Tax · 2 min read ·
Sales tax after Wayfair: when online sales create obligations
Selling into other states can trigger sales tax long before you open an office there.
If you sell online, you may owe sales tax in states you have never set foot in. That has been true since a 2018 Supreme Court decision called South Dakota v. Wayfair, and it catches growing e-commerce brands every year. This is not a tax article. It is a heads-up, and a description of what to track so your CPA can do the tax part.
What changed
Before Wayfair, a state could generally only require you to collect sales tax if you had a physical presence there. After it, states can require collection once your sales into the state pass a threshold, which most states set somewhere around $100,000 a year, and some also count the number of transactions. That is called economic nexus. The thresholds and rules differ by state and change over time.
How it sneaks up on a growing brand
A brand doing $400,000 a year rarely crosses a threshold anywhere. A brand doing several million crosses them in a dozen states without noticing, because the orders came through the same website as always. The obligation starts when you cross the line, not when someone tells you about it, and the back taxes are owed by you whether or not you collected them from customers.
When we took on the financial side of an online consumer brand, one of the first things we built was tracking of sales by state against each state's threshold, so registrations happened on time and the CPA had what they needed.
What to track, and who does what
Track sales and order counts by ship-to state, monthly. Know where you already have people, inventory or a warehouse, including third-party fulfillment, because that can create nexus on its own. Check whether your platform collects for you as a marketplace facilitator, and where it does not. Then hand that picture to your CPA or a sales-tax specialist to decide where to register and how to file.
Our role is to make sure the numbers exist and the right people are involved. The filings and the tax positions belong to your CPA. That division is the whole point.
What to do with this
- Online sales into a state can create sales-tax obligations without any presence there.
- Thresholds are commonly around $100,000 a year and vary by state.
- Track sales and order counts by ship-to state every month.
- Bring your CPA in before you cross a threshold, not after.
In practice
Where this played out
E-commerce / direct-to-consumer
Multimillion
dollar operation, from an Instagram shop
From an Instagram shop to a multimillion-dollar operation
Helped an emerging e-commerce business navigate rapid growth, develop stronger financial controls, and expand into a multimillion-dollar operation.
Read the case study
Questions this answers
Possibly. Since the 2018 Wayfair decision, most states require collection once your sales into the state pass a threshold, commonly around $100,000 a year. Your CPA can confirm where you have crossed it.
A state's rule that enough sales or transactions into the state create a sales-tax obligation, even with no physical presence. Each state sets its own threshold.
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