Do I Need to Collect Sales Tax for Online Sales? Understanding Nexus

If you sell products online (Amazon, Shopify), one of the most important tax concepts to understand is sales tax nexus. It determines when and where you’re legally required to collect sales tax from customers. The short answer? Yes, you do need to collect sales tax—but only in states where your business has nexus.

What Is Nexus?

Nexus is a legal connection between your business and a state, giving that state the authority to require you to collect and remit sales tax. There are two main types of nexus:

• Physical Nexus: This is triggered by having a tangible presence in a state—like an office, warehouse, storefront, employee, or even storing inventory with a third party such as Amazon FBA.
• Economic Nexus: This occurs when your sales activity in a state exceeds a certain threshold—commonly $100,000 in sales or 200 separate transactions in a calendar year. Each state sets its own thresholds.

Once you’ve established nexus in a state—physically or economically—you’re required to:

• Register for a sales tax permit with that state.
• Collect sales tax from buyers located there.Remit the tax to the state on a regular filing schedule (monthly, quarterly, or annually, depending on the state’s rules).

Why It Matters

Failing to recognize nexus can lead to serious consequences, including:

• Owed back taxes
• Accrued interest
• Significant penalties

Many ecommerce sellers—especially those using platforms like Amazon, Shopify, or Etsy—unknowingly trigger nexus in multiple states as their business grows. That’s why it’s critical to track where your customers are, understand where you have nexus, and stay compliant as you scale.

Final Thoughts

Sales tax compliance can feel overwhelming but staying informed and proactive is the key. If you sell online, take time to assess your physical and economic footprint in each state. And when in doubt, consult a sales tax expert or automation platform to help manage your multi-state obligations.

Your future self—and your business—will thank you.