Nexus & Compliance Obligations

Nexus is the connection triggering sales tax obligations in a US state. For international sellers, it's established through physical presence (warehouse, inventory) or economic nexus (typically $100,000 in sales or 200 transactions per state). Once triggered, you must register, collect, and remit sales tax. Swap's automated compliance covers all 50 states, manage US sales tax in just 15 minutes a month.

Economic nexus means a state can require you to collect sales tax even without a physical presence there, if your sales exceed certain thresholds (commonly $100,000 in revenue or 200 transactions). Swap helps monitor nexus thresholds and automates compliance.

Whether you charge sales tax on items shipped out of state depends on your nexus status in the destination state. Post-South Dakota v. Wayfair (2018), most states have economic nexus laws requiring remote sellers to collect sales tax once they exceed a threshold. A dedicated sales tax platform (Avalara, TaxJar) or Shopify Tax handles this automatically for US domestic sales.

Selling through marketplaces affects sales tax nexus because marketplace activity can establish economic nexus in states where the marketplace's warehouses or operations are based. Additionally, marketplace-facilitated tax laws in most US states require the marketplace (not the seller) to collect and remit sales tax reducing your compliance burden on marketplace channel sales.

Sales tax is based on the shipping address (the destination of the goods), not the billing address. This is because sales tax is a destination-based tax in most US states. Your ecommerce platform or tax tool geo-locates the shipping address and applies the correct state and local rates automatically.

Freight (shipping charges) may or may not be subject to sales tax depending on the state. Some states (e.g. California) exempt separately stated freight charges; others (e.g. Texas, New York) tax shipping. The taxability of freight depends on state rules and how it's itemised on the invoice. A tax automation tool will apply the correct rule automatically.

If an ecommerce brand ignores sales tax nexus until it becomes a problem, they risk back taxes owed to each state for all years they had nexus, plus interest and penalties (which can be substantial). States are increasingly aggressive in pursuing remote sellers post-Wayfair. Voluntary Disclosure Agreements (VDAs) exist to limit lookback periods for brands that come forward proactively before being audited.

You need to charge sales tax when you have nexus (taxable presence) in the customer's state either physical nexus (office, warehouse, employees) or economic nexus (exceeding the state's revenue or transaction threshold, typically $100K or 200 transactions). Once nexus is established, you must register, collect, and remit for that state. Most US states have economic nexus thresholds following South Dakota v. Wayfair.