Sales Tax Nexus After Wayfair: 6 State Rules DTC Brands Should Check

The 2018 South Dakota v. Wayfair Supreme Court decision should have been the wake-up call. Years later, a common and expensive pattern still looks like this fictional example: a $2-15M brand discovers it has economic nexus in 18 states, has been collecting sales tax in two of them, and faces back tax, penalties, and interest in the other 16. The size of that bill depends on taxable sales delivered into each state, each state's rates and penalty rules, and how far back the state looks. Run the arithmetic below on your own numbers rather than relying on a typical range.

This post is the practical guide every Shopify and Amazon seller should have read three years ago.

What economic nexus actually means

Wayfair removed the constitutional physical-presence prerequisite for a state to impose sales-tax collection duties on remote sellers. Physical nexus remains relevant. Economic nexus adds a state-specific sales or receipts test; a few states also use a transaction-count condition. A generic "$100K or 200 transactions" rule is not a current nationwide test.

Each state sets its own threshold, and states change them, so confirm the current rule on each state revenue department's site before relying on any number on this page. Each state has its own forms. Each state has its own filing frequency. There are roughly 45 sales-tax states + DC. That's the compliance burden.

A common owner question: how do I even report this on the sales tax return, when the bookkeeper who files for other businesses isn't sure either?

The bookkeeper isn't incompetent. The system is genuinely complex.

Six state rules to check

Not all states are created equal. These six are not a measured ranking. They are illustrative because each combines a feature that commonly produces expensive surprises: high combined rates, local complexity, an extra gross receipts tax, or a later economic nexus start. Verify each threshold and rule against the state's current revenue department guidance:

1. California

• Threshold: More than $500K in combined tangible-property sales delivered into California in the preceding or current calendar year, including related-person and marketplace sales. No transaction-count test. See CDTFA remote-seller and marketplace guidance.
• Why it hurts: Combined state and district rates above the 7.25% statewide base in many locations, with district-level rate complexity
• Common trap: Collecting only the 7.25% statewide base when the delivery address sits in a higher-rate district. Operator check: pull 10 recent California orders, look up each delivery address's combined rate with the California Department of Tax and Fee Administration rate lookup, and compare it with the tax your checkout actually charged. Under-collection is your liability

2. New York

• Threshold: More than $500K in gross receipts and more than 100 sales of tangible property delivered into New York in the immediately preceding four sales-tax quarters. Taxable and exempt sales, including marketplace sales, count. See New York registration guidance.
• Why it hurts: Marketplace facilitator law shifts liability to Amazon/Etsy/eBay, but DTC sales through your own site stay yours; clothing exemption rules are byzantine
• Common trap: Mixing marketplace and DTC sales in your books, then under-remitting

3. Washington

• Threshold: More than $100K in combined gross receipts sourced or attributed to Washington in the current or prior year, or another nexus condition. It includes multiple business classifications, not just DTC taxable sales. See Washington nexus guidance.
• Why it hurts: Combines retail sales tax + B&O (Business & Occupation) tax, which is on gross receipts even at zero margin
• Common trap: Forgetting B&O tax entirely. It is a gross receipts tax, not an income tax, so it can be owed even when the business has no profit

4. Texas

• Threshold: Texas remote sellers have a safe harbor when total Texas revenue is less than $500K in the preceding twelve calendar months. Count taxable and nontaxable property and service sales, including resale, exempt and marketplace sales. See the Texas Comptroller remote-seller FAQ.
• Why it hurts: No personal income tax, so the state leans heavily on sales tax, with a 6.25% state rate plus local taxes on taxable sales
• Common trap: Assuming drop-shipped orders delivered into Texas don't count toward the remote-seller threshold because the goods never touched your warehouse. Check how your Texas-delivered sales are counted and whether your supplier needs a Texas resale certificate

5. Florida

• Threshold: Taxable remote sales in excess of $100K in the previous calendar year. The rule became effective July 1, 2021. See Florida remote-sales guidance.
• Why it hurts: Some sellers assumed they were exempt because Florida was late to economic nexus. The obligation runs from when you crossed the threshold under the 2021 rule, not retroactively to earlier years
• Common trap: Assuming "we don't have nexus in Florida" when you crossed the threshold three years ago

6. Colorado

• Threshold: Retail sales into Colorado exceeding $100K in the current or previous calendar year for the remote-retailer rule. The calculation includes retail sales whether or not taxable; collection start dates depend on when the test is met. See Colorado Sales Tax Guide, Part 4.
• Why it hurts: Self-collecting home-rule cities (Denver, Boulder, Colorado Springs, etc.) can require separate local registrations and filings, under their own rules. SUTS accepts filing and payment for participating self-collecting home-rule jurisdictions; participation does not itself erase a city's licensing or taxability rules
• Common trap: Registering with the Colorado Department of Revenue and assuming you're done, without checking each home-rule city you ship into

The marketplace facilitator double-count trap

Here's how the trap typically shows up, as a fictional example. A seller's tax software export shows $100 of California sales tax due for a month's sales. But those sales went through Amazon, which already collected and remitted that $100 under California's marketplace facilitator rule. If the export doesn't separate marketplace-facilitated sales, the seller can pay the same $100 twice. Check your own software's current documentation for how it treats marketplace sales rather than assuming either way.

Marketplace facilitator laws (in effect in most sales-tax states; confirm the specific state's law and which channels it covers) shift the collection and remittance obligation for marketplace sales to the marketplace itself (Amazon, Etsy, Walmart, eBay). In most cases the seller is no longer the party responsible for collecting and remitting on those transactions, though some states still require the seller to report them or count them toward thresholds.

The trap: if your books treat all sales identically, you double-count. You record:

1. Gross sales including sales tax that Amazon collected and remitted
2. Sales tax liability for those same sales
3. Then your sales tax software bills you again for the tax you don't actually owe

The fix is to separate marketplace sales (where the platform handles tax) from direct sales (where you handle tax) at the GL level. This is fundamental ecommerce accounting, and it is easy to get wrong if the books were not set up with channel-level accounts.

Drop-ship complications

If you drop-ship, meaning your supplier ships directly to your customer, you have a special wrinkle. Two transactions are happening:

1. You sell the product to the customer (taxable to your customer's location)
2. Your supplier sells the product to you for resale. The delivery destination and that state's resale/drop-shipment rules matter; it is not automatically taxable in the supplier's home state. See the MTC drop-shipment FAQ.

A common owner question: if suppliers keep charging us sales tax on drop-shipped goods we resell, do we absorb it as a cost or raise prices and lose competitiveness?

The fix is resale certificates for every state where your supplier might charge you sales tax. The Multistate Tax Commission resale-certificate page reports that 36 states have indicated its form can be used, subject to instructions and state-specific limits. That count is the Commission's statement, not a guarantee that a seller or a state will accept your particular certificate. Check the destination state and supplier's requirements.

If both legs are taxed, review whether the supplier leg qualifies for resale exemption. Tax collected from the end customer is not automatically a credit against supplier tax. A refund or correction depends on the state, documentation and who is entitled to claim it.

What it actually costs to comply

For a $2-10M DTC brand shipping to every sales-tax state, here are illustrative planning assumptions, not measured market prices. Vendor pricing changes and depends on order volume and filing count, so get current quotes:

For comparison, here is what not complying involves when you discover 4 years of unfiled returns in a state where you have nexus. Every item varies by state, so treat this as a checklist of what to look up, not typical figures:

A fictional Texas example: a brand with $1,000,000 a year of taxable sales delivered into Texas and 4 years unfiled has $4,000,000 of taxable sales. At the 6.25% state rate alone, that is $250,000 of tax, before local tax, penalties and interest. Swap in your own taxable Texas sales and the local rates for your delivery addresses.

The defensible compliance approach

For a growing DTC brand, here's what I recommend:

Phase 1: Nexus study (do this first)

Hire a sales tax specialist (or use a service like TaxJar/Avalara/Anrok) to map your nexus footprint. You're looking for:

• Every state where you've crossed the economic nexus threshold
• Every state where you have physical nexus (warehouses, FBA inventory, employees)
• Every state where drop-ship arrangements raise resale-certificate or supplier-tax questions

Phase 2: Voluntary disclosure where you're behind

For states where you have nexus but never registered, voluntary disclosure agreements (VDAs) are often the best move, but confirm with a sales tax adviser. Terms vary by state, and many programs:

• Limit the look-back period (commonly 3-4 years; check the state's program)
• Waive some or all penalties
• Occasionally reduce interest

Do this before the state finds you. Many states will not accept a voluntary disclosure once they have contacted you about the period in question.

Phase 3: Get current and stay current

Register in every nexus state. Configure Shopify/Amazon/Etsy to collect correctly. Use sales tax software for filings. Reconcile sales tax liability monthly.

Phase 4: Monitor for new nexus

Every quarter, re-check your sales by state against thresholds. Crossing a threshold mid-year still triggers nexus. When you must register and start collecting varies by state (for example, immediately, on the next transaction, or from a later date the state sets), so check each state's rule as you cross it.

What good ecommerce bookkeeping looks like for sales tax

Three things separate clean from chaotic books on this front:

1. Marketplace vs. DTC sales are tracked separately, different revenue accounts or separate "class" tags
2. Sales tax liability is a real GL account with monthly reconciliation to filings
3. State registrations are documented in a single tracker the bookkeeper, CPA, and CFO all reference

If your bookkeeper can't show you: a state-by-state liability report, marketplace vs. DTC split, and a list of where you're registered, you're flying blind.

When to call Level

We don't file sales tax returns directly. That's specialized work for tools like Avalara, TaxJar, or Anrok. As part of a CFO engagement, we can help scope and oversee your sales tax compliance posture: coordinating the nexus study, framing VDA decisions with your tax adviser, software selection, and the ongoing monthly reconciliation that keeps the system honest.

FAQ

Does Shopify automatically handle sales tax? Calculation and filing are separate. Shopify's US tax guide says Shopify does not file or remit unless automated filing is configured. Its current eligibility page, reviewed October 7, 2026, says automated filing is closed to new enrollment; already-enrolled stores have specific eligibility, state setup and channel limitations. Do not assume every new store can enable it or that it covers past returns, every sales channel or all local obligations. Compare one month's checkout tax by state and channel with the actual returns and payments.

What if I only sell on Amazon FBA? For FBA, Amazon generally collects and remits sales tax on marketplace sales in states with marketplace facilitator laws. Confirm each state's rule and check Seller Central's tax reports for what Amazon actually collected. Your direct nexus exposure is much lower, but you still need to verify FBA inventory locations create physical nexus and that you're not required to file informational returns in some states.

How far back can a state assess back sales tax? Statute of limitations varies by state, and many are 3-4 years from the filing date; check the specific state's rule. For unfiled returns, many states have an open or extended assessment period. Confirm the specific state's statute, any limits and VDA terms; there is no universal seven-year rule.

My bookkeeper says we're "fine" because Shopify charges tax. Is that true? Shopify charging tax doesn't mean it's being remitted. You need to verify: (1) you're registered in every nexus state, (2) Shopify is configured to charge correctly, (3) you (or your sales tax software) are actually filing the returns and remitting the money. Many sellers collect tax for years and never file.

Related reading:

• Why Your 1099-K Doesn't Match Seller Central
• Marketplace Facilitator Sales Tax in QuickBooks
• Ecommerce Bookkeeping That Actually Works