What Is Sales Tax Nexus?
- The Winston CPA Group
- Aug 4
- 6 min read
A Practical Guide to Sales Tax Nexus for Athletes, Entertainers, and Business Owners
This guide outlines the key facts every athlete, entertainer, and business owner should know about sales tax - what it is, how it works, and why it matters when income is earned in multiple states. Players, performers, and entrepreneurs can explore how to stay compliant and protect earnings by visiting The Winston CPA Group’s Tax page.
Sales tax doesn’t feel like a problem until the letters start coming in.
If you run a product-based business, sell digital goods, or ship orders across state lines, there’s a threshold you need to understand. It’s called sales tax nexus. And once your business crosses it, the state expects you to collect and remit tax payments to them - even if you've never set foot there.
Here’s what every growing business needs to know.
Sales Tax Is a State Obligation, not a Choice
Sales tax is a state-imposed tax collected on the sale of goods and (in some states) services. Forty-five states and Washington, D.C. have a statewide sales tax, and thousands of local jurisdictions layer on their own rates. When you sell something taxable, your responsibility is to:
Register in that state
Collect the right amount of tax from your customer
File and remit those taxes to the state on time
You don’t owe sales tax to every state. But once you create nexus, you’re legally required to start collecting. That’s where most small businesses get caught off guard - they don't realize they need to collect sales tax from customers until AFTER the sale has already happened.
What Is Sales Tax Nexus?
Sales tax nexus means your business has a strong enough connection to a state that it creates a tax obligation. That connection can be physical or economic. Once you have nexus in a state, that state has the right to enforce sales tax collection from you, even if your business is based in a different state. Nexus doesn’t depend on your intentions. It’s based on facts: what you sold, where it was delivered, and how much business you did there.
Two Types of Nexus Every Business Should Know
Physical Nexus
You have physical nexus in a state if you:
Operate a store, studio, or warehouse there
Store products in a third-party fulfillment center (e.g. Amazon FBA)
Attend trade shows or sell at pop-ups
Have employees or contractors working remotely in the state
Even a temporary presence can create nexus under some state laws.
Economic Nexus
You don’t need a physical presence to owe sales tax. Under current law, crossing a sales
or transaction threshold in a state triggers nexus automatically. This is called economic nexus.
After the South Dakota v. Wayfair decision in 2018, states were allowed to enforce sales tax collection based on revenue or order volume alone. Many states use thresholds like:
$100,000 in sales, or
200 separate transactions in a calendar year
Some states use different thresholds, but if you’re shipping frequently to a state, you’re likely building economic nexus even if you’re not aware of it.
When Nexus Starts and Why It Matters
Nexus begins the moment your business crosses the threshold. Some states require you to start collecting sales tax with your very next transaction. Others expect you to start on January 1 of the following year. Regardless of the timeline, states expect you to:
Register for a sales tax permit or license immediately
Collect sales tax from that point forward
File sales tax returns on time and pay what’s due
If you miss this window and fail to collect tax, you may still owe it. And the state will collect it from YOU, not your customers.
This is how businesses end up with surprise liabilities: they unknowingly cross a threshold, never register, and get flagged years later during an audit. States can look back three to seven years and assess tax, penalties, and interest for every uncollected sale.
How to Know Where You Owe Sales Tax
Tracking nexus starts with visibility. You need to:
Monitor where your customers are located
Track total sales and transactions by state
Understand what products are taxable in each state
Economic nexus thresholds are based on gross sales, not profit. That means high-volume, low-dollar orders still count toward your threshold. A digital product priced at $5 could trigger nexus in some states if you sell enough units. You can’t manage what you don’t track. And you can’t stay compliant if you wait until tax season to look back.
What Sales Tax Compliance Actually Involves
Once you’ve established nexus in a state, you’re required to:
Register for a sales tax permit before you collect
Charge the correct tax rate at checkout (based on destination, not origin)
File returns on time, even if you didn’t collect anything during the period
Remit all collected tax to the proper jurisdiction
Maintain proper records of sales, tax collected, and exempt transactions
States can suspend your account and charge penalties if you miss a deadline or fail to file. Even zero-dollar sales tax returns must be submitted on time in most cases.
If you sell through a marketplace like Amazon, Etsy, or Walmart.com, those platforms may collect sales tax on your behalf. But that doesn’t mean you're off the hook. You may still need to register, file, and report marketplace sales separately.
The Sales Tax Mistakes That Create Bigger Problems
Sales tax issues don’t usually start with fraud. They start with innocent neglect that grows into a major liability. Here’s what gets most businesses in trouble:
Crossing a nexus threshold and not knowing it
Assuming Shopify or Amazon handles it all
Ignoring pop-up events, affiliate activity, or employee locations
Not registering before collecting tax (which is illegal in many states)
Failing to file returns in states where you have nexus—even with no sales
States are getting more aggressive as they realize how much additional revenue sales taxes can generate. Their systems track cross-border activity, and they share data with each other. If you’re making sales, they know. And they’ll expect their share.
Why This Matters for Growing Businesses
Sales tax is a legal requirement. As your business grows, so does your exposure. That growth may come from:
Scaling online sales
Partnering with wholesalers or distributors
Attending events across state lines
Using fulfillment centers in multiple states
Selling in states with aggressive enforcement (like California, New York, or Washington)
You don’t need to panic. But you do need to assess your risk. Because the longer you wait, the more expensive it gets.
What The Winston CPA Group Can Do for You
At The Winston CPA Group, we help business owners stop guessing and start knowing.
We support you by evaluating when and where you've triggered nexus, registering your business in the right states, filing sales tax returns, and ensuring compliance with state requirements, and setting up systems in your business so you're not blindsided going forward.
If you’re selling in more than one state, don’t assume you’re in the clear. Let’s take a real look at where you stand and build a plan that protects your growth.
Sales Tax Nexus Quick Answers
Sales tax is not federal tax.
It’s handled at the state level. Each state decides what’s taxable, what the rate is, and how nexus is triggered. That means no two states treat your business the same.
You can owe sales tax in a state even if you’ve never been there.
Economic nexus laws allow states to enforce sales tax obligations based on sales volume or number of transactions alone. You don’t need a warehouse, office, or employee in the state to be liable.
Amazon FBA and third-party warehouses can trigger nexus.
If your inventory is stored in a fulfillment center in another state, that creates physical nexus, even if you didn’t ship it there yourself.
Sales tax applies to more than just physical products.
Some states tax digital goods, downloads, coaching, online courses, memberships, and even service-based products. You need to know what you’re selling and where it’s taxable.
Once nexus is triggered, registration is required before collecting tax.
You can’t legally collect tax in a state unless you’ve registered for a permit. Charging tax without a permit is considered tax fraud in some jurisdictions, even if it’s unintentional.
Marketplace facilitators may collect on your behalf, but you still need to report.
Amazon, Etsy, and other platforms often handle sales tax collection. But many states still require the seller to register and report those marketplace sales on a separate return.
Waiting too long can turn a simple fix into a multi-state audit.
If you’ve been operating without understanding your nexus footprint, the sooner you assess your risk, the better. Voluntary disclosure programs exist, but they work best when you come forward—not when the state finds you first.
The Winston CPA Group can help you protect what you’ve built and keep more of what you earn. Connect with us if you sell physical (or digital in some states) products that may be creating a sales tax liability for your business.
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