How Does Sales Tax Work for an E-Commerce Business?

E-commerce sales tax changed significantly after the Supreme Court's 2018 decision in South Dakota v. Wayfair. Before Wayfair, a business generally only had to collect sales tax in states where it had a physical presence. After Wayfair, states can require collection based on economic activity alone — selling enough into a state creates an obligation even without a physical location there.

For online sellers, this means that sales tax compliance is no longer just a question of where you are located. It is a question of where your customers are.

What Economic Nexus Means

Economic nexus means that a business has a sufficient economic connection to a state to create a sales tax obligation — even without a physical presence. Most states set their economic nexus threshold at $100,000 in sales or 200 transactions in the state per year, though the specific thresholds vary.

New York's economic nexus threshold is $500,000 in sales and more than 100 transactions in the state in a calendar year. Both conditions must be met. An online seller who makes $600,000 in New York sales but only 80 transactions does not meet New York's economic nexus threshold.

Physical Nexus Still Applies

Economic nexus did not replace physical nexus — it added to it. If your e-commerce business has a physical presence in a state (an office, a warehouse, employees, inventory stored there), you have nexus in that state regardless of sales volume.

For a New York-based e-commerce business, you have physical nexus in New York from day one. The question of economic nexus in other states depends on your sales volume in each state.

Marketplace Facilitators

Selling through Amazon, Etsy, or similar platforms

If you sell through a marketplace facilitator — Amazon, Etsy, eBay, Walmart Marketplace — the platform is generally required to collect and remit sales tax on your behalf for sales made through their platform. This is true in New York and most other states.

This does not eliminate your sales tax obligations entirely. If you also sell directly through your own website, those sales are your responsibility. And the marketplace's collection does not affect your nexus determination — if you have nexus in a state, you may still have filing obligations even if the marketplace is collecting on your behalf.

What This Means Practically for Small E-Commerce Sellers

For a small e-commerce business just starting out, the immediate priority is:

• Register and collect sales tax in your home state (where you have physical nexus)
• Monitor your sales volume in other states as you grow
• When you approach the economic nexus threshold in a state, register before you cross it

For businesses that have grown significantly and may have crossed economic nexus thresholds in multiple states without registering, the situation is more complex. Voluntary disclosure programs exist in many states, but the approach needs to be coordinated carefully.

A Note on Complexity

Multi-state sales tax compliance is one of the more complex areas of tax for e-commerce businesses. The rules vary by state, the thresholds differ, and the taxability of specific products can vary. Automated sales tax software (TaxJar, Avalara, and similar tools) can help manage the calculation and filing burden for businesses selling in multiple states. For businesses with significant multi-state exposure, professional review of the compliance picture is worth the investment.