Sales tax nexus is the connection between your business and a state that legally requires you to collect and remit that state's sales tax. As an online seller, you trigger nexus in two main ways: a physical presence (an office, employee, or inventory in the state) or economic nexus (enough sales into the state to cross its dollar or transaction threshold, commonly $100,000 in sales or 200 separate transactions in a year). Once you have nexus in a state, you must register, charge the correct combined rate, and send the money to that state. To see what a given combined rate does to an order, use the sales tax calculator.
For most of internet history, online sellers only collected sales tax in states where they had a warehouse or office. That changed when economic nexus took hold: now selling enough into a state creates an obligation even with no physical footprint there. The result is that a single small e-commerce shop can owe sales tax in a dozen states it has never set foot in. This guide explains how nexus is triggered, the difference between origin and destination sourcing (which decides whose rate you charge), the five states with no statewide sales tax, and the practical steps to figure out where you have to collect.
The two ways online sellers trigger nexus
Nexus is the test for whether a state can require you to collect its tax. There are two flavors, and you can trigger both at once.
Physical nexus
Physical nexus is the older, simpler standard: you have a tangible connection to the state. Common triggers include:
- An office, store, or warehouse in the state.
- Employees, contractors, or sales reps working there.
- Inventory stored in the state, including stock held in a third-party fulfillment warehouse. This one surprises many sellers, because a marketplace can place your goods in a state you have never visited.
Economic nexus
Economic nexus is based purely on your sales volume into a state, no physical presence required. After a 2018 U.S. Supreme Court decision, states were allowed to set sales thresholds, and nearly every state with a sales tax now has one. The most common threshold is $100,000 in sales or 200 transactions into the state in the current or prior year, though some states use only a dollar figure and the exact numbers vary. Cross the threshold and you must register and start collecting, even if every order shipped from another state. If you sell $120,000 into a state with a $100,000 threshold, you have nexus there.
Origin vs destination sourcing: whose rate do you charge?
Once you know you must collect in a state, the next question is which rate applies, and that depends on whether the state uses origin-based or destination-based sourcing.
- Destination-based sourcing means you charge the combined rate at the buyer's shipping address. The large majority of states use this for goods shipped to customers, which is why online sellers often have to look up a different rate for nearly every order.
- Origin-based sourcing means you charge the rate at the seller's location. A handful of states use this, mostly for sellers located within that same state.
The choice can swing the tax on a single order. Take a $250 order. If your origin location's rate is 6.00%, origin sourcing adds $15.00 in tax for a $265.00 total. If the buyer's destination rate is 8.50%, destination sourcing adds $21.25 for a $271.25 total. Same product, different rule, $6.25 difference in tax.
| Sourcing rule | Rate you charge | Order | Tax | Total |
|---|---|---|---|---|
| Origin (seller at 6.00%) | Seller's location | $250.00 | $15.00 | $265.00 |
| Destination (buyer at 8.50%) | Buyer's address | $250.00 | $21.25 | $271.25 |
For most cross-state online sales, destination sourcing controls, so you charge the buyer's full combined rate. That combined rate is itself stacked from several layers.
Why the combined rate is never just the state rate
The rate you collect at a destination is the sum of several jurisdictions: the state rate plus, often, a county rate, a city rate, and sometimes a special district rate for things like transit or stadiums. They add together into one combined number. Here is how a sample address might stack up:
| Layer | Rate |
|---|---|
| State | 6.25% |
| County | 1.00% |
| City | 0.75% |
| Special district | 0.50% |
| Combined | 8.50% |
On a $300 order, that 8.50% combined rate adds $25.50 in tax for a $325.50 total. Two addresses in the same state, even on the same street in different special districts, can carry different combined rates. This is exactly why destination sellers cannot hard-code one rate per state and why automated rate lookups exist. You can model any combined rate against an order amount in the sales tax calculator.
The five NOMAD states with no statewide sales tax
Five states have no statewide sales tax at all, remembered by the acronym NOMAD: New Hampshire, Oregon, Montana, Alaska, and Delaware. Shipping to a customer in one of these states generally means no statewide sales tax to collect. There is one important wrinkle:
- Alaska has no statewide sales tax, but it allows local governments to levy their own sales taxes, and many do. So a sale into an Alaskan city can still carry a local rate even though the state rate is zero.
- New Hampshire, Oregon, Montana, and Delaware have neither a statewide nor general local sales tax on most goods, though specific excise taxes (on items like lodging, prepared meals, or rental cars) can still apply in some of them.
For a benchmark, sellers often use a round national reference figure of around 7% as a typical combined rate when estimating, but actual combined rates range from 0% in much of NOMAD territory to over 10% in some high-tax cities. Never use a benchmark to actually collect tax; collect the precise rate for the buyer's address.
What is commonly exempt
Even in states that tax sales, not everything is taxable, and the rules differ by state. Two categories are exempt or reduced in many states:
- Groceries. Many states fully exempt unprepared food (the food you cook at home) or tax it at a reduced rate, while prepared or restaurant food stays fully taxable.
- Prescription drugs. Most states exempt prescription medication, and many also exempt some medical devices.
Clothing, digital goods, and shipping charges are treated inconsistently across states, taxable in some, exempt in others. If you sell exempt or mixed categories, you cannot just apply one flat rate to the order total; the taxable items have to be separated out.
Sales tax vs VAT: a quick contrast
US sales tax is fundamentally different from the value-added tax (VAT) used in much of the world. Sales tax is a single-stage tax charged once, to the final consumer, at the point of retail sale; businesses buying for resale pay no sales tax. VAT is a multi-stage tax collected at every step of the supply chain, with each business reclaiming the VAT it paid on inputs, so the tax effectively accrues on the value added at each stage. The end consumer bears a similar burden either way, but the collection mechanics, paperwork, and who remits are very different. If you sell internationally, you handle these as two separate systems; our VAT calculator covers the VAT side.
How to figure out where you have to collect: a checklist
Mapping your obligations comes down to a repeatable process:
- List your physical connections. Identify every state where you have an office, employee, or inventory, including third-party fulfillment warehouses. Each one likely creates physical nexus.
- Pull your sales by state. Total your sales and transaction counts into each state for the current and prior year.
- Compare against each state's threshold. Where your sales cross the dollar or transaction limit (commonly $100,000 or 200 transactions), you have economic nexus.
- Register before you collect. In each nexus state, register for a sales tax permit first; collecting tax without a permit is itself a problem.
- Charge the right rate. For destination states, use the buyer's full combined rate. Watch exemptions for groceries and prescriptions.
- File and remit on schedule. Each state assigns a filing frequency and due dates. Track them, because penalties accrue on late or missed filings.
Because the dollar thresholds and rates change and differ by state, lean on each state's revenue department for the current numbers. The plain-language federal overview at the U.S. government's sales tax guide is a solid starting point for how the system fits together. For the everyday math, whether you are quoting a buyer's total or checking what you collected, the sales tax calculator and, for reverse math, the percentage calculator do the arithmetic in seconds.
Bottom line: nexus decides where you must collect, sourcing decides whose rate you charge, and the combined state-plus-local rate decides how much. Get those three right and your online sales tax is mostly a matter of clean records and on-time filing.
Try it yourself
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Open the Sales Tax Calculator →Frequently asked questions
- What is sales tax nexus for an online seller?
- Sales tax nexus is the legal connection that requires your business to collect and remit a state's sales tax. Online sellers trigger it through physical presence, such as an office, employee, or inventory in the state, or through economic nexus, meaning enough sales into the state to cross its threshold, commonly $100,000 in sales or 200 transactions in a year.
- What is economic nexus and what is the threshold?
- Economic nexus is a sales tax obligation based purely on how much you sell into a state, with no physical presence needed. The most common threshold is $100,000 in sales or 200 separate transactions into the state in the current or prior year, though some states use only a dollar figure and the exact numbers vary. Cross it and you must register and collect.
- What is the difference between origin and destination sourcing?
- Origin sourcing charges the sales tax rate at the seller's location, while destination sourcing charges the rate at the buyer's shipping address. Most states use destination sourcing for goods shipped to customers, so online sellers usually charge the buyer's combined rate. On a $250 order, a 6% origin rate adds $15.00, while an 8.5% destination rate adds $21.25.
- Which 5 states have no statewide sales tax?
- Five states have no statewide sales tax, remembered by the acronym NOMAD: New Hampshire, Oregon, Montana, Alaska, and Delaware. Shipping to these states usually means no statewide sales tax to collect. The exception is Alaska, which has no statewide tax but lets local governments charge their own sales taxes, so an Alaskan city sale can still carry a local rate.
- Why is the sales tax rate different for every order?
- The rate differs because the combined rate stacks state, county, city, and sometimes special district taxes, and most states use the buyer's destination address. A sample address might combine a 6.25% state, 1.00% county, 0.75% city, and 0.50% district rate into an 8.50% combined rate. Two addresses in the same state can have different combined rates, so destination sellers look up each one.
- Does storing inventory in a state create nexus?
- Yes, storing inventory in a state generally creates physical nexus, even if the goods sit in a third-party fulfillment warehouse you never visit. Because marketplaces can place your stock in states to speed up shipping, you can end up with nexus, and a collection obligation, in states you did not realize you had any presence in. Check where your inventory is actually stored.
- How is US sales tax different from VAT?
- US sales tax is a single-stage tax charged once to the final consumer at retail, and resellers pay none on goods bought for resale. VAT is a multi-stage tax collected at every step of the supply chain, with each business reclaiming the VAT it paid on inputs. The consumer bears a similar burden, but the collection mechanics and who remits are very different.
- Are groceries and prescriptions exempt from sales tax?
- In many states, yes. Most states exempt prescription drugs, and many fully exempt unprepared groceries or tax them at a reduced rate, while prepared or restaurant food stays fully taxable. The rules differ by state, and categories like clothing, digital goods, and shipping are treated inconsistently, so you cannot assume one flat rate covers an order with mixed item types.
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