Selling online across the US means dealing with sales tax rules that differ by state. This guide explains economic nexus, marketplace facilitator laws, and how to figure out where you actually owe tax without guessing.
What nexus means for online sellers
Nexus is the legal connection that gives a state the right to make you collect its sales tax. There are two main kinds. Physical nexus comes from having a location, employee, warehouse, or inventory in a state. Economic nexus comes from your sales activity alone, even if you have never set foot there.
Most US states now use economic nexus. If your sales into a state cross a certain amount of revenue or a certain number of transactions in a year, that state can require you to register and collect its sales tax. The exact numbers vary by state and change over time, so do not treat any single figure as fixed. Always check the state's own department of revenue site before you register or stop collecting.
Economic nexus vs physical nexus
| Factor | Physical nexus | Economic nexus |
|---|---|---|
| Trigger | Office, employee, warehouse, inventory in the state | Sales revenue or transaction count into the state |
| Where it applies | Any state where you have a physical presence | Any state where you cross that state's threshold |
| How you find out | You already know, since you set it up | You have to track sales by state and compare to each state's rule |
| How often it changes | Rarely | States adjust thresholds and rules periodically |
If you store inventory with a fulfillment service, that alone can create physical nexus in the states where the inventory sits, even without economic nexus. This is a common trap for e-commerce sellers who use third-party warehousing.
Marketplace facilitator rules
Most states have marketplace facilitator laws. Under these rules, platforms like large marketplaces are required to calculate, collect, and remit sales tax on sales they process on your behalf. If you sell only through a marketplace that already handles this, you may not need to register separately in that state for those sales.
This gets more complicated when you sell through more than one channel. If you sell on a marketplace and also through your own website or Stripe checkout, the marketplace sales might be covered, but your direct sales are not. You still need to track your direct sales by state and compare them against each state's economic nexus threshold separately.
Marketplace facilitator status also does not remove your obligation to register in states where you already have physical nexus, even if all your sales run through a marketplace. Rules on this point vary, so check the specific state's guidance for marketplace sellers before assuming you are covered.
Registering only where required
A common mistake is registering for sales tax permits in every state up front, just in case. This usually backfires. Once you register in a state, you typically have to file returns on a schedule, often monthly or quarterly, even in months with zero sales in that state. Registering where you have no obligation creates ongoing filing work for no reason.
The better approach is to monitor your sales by state on a rolling basis, compare that against each state's published threshold, and register only when you actually cross a line or take on physical nexus. Some sellers register slightly before hitting a threshold if they know they will cross it soon, to avoid a gap. That is a judgment call, and a licensed tax professional can help you time it.
Once you are registered, you generally need to keep collecting and filing in that state until you formally deregister, even if your sales later drop. Do not stop collecting on your own judgment. Follow the state's process for closing a registration.
Software vs manual tracking
Tracking nexus across fifty states by hand is possible for a very small seller, but it gets hard fast once you sell in more than a handful of states or run multiple channels.
| Approach | Works well for | Watch out for |
|---|---|---|
| Manual spreadsheet tracking | Very low sales volume, one or two states | Easy to miss a threshold crossing, time consuming as you grow |
| Sales tax software | Multi-state sellers, marketplace plus direct sales | Setup takes time, needs accurate transaction data feeding into it |
| Bookkeeping platform with transaction categorization | Sellers who want nexus tracking tied to their actual books | Only as good as the categorization behind it |
This is where clean bookkeeping matters more than people expect. Sales tax nexus decisions depend on accurate, state-by-state sales data. If your transactions are not categorized correctly by state and channel, you are guessing rather than tracking.
How this connects to your LLC and bookkeeping
Sales tax nexus is separate from your federal tax filings, but the two are related in practice. Your LLC or C-Corporation still owes federal filings regardless of where you have sales tax nexus. If you are a foreign owner of a single-member LLC, you still need to file Form 5472 with a pro forma 1120 by April 15, on top of any state sales tax obligations that come up.
On PowerLaunch's Run and Scale plans, transaction tracking with AI categorization and monthly or quarterly closings give you the clean, state-by-state sales data you need to make nexus decisions with confidence, instead of piecing it together at year end. The licensed tax professional consultation included in these plans is also a good place to review your specific nexus exposure, since your situation depends on your actual sales pattern across states and channels.
Launch plan customers get the entity, EIN, and registered agent set up correctly from day one, which is the foundation everything else builds on, but ongoing sales tax monitoring is better handled once you add bookkeeping support.
What to do next
If you are still deciding on your entity structure, start at checkout at powerlaunch.solutions/signup and pick the plan that matches how much bookkeeping support you need as you scale into more states. If you want to talk through your specific sales channels and where nexus might already apply, book the free 20-minute consultation at powerlaunch.solutions/book before you register anywhere. A short conversation now can save you from registering too early, or missing a state you should already be collecting in.
