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Sales tax nexus: when your startup owes tax in a state you’ve never visited

Before 2018 a company generally only collected sales tax where it had a physical presence. The Supreme Court’s June 2018 decision in South Dakota v. Wayfair changed that: states can now require you to collect tax once your sales into the state pass an economic threshold, even if you have no office, employee or server there. For a startup selling online, that line can be crossed without anyone noticing.

Topic
Sales tax
Reading time
4 min
Updated
A diagram of the idea. Point at it; nothing in it is anyone’s real numbers.

Two kinds of nexus

Physical nexus comes from being somewhere: an office, inventory, or a remote employee working from that state (the one founders miss). Economic nexus comes from selling there: once your sales into a state cross its threshold in a measurement period, you’re expected to register, collect and file.

Most states set economic nexus at $100,000 of sales into the state over the current or prior year. Some are higher: California and Texas use $500,000, and New York requires both $500,000 and more than 100 transactions. Some states still have a second test, usually 200 separate sales into the state, which a low-priced subscription can cross long before the dollar figure; that test is disappearing state by state (Illinois dropped its own from January 1, 2026), so check the current rule rather than an old list. Thresholds, look-back periods and whether exempt or marketplace sales count all vary, which is why this has to be tracked per state rather than remembered.

A worked example. A company selling a $50-a-month plan has 180 customers in a state with a $100,000 threshold and no transaction test: $9,000 a month, $108,000 over twelve months. It crosses in the twelfth month. The same customers in a state that still counts 200 transactions cross in the second month, because 180 customers paying monthly are 360 sales.

The line nobody sees you crossExhibit

Sales into one state, added up month by month. From the month it crosses, you are expected to register, collect and file.

Most states
$100,000 of sales into the state
California, Texas
$500,000
New York
$500,000 and 100 transactions
Illustrative shape. Thresholds and look-back periods vary by state; the common ones are as the guide states them.

Is SaaS taxable?

It depends on the state, and it’s the question that catches software companies. Many states don’t tax SaaS at all. Others tax it in whole or in part (Texas, New York, Washington and Pennsylvania are common examples), and some tax it only when it’s sold to businesses, or treat it as a data-processing service. Physical products, digital downloads and services each have their own rules.

The practical consequence: crossing a threshold in a state that doesn’t tax what you sell may only mean registering (or nothing). Crossing one in a state that does means you should have been charging customers tax from that point, and uncollected tax usually comes out of your margin.

What to do about it at the seed stage

You don’t need a sales tax department. You need four habits:

  • Capture the customer’s billing address on every sale, so sales by state can be measured at all.
  • Track cumulative sales by state against that state’s threshold every month, not at year end.
  • Decide before you cross: register, start collecting, and file on the schedule the state assigns. Voluntary disclosure agreements exist for when a threshold was already crossed; a CPA should handle those.
  • Book the tax you collect to a liability account, never to revenue, and tie it each month to the returns you file.

Common questions

Does a remote employee create sales tax nexus?

In most states, yes. An employee working from a state is a physical presence there. It also usually means payroll tax registration and can create income or franchise tax obligations. Hiring in a new state is the moment to check.

Does Stripe collect sales tax for me?

Only if you set it up. Stripe Tax can watch your sales against state thresholds and calculate and collect tax, but only in the states where you have registered and told it to collect. Registering with each state and filing the returns are separate steps, and whether you have nexus is still your call. None of it happens by default.

Do sales through a marketplace count?

Usually no, if you are a business selling through one. Every state with a sales tax now has a marketplace facilitator law that makes the marketplace (an app store, Amazon, Etsy) collect and remit tax on the sales it facilitates. Whether those sales also count toward your own threshold differs by state, so they still belong in the tally.

Does a Delaware company owe sales tax in Delaware?

Not in the usual sense. Five states have no statewide sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon. Delaware taxes the seller’s gross receipts instead, and many Alaska towns levy their own sales tax, which remote sellers collect through a shared registration. A Delaware C-corp still owes sales tax wherever it has nexus.

What if we already crossed a threshold without registering?

Register and start collecting going forward, then deal with the past separately. Most states offer a voluntary disclosure agreement: you come forward before they contact you, pay a limited look-back of tax, usually three or four years, with interest, and penalties are generally waived. Once a state has contacted you, that option is usually gone.

Terms in this guide

Each one has its own page in the founder glossary. Hover for the short version, or open the full entry.

Keep going

From here: a free tool to try it on your own numbers, the software it names and the state guides that cite it.

Works in your QuickBooks Online or Xero file

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More founder guides

General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA before you act on them.