer in 2018.

> **Physical presence creates nexus from the first sale. Since Wayfair, enough sales into a state do too, at that state's threshold.**

In this lesson: selling through a marketplace, and who collects when you do. Registering, collecting and filing come next, in [the sales tax mechanics lesson](https://lopifi.com/md/learn/how-to-register-collect-and-file-sales-tax).

## Pages in this lesson

- [Marketplaces collect for you](https://lopifi.com/md/learn/sales-tax-nexus-after-wayfair/marketplace-facilitators) — 4 min. Who collects sales tax when I sell through a marketplace?

## Where this lesson's rules come from

- [South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018), syllabus](https://www.supremecourt.gov/opinions/17pdf/585us1r58_pok0.pdf) (PDF) — The Supreme Court ends the physical presence rule for sales tax collection (decided June 21, 2018) (tax)
- [South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018), Part I](https://www.supremecourt.gov/opinions/17pdf/585us1r58_pok0.pdf) (PDF) — The South Dakota law the Court upheld — S. B. 106 (2016) (tax)
- [Wikipedia, “South Dakota v. Wayfair, Inc.”](https://en.wikipedia.org/wiki/South_Dakota_v._Wayfair,_Inc.) — The case, the 5–4 vote, and what states did next (reference)

## Read further

- https://lopifi.com/md/journal-entries/sales-tax-collected
- https://lopifi.com/md/startups/sales-tax-nexus-for-startups
- https://lopifi.com/md/startups/states-without-sales-tax
- https://lopifi.com/md/accounting/sales-tax-nexus
- https://lopifi.com/md/accounting/voluntary-disclosure-agreement

- **Track:** [Compliance & tax](https://lopifi.com/md/learn/compliance)
- **Lesson:** Lesson 6 of 10 — 10 min
- **Terms taught:** [Sales tax nexus](https://lopifi.com/md/glossary/sales-tax-nexus), [Physical presence nexus](https://lopifi.com/md/glossary/physical-presence-nexus), [Economic nexus](https://lopifi.com/md/glossary/economic-nexus), [Remote-seller grace period](https://lopifi.com/md/glossary/remote-seller-grace-period)
- **Previous:** [State income and franchise taxes: one idea, many names, Compliance · Lesson 5](https://lopifi.com/md/learn/state-income-and-franchise-taxes)
- **Next:** [Marketplaces collect for you](https://lopifi.com/md/learn/sales-tax-nexus-after-wayfair/marketplace-facilitators)
- **The course:** https://lopifi.com/md/learn