State sales-tax nexus after Wayfair
How South Dakota v. Wayfair (2018) let states require sales tax collection based on economic activity, and why every state sets its own rules.
The United States has no federal VAT. Sales tax is set by states, and many counties and cities add their own. Before 2018, a seller generally had to collect sales tax only where it had a physical presence, under Quill Corp. v. North Dakota (1992). In South Dakota v. Wayfair, Inc. (June 21, 2018), the Supreme Court overruled that rule and allowed states to require collection based on economic activity alone. South Dakota's law, which the Court upheld, used $100,000 of sales or 200 transactions per year. Many states copied it, but they have since diverged. Some have dropped the transaction count, some use higher dollar figures, and a few require both tests. The only reliable source for a threshold is the state's own department of revenue. 4invoices does not decide where you have nexus.
- There is no federal VAT in the US; sales tax is set state by state.
- Wayfair (2018) allows economic nexus; physical presence is no longer required.
- Thresholds differ by state and change. Check each state's department of revenue.
- Marketplace facilitator laws often shift collection to the marketplace.
How it works
Find out where you have nexus. Physical nexus, such as an office, employees, or inventory in a state, can create a duty to collect. Economic nexus depends on your sales into the state.
Read the state's current threshold. Look at the state department of revenue for the dollar amount, whether a transaction count applies, and the period it is measured over.
Register before you collect. A state generally expects you to hold a sales tax permit before you charge its tax. The registration also sets your filing frequency.
Work out the rate for each sale. Rates can combine state, county, city, and district taxes, and some states source the sale to the seller's location while others use the buyer's. Check the state's sourcing rule.
Show the tax on the invoice and keep the records. State the tax as its own line, keep the exemption paperwork for exempt sales, and file returns on the state's schedule.
Legal references
- South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018) — Supreme Court decision allowing economic-nexus sales-tax collection.
- Quill Corp. v. North Dakota, 504 U.S. 298 (1992) — the earlier physical-presence rule, overruled by Wayfair.
- State department of revenue guidance (for example the California CDTFA, the Texas Comptroller, or the New York Department of Taxation and Finance) — thresholds, permits, and returns.
Frequently asked questions
Do I have to register in every state I sell into?
No, only where you have nexus, either physical or economic. Check each state's threshold on its department of revenue site, and keep track of your sales by state.
What if I sell only through a marketplace such as Amazon or Etsy?
Marketplace facilitator laws in most sales-tax states require the marketplace to collect and remit tax on sales it facilitates. Direct sales you make yourself may still count toward your own thresholds. Check each state's rule.
Are services taxable like physical goods?
It varies widely by state. Some states tax many services and others tax only specific kinds. Digital products and software have their own rules. Check the state's guidance for what you sell.
Does 4invoices calculate or file state sales tax?
No. 4invoices lets you set a tax rate on each invoice line and then totals the invoice. It does not work out nexus, look up rates by address, register you, file returns, or remit tax. You choose the rate and confirm it with your accountant or the state.