US Sales Tax & Use Tax: Economic Nexus After Wayfair (2025)

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US sales tax and use tax are a complex web of state and local rules, transformed by the 2018 Wayfair decision. This guide explains how sales tax works, the economic nexus rules for online sellers, the meaning of use tax, the states with no sales tax, and what businesses must do to comply with this increasingly enforced area of taxation.

How does sales tax work?

Sales tax is a tax on retail sales of goods and certain services, imposed by states and often by local jurisdictions on top. The seller collects it from the customer at checkout and remits it to the state. Rates vary widely by state and locality, and what’s taxable differs too — some states tax groceries or services that others exempt. There’s no federal sales tax.

This patchwork makes sales tax one of the most complex areas of US taxation, especially for businesses selling across multiple states and localities. A single transaction’s tax depends on the rates and rules where the sale occurs. For businesses, correctly determining, collecting and remitting sales tax across jurisdictions is a significant compliance challenge, increasingly managed with specialized software.

What changed with the Wayfair decision?

The 2018 Supreme Court decision in South Dakota v. Wayfair transformed sales tax for online commerce. Before Wayfair, a state could require sales tax collection only from sellers with a physical presence there. Wayfair allowed states to require out-of-state sellers to collect sales tax based on ‘economic nexus’ — a threshold of sales or transactions in the state — even with no physical presence.

This meant online retailers suddenly faced sales tax obligations in many states where they had customers but no physical footprint. Every state with a general sales tax now has economic nexus rules. Wayfair fundamentally reshaped e-commerce taxation, creating compliance obligations for online sellers nationwide and prompting a wave of registrations and, increasingly, audits of non-compliant sellers.

What is economic nexus?

Economic nexus is the legal standard, established after Wayfair, under which a business must collect a state’s sales tax once its sales into that state exceed a threshold — commonly $100,000 in sales, and sometimes a transaction count like 200 sales, though rules vary by state. Crossing the threshold creates a collection obligation even without any physical presence.

For online and multi-state sellers, tracking economic nexus across every state is essential, since exceeding a threshold triggers registration and collection duties. Many states have dropped transaction-count thresholds in favor of revenue alone. Businesses use nexus-tracking software to monitor where they’re approaching thresholds, as failing to register and collect once nexus exists creates growing liability and audit risk.

What is use tax?

Use tax is the counterpart to sales tax: when you buy taxable goods and the seller doesn’t collect sales tax — say, from an out-of-state seller without nexus — you owe use tax to your state at the same rate. It ensures purchases are taxed regardless of where bought. Individuals and especially businesses are responsible for self-reporting and paying use tax.

Use tax is widely owed but poorly complied with by individuals, though states increasingly enforce it, particularly for businesses. A company buying equipment from an out-of-state vendor that didn’t charge sales tax generally owes use tax. Understanding use tax matters for businesses especially, as auditors check whether use tax was paid on untaxed purchases, a common source of assessments.

Which states have no sales tax?

Five states have no general statewide sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon (remembered by the acronym NOMAD). However, some localities in these states may impose local sales taxes (notably in Alaska), and the states fund themselves through other taxes. Businesses and shoppers in these states avoid the sales tax that adds to purchase prices elsewhere.

The absence of sales tax can attract shoppers and businesses, though these states make up the revenue through other means. For sellers, no-sales-tax states simplify compliance for in-state sales, but selling into other states still triggers those states’ economic nexus rules. The five no-sales-tax states are an exception in a country where sales tax is otherwise a pervasive feature of commerce.

How do businesses comply with sales tax?

Sales tax compliance involves determining where you have nexus, registering with those states, collecting the correct tax on each sale, filing returns, and remitting the tax on schedule. Given the thousands of taxing jurisdictions and constant rate changes, many businesses use automated sales tax software to calculate, collect and file accurately across all the states where they have obligations.

If a business discovers it should have been collecting but wasn’t, a Voluntary Disclosure Agreement can limit the look-back period and penalties — but only before the state makes contact. With states increasingly using data analytics to find non-compliant sellers and ramping up audits, proactive compliance is essential. Sales tax has become a serious compliance area that e-commerce businesses cannot afford to ignore.

What is sales tax nexus for businesses with physical presence?

Alongside economic nexus, physical nexus still applies: a business with a physical presence in a state — an office, store, warehouse, employees, or inventory (including in a third-party fulfillment center) — has nexus there and must collect sales tax. Storing inventory in a state’s fulfillment warehouse, common with online marketplaces, can create nexus the seller may not realize they have.

This means businesses can have sales tax obligations through both physical and economic nexus. Online sellers using nationwide fulfillment networks may have inventory — and thus physical nexus — in many states. Understanding both nexus types is essential, as overlooking physical nexus from stored inventory is a common compliance gap that can create unexpected back-tax liability across multiple states.

How do marketplace facilitator laws work?

Many states have marketplace facilitator laws requiring large platforms — like major online marketplaces — to collect and remit sales tax on behalf of their third-party sellers. This shifts the collection burden from individual sellers to the platform for marketplace sales, simplifying compliance for sellers who sell mainly through such platforms.

However, sellers with their own websites or sales outside these platforms still handle their own sales tax for those channels. Understanding which of your sales are covered by a marketplace facilitator and which you must handle yourself is important for compliance. These laws have eased the burden for many small sellers, but don’t eliminate sales tax responsibilities for direct or multi-channel sales.

What products and services are taxable?

What sales tax applies to varies dramatically by state. Most tangible goods are taxable, but many states exempt or reduce tax on necessities like groceries, prescription drugs and clothing. Services were traditionally untaxed but states increasingly tax them, including digital products and services. This variation means the same product can be taxable in one state and exempt in another.

For businesses, determining the taxability of each product or service across states is a core compliance challenge, since getting it wrong means under- or over-collecting. Digital goods and services are a growing area of taxation as states expand their sales tax base. Understanding what’s taxable where — often with the help of tax software — is essential for accurate sales tax collection across multiple states.

Why sales tax compliance is increasingly enforced

States have ramped up sales tax enforcement since Wayfair, using data analytics to identify unregistered sellers and conducting more audits. Declining revenue and the growth of e-commerce have made sales tax a priority for state tax authorities. Businesses that ignored their obligations now face growing risk of discovery, back taxes, penalties and interest.

This enforcement trend means sales tax compliance is no longer optional for businesses with multi-state sales. Proactive registration, accurate collection, and using Voluntary Disclosure Agreements to fix past gaps before a state makes contact are increasingly important. For e-commerce businesses especially, treating sales tax as a serious, actively enforced obligation — not an afterthought — is essential to avoid mounting liability.

Common sales tax mistakes to avoid

Common sales tax mistakes include not tracking economic nexus across states, overlooking physical nexus from inventory in fulfillment centers, misjudging product taxability, failing to file zero returns where required, and ignoring use tax on untaxed business purchases. Each can create liability that compounds until discovered, often in an audit.

Avoiding them means monitoring nexus everywhere you sell, knowing where your inventory creates nexus, determining taxability correctly, filing all required returns, and self-assessing use tax. Given the post-Wayfair complexity and rising enforcement, automation and professional guidance are often worthwhile. Proactive compliance — including VDAs to fix past gaps before a state makes contact — is far cheaper than the back taxes and penalties of discovery.

How do sales tax holidays and exemptions work?

Many states offer sales tax holidays — short periods when certain items, like back-to-school supplies, clothing or emergency-preparedness goods, are temporarily exempt from sales tax. States also provide standing exemptions, such as resale certificates that let businesses buy inventory tax-free for resale, and exemptions for certain organizations or uses.

For consumers, sales tax holidays offer modest savings on qualifying purchases during the window. For businesses, properly handling exemption certificates — collecting and validating them — is a compliance requirement, since accepting an invalid certificate can leave the seller liable for the uncollected tax. Understanding holidays and exemptions helps both shoppers save and businesses apply sales tax correctly across different transaction types.

Why sales tax matters for e-commerce growth

For e-commerce businesses, sales tax compliance scales with growth. As sales expand into more states and cross economic nexus thresholds, the number of states where the business must register, collect and remit grows. What’s manageable for a small seller in one state becomes complex for a growing business selling nationwide, making early systems and automation important.

Planning for sales tax as part of growth — adopting nexus-tracking and tax-calculation software, registering proactively, and budgeting for compliance — prevents the liability that accumulates when a fast-growing business outpaces its tax compliance. For online sellers, treating sales tax as a built-in part of scaling, rather than an afterthought, protects the business from the back taxes, penalties and audit risk that catch unprepared sellers.

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