How to Handle Sales Tax in Multiple States Without Setting Up Physical Locations

Introduction: The Challenge of Sales Tax Across States

For years, online sellers believed that if they didn’t have a physical store, warehouse, or office in a state, they didn’t need to worry about collecting sales tax there. That assumption used to be true — until the landmark South Dakota v. Wayfair, Inc. decision in 2018 fundamentally changed the rules of eCommerce taxation in the United States. The U.S. Supreme Court ruled that states could require remote sellers to collect and remit sales tax even without a physical presence, as long as they met certain economic thresholds.

Since that ruling, every major state with a sales tax has implemented its own economic nexus laws, setting sales or transaction limits that trigger tax obligations. Fast-forward to 2025, and the landscape has evolved even further. Many states, including South Dakota, have removed their 200-transaction threshold, relying solely on revenue-based standards — typically $100,000 in annual in-state sales. (Avalara Report, 2025)

For eCommerce businesses selling nationwide through websites or marketplaces, this creates a complex compliance web. A seller could now be liable for collecting tax in 10, 20, or even 30 states without ever setting foot there. The challenge isn’t just knowing where you owe tax — it’s how to manage registrations, filings, and remittances efficiently without opening physical offices or hiring local teams.

This article will guide you through the modern reality of multistate sales tax compliance — explaining how economic nexus works, highlighting the latest policy changes in 2025, and providing step-by-step strategies to handle your tax obligations remotely, efficiently, and confidently.

What Is Economic Nexus and Why It Matters

Before 2018, sales tax obligations in the United States were governed by the concept of “physical presence.” A seller only had to collect and remit sales tax in states where it physically operated — such as having a warehouse, office, or employees. That standard, set by the 1992 Quill Corp. v. North Dakota decision, protected remote sellers from complex multistate taxation.

However, the Supreme Court’s ruling in South Dakota v. Wayfair, Inc. (2018) fundamentally changed that precedent. The Court concluded that states were losing billions in uncollected revenue from online sales and could require remote sellers to collect sales tax even without a physical presence, as long as the seller established a “substantial economic nexus.”

The Basics of Economic Nexus

An economic nexus is established when your sales or transaction activity within a state exceeds specific thresholds. Typically, these thresholds are based on gross sales revenue or the number of separate transactions made to customers in that state. For example, if your online store generates over $100,000 in annual sales to residents of California, you are required to register, collect, and remit sales tax — even if you have no physical footprint there.

As of 2025, most states have simplified their standards by removing transaction-count thresholds and keeping only revenue-based limits. According to Avalara’s 2025 update, over 15 states — including South Dakota and Alaska — have eliminated the old 200-transaction rule, requiring sellers to meet only a monetary threshold (often $100,000 in annual in-state sales).

Why It Matters to Remote Sellers

This shift means that nearly every eCommerce business selling nationwide could trigger nexus in multiple states without realizing it. The complexity lies in how states measure thresholds — some use the previous calendar year, others the current or rolling 12-month period. Missing these nuances can lead to undercollection penalties or costly back taxes.

In essence, the “economic nexus” concept redefines what it means to do business across state lines. Understanding these rules is no longer optional — it’s essential for staying compliant and maintaining profitability in today’s digital-first marketplace.

Recent Policy Changes You Must Know in 2025

The U.S. sales tax landscape continues to evolve rapidly, and 2025 has already brought several significant regulatory updates that directly impact remote sellers. These changes reflect states’ ongoing efforts to simplify compliance rules while expanding what counts as taxable activity — especially in digital commerce. Staying informed about these updates is crucial if you operate across multiple states without a physical presence.

1. Elimination of Transaction Thresholds

Following a nationwide trend toward simplification, at least 15 states have eliminated their “200 transaction” threshold for economic nexus, keeping only a revenue-based standard (commonly $100,000 in in-state sales).
States like South Dakota, Alaska, and Wisconsin have led this shift, recognizing that the transaction count was burdensome for small and medium eCommerce businesses. According to data, this policy change reduces confusion and aligns state tax systems around a single, more predictable benchmark.

2. Expansion of Digital Product Taxation

More states are expanding their definition of taxable goods to include digital and downloadable products such as streaming subscriptions, e-books, and SaaS-based software. Louisiana, Washington, and Tennessee have introduced or revised laws requiring digital sellers to collect sales tax even if the service is delivered online. (Taxually Report, 2025)
This expansion means tech startups and online education platforms must now assess whether their digital offerings create nexus obligations, even if no tangible product changes hands.

3. Retail Delivery Fees and Surcharges

States like Colorado and Minnesota have added new retail delivery fees, applying small surcharges (usually $0.25–$0.50 per order) to fund state infrastructure. While seemingly minor, these charges complicate checkout calculations and increase accounting requirements for remote sellers. (Cohen Grieb Insights, 2025)

4. Marketplace Facilitator Laws Expanded

Nearly all U.S. states now enforce Marketplace Facilitator Laws, requiring platforms like Amazon, Etsy, eBay, and Shopify to collect and remit sales tax on behalf of their third-party sellers. While this relieves many small businesses of direct filing duties, sellers must still track their sales by platform and maintain records for compliance audits.

5. The Takeaway

These regulatory adjustments are reshaping multistate compliance. On one hand, streamlined thresholds simplify rules for smaller merchants; on the other, new digital taxes and delivery fees add layers of complexity. Sellers who proactively monitor these updates and use tax automation tools will be better equipped to remain compliant — and profitable — in 2025’s changing tax environment.

Identifying Where You Owe Sales Tax Without Physical Presence

One of the biggest challenges for remote sellers is determining where they actually owe sales tax. Even if you don’t have a physical office, employee, or storefront in a state, you can still trigger a tax collection obligation under certain conditions. The days when “no physical presence” meant “no sales tax responsibility” are long gone — today, states use a much broader set of rules to define nexus.

Key Triggers for Sales Tax Nexus Without Physical Presence

1. Economic Thresholds:
   If your sales exceed a state’s annual economic nexus threshold — usually $100,000 in gross sales or 200 transactions — you must register and collect sales tax there. Note that many states have now removed the transaction count, focusing solely on total revenue.

2. Inventory Stored in Third-Party Warehouses:
   Even without direct ownership of a warehouse, storing inventory within a state (for example, through Amazon FBA or another fulfillment partner) can establish nexus. Several states, such as Texas and California, treat warehouse-stored goods as a physical presence, obligating sellers to collect sales tax from customers in that state.

3. Affiliate or Advertising Relationships:
   If you work with local affiliates, influencers, or advertisers who drive sales in a specific state, that activity can create an affiliate nexus. Some states — like New York and Pennsylvania — have clear rules stating that sustained marketing relationships qualify as sufficient presence.

Understanding the “Inventory Nexus” Gray Area

It’s important to recognize that inventory nexus blurs the line between physical and economic presence. Even though your company doesn’t lease or operate the facility, the location of your goods inside a fulfillment warehouse is legally considered an extension of your business. Because each state defines this differently, reviewing state-specific Department of Revenue guidance is essential.

Monitor and Maintain Compliance Proactively

The safest way to stay compliant is to continuously track your sales activity by state. Use automated tax tools or ERP integrations to monitor both your transaction value and product locations. Once you approach a state’s threshold, register early to avoid penalties and backdated tax liability.

By staying aware of these triggers and maintaining good data visibility, you can confidently manage multistate sales tax obligations — even without setting up a single physical location.

Step-by-Step Process for Compliance Without Physical Locations

Managing sales tax across multiple states may seem overwhelming, but once you break the process into clear steps, it becomes far more manageable. The key is consistency — setting up systems to monitor thresholds, automate tax collection, and file returns on schedule. Below is a practical, step-by-step roadmap to stay compliant without ever setting up a physical presence.

1. Audit Your Sales by State and Track Thresholds

Start by identifying where you’ve made sales and how much revenue those sales represent. Many businesses underestimate their exposure because they don’t track sales geographically.

• Use tax automation tools like Avalara, TaxJar, or TaxCloud to generate real-time reports by state.

• Monitor both gross sales and transaction counts (if applicable).

• Compare your figures with each state’s economic nexus thresholds — typically $100,000 in annual sales.

Once you’re approaching a threshold in any state, begin preparing for registration. Being proactive prevents retroactive penalties and interest on uncollected taxes.

2. Register in Applicable States

When your business meets or exceeds a state’s threshold, you must register with that state’s Department of Revenue (DOR) before collecting sales tax. Registration can usually be completed online within a few days.

• Keep records of your account numbers and filing credentials for each state.

• If you sell through marketplaces (like Amazon or Etsy), check whether the platform already remits tax on your behalf. Even if it does, you may still need a seller’s permit for reporting.

Registering early demonstrates good faith compliance and ensures you can legally collect tax from customers.

3. Collect and Remit Sales Tax Correctly

Once registered, you’re required to collect the correct sales tax on each taxable transaction. That includes both state and local taxes, which vary by ZIP code.

• Integrate automated tax calculators into your checkout system (Shopify, WooCommerce, etc.).

• Display taxes transparently at checkout to avoid customer disputes.

• Remit collected taxes according to each state’s schedule — monthly, quarterly, or annually.

4. File Returns and Maintain Accurate Records

Even if no sales tax is due in a given period, most states require you to file a zero-return report. Missing a return can trigger late fees or account suspension.

• Keep digital copies of invoices, exemption certificates, and payment confirmations for at least three to five years.

• Reconcile your reported sales with actual bank deposits to catch discrepancies early.

• Use automated filing services (e.g., Avalara Returns or TaxJar AutoFile) to reduce manual workload.

5. Handle Exemptions and Resale Certificates Properly

If you sell to resellers, wholesalers, or nonprofits, certain transactions may be sales tax–exempt. To claim exemption legally:

• Collect and store valid resale or exemption certificates.

• Verify each certificate’s authenticity and expiration date.

• Maintain organized digital records for audit protection.

Improper exemption handling is one of the most common causes of state audits — meticulous recordkeeping prevents costly disputes.

6. Monitor Policy Changes and Threshold Updates

Sales tax laws evolve constantly. What’s compliant this year may be outdated next year.

• Subscribe to tax update newsletters from Avalara, Tax Foundation, or state revenue departments.

• Schedule quarterly compliance reviews to reassess thresholds and filing requirements.

• If you operate internationally, monitor VAT or GST equivalences to ensure seamless global compliance.

Marketplace & Platform Considerations

For many online sellers, major platforms like Amazon, eBay, Etsy, and Shopify have made multistate sales tax compliance much simpler — at least on the surface. Thanks to the Marketplace Facilitator Laws enacted in nearly every U.S. state, these platforms are now legally required to collect and remit sales tax on behalf of third-party sellers for transactions that occur on their marketplaces.

This means that if you sell through Amazon’s marketplace, the company itself — not you — is responsible for charging the correct sales tax rate, collecting it at checkout, and remitting it directly to the appropriate state authorities. Similarly, Etsy and eBay automatically handle tax calculations and submissions for the majority of U.S. states. These laws were introduced to streamline compliance and reduce administrative burdens on small businesses that sell nationwide.

However, sellers still carry important responsibilities:

• Recordkeeping: You must maintain detailed reports of all marketplace sales and verify which transactions were taxed and remitted on your behalf.

• Own Website Obligations: Marketplace laws apply only to transactions processed through those platforms. If you also sell on your own website or other channels, you’re still responsible for collecting and remitting sales tax independently for those orders.

• Audit Readiness: During audits, states may request proof that your platform handled remittance properly. Keep monthly or quarterly reports downloaded directly from each marketplace dashboard.

For example, Amazon automatically collects and remits sales tax in nearly all U.S. states under these laws. However, you can view a breakdown of which orders were taxed and which weren’t in the Amazon Seller Central Tax Report. Cross-referencing this data with your accounting software ensures accurate reporting and avoids duplication errors.

While marketplace facilitator rules have simplified compliance, they haven’t eliminated it. Sellers operating across multiple platforms must still understand the boundaries of each platform’s tax responsibility and maintain clear, organized documentation. Doing so ensures your business remains compliant — and audit-proof — even as sales span multiple digital ecosystems.

Common Pitfalls & How to Avoid Them

Even with the best intentions, many remote sellers stumble into costly compliance errors when managing multistate sales tax. The problem isn’t just complexity — it’s the small, overlooked details that quietly add up to penalties, overpayments, or even audit risks. Below are the most common mistakes eCommerce businesses make and how to avoid them.

1. Ignoring Local (City and County) Taxes

Sales tax in the U.S. isn’t just a state-level issue — local jurisdictions such as cities, counties, and special tax districts often impose additional rates. For instance, a sale in Denver, Colorado may include both state and city taxes, totaling over 8%. Many sellers incorrectly apply only the state rate, leading to undercollection and compliance violations.
Fix: Use geolocation-based tax calculation tools that automatically apply the correct combined rate based on ZIP code and jurisdiction.

2. Applying Incorrect Tax Rates Across State Borders

Tax rates can differ significantly even between neighboring ZIP codes. Sellers who use manual tax tables often apply the wrong rate for customers near state borders, resulting in incorrect remittance.
Fix: Implement automated rate updates through providers like Avalara or TaxJar, which sync real-time data for every U.S. jurisdiction.

3. Delaying State Registrations After Crossing Thresholds

Many businesses unknowingly exceed a state’s economic nexus threshold and delay registration for months. Unfortunately, this can lead to retroactive tax liability — meaning the state may require you to remit taxes you didn’t collect.
Fix: Review your sales data monthly to identify threshold triggers early. Register in any new qualifying state immediately once the threshold is reached.

4. Poor Recordkeeping and Data Inconsistency

Inconsistent or incomplete recordkeeping is one of the biggest red flags during a sales tax audit. Missing invoices, unverified exemptions, or mismatched figures between systems make reconciliation difficult.
Fix: Store all sales, invoices, and exemption certificates digitally. Use cloud accounting tools that automatically sync order and tax data from your eCommerce platforms.

5. Failing to Keep Up With Policy Changes

Sales tax laws evolve every year. In 2025 alone, over a dozen states changed their economic nexus thresholds, while others added new taxes on digital products or delivery fees. Businesses that fail to track these updates often apply outdated rates or file incorrect returns.
Fix: Subscribe to state Department of Revenue updates or tax compliance newsletters, and conduct quarterly compliance audits.

6. Relying Solely on Manual Filing Without Professional Review

Even with automation, tax filings still benefit from human oversight. Small mistakes — like misreporting exempt transactions — can lead to fines or double payments.
Fix: Use automated tax software for calculations and filing, but schedule at least one annual review with a professional tax advisor who specializes in multistate compliance.

Tools, Software & Service Providers for Multi-State Sales Tax

When it comes to managing multistate sales tax without physical offices or a dedicated accounting team, automation is your strongest ally. Today’s compliance software can calculate, collect, and even remit sales tax across all U.S. jurisdictions — saving time, reducing errors, and preventing costly penalties. Here are some of the most trusted tools and service providers used by modern eCommerce businesses.

1. Avalara

Avalara is one of the most widely used tax automation platforms in the U.S. It integrates seamlessly with Shopify, WooCommerce, Amazon, and hundreds of ERP systems.
Key Features:

• Real-time rate calculation for 13,000+ U.S. tax jurisdictions.

• Automatic filing and remittance services.

• Built-in tracking for economic nexus thresholds.

• Global tax compliance (VAT, GST) for international sellers.
  Best For: Medium to large sellers managing multi-state or multi-country compliance.

2. TaxJar

TaxJar (a Stripe company) is favored by small to mid-sized online businesses for its simplicity and transparent pricing.
Key Features:

• Real-time sales tax calculations and economic nexus monitoring.

• Automatic filing (AutoFile) in all major U.S. states.

• Simple dashboard for multi-channel sales tracking (Shopify, Amazon, Etsy, Walmart).
  Best For: Small businesses and startups needing a reliable, low-maintenance system.

3. TaxCloud

TaxCloud offers cost-effective sales tax automation for both small businesses and enterprise-level retailers.
Key Features:

• Free tax calculations for many states participating in the Streamlined Sales Tax program.

• Affordable pricing for non-member states.

• Integration with WooCommerce, BigCommerce, and Magento.
  Best For: Sellers operating primarily within U.S. borders who want to minimize costs.

4. Vertex

Vertex provides enterprise-grade tax automation and reporting.
Key Features:

• Advanced jurisdictional rate mapping and analytics.

• Support for complex business models (wholesale, B2B, hybrid).

• Multi-country compliance and deep ERP integrations.
  Best For: Large eCommerce or SaaS companies with complex supply chains and global sales.

Choosing the Right Platform

When selecting a provider, consider:

• Your business size (small vs. enterprise).

• Number of states where you have nexus.

• Integration compatibility with your eCommerce or accounting platform.

• Pricing model: Per transaction vs. monthly subscription.

Each of these tools helps simplify compliance while reducing manual workload — allowing you to focus on scaling sales instead of worrying about filing deadlines and rate updates.

Case Study: A Remote Seller’s Journey

To better understand how multistate sales tax compliance works in real life, let’s look at a fictionalized example based on common patterns observed among remote sellers in 2024–2025.

Meet “Luna & Co.”, a small, family-run eCommerce brand based in Oregon — one of the few U.S. states without a statewide sales tax. Luna & Co. sells eco-friendly home goods primarily through its Shopify store and Amazon marketplace listings. Because Oregon has no sales tax, the founders assumed they didn’t need to worry about it elsewhere. For their first year, business was simple — until growth brought unexpected complexity.

The Problem

By mid-2024, Luna & Co. had expanded nationally, reaching over $150,000 in annual online sales, including $40,000 to customers in California, $35,000 in Washington, and $20,000 in Texas. Without realizing it, the brand had triggered economic nexus in all three states.
Months later, they received a notice from the Washington Department of Revenue requesting registration for unpaid sales tax and historical filings. A short audit revealed $6,000 in uncollected sales tax and potential penalties.

The Compliance Process

Instead of panicking, the founders sought help from a tax consultant, who guided them through a three-step compliance process:

1. Retroactive registration and voluntary disclosure — mitigating penalties.

2. Integration of TaxJar with their Shopify store to automate future tax collection.

3. Monthly reconciliation using reports from Amazon’s Marketplace Facilitator remittances.

Within three months, Luna & Co. became fully compliant across all states where it had nexus.

The Outcome

While the process was tedious, the benefits were clear. The company avoided major fines, gained confidence in expanding to new states, and even increased customer trust by showing transparent tax calculations at checkout. More importantly, automated compliance freed up nearly 10 hours per week, allowing the founders to focus on product development.

Lesson learned: Compliance isn’t just about avoiding penalties — it’s about building a business that scales safely.

Conclusion & Key Takeaways

The rules of multistate sales tax have changed forever — and ignoring them is no longer an option. Even without a physical presence, your business can easily trigger economic nexus in multiple states through online sales alone. The key to staying compliant isn’t complexity; it’s organization, automation, and awareness.

By tracking thresholds, registering early, and using trusted automation tools like Avalara or TaxJar, you can eliminate most manual errors and protect your margins. Regularly reviewing state policy updates — especially around digital goods, marketplace facilitator laws, and local tax changes — ensures that your strategy remains up to date.

Finally, treat sales tax compliance as a long-term operational process, not a one-time project. The businesses that thrive across states are those that systematize compliance, embrace data visibility, and rely on experts when needed. With clear systems and reliable partners, you can scale your online store confidently — no physical offices required.