Economic Nexus Thresholds

What "economic nexus" actually means

Nexus is the legal connection between a business and a state that gives the state the power to make that business collect and remit its sales tax. For most of US history, that connection had to be physical: an office, an employee, a warehouse, inventory, or a salesperson stepping across the state line. A seller in one state could ship a package into another state and owe nothing to the destination state, because mailing a box was not "physical presence." That rule, set by the Supreme Court in Quill v. North Dakota (1992), governed remote selling for a generation.

Economic nexus replaced that physical-presence test for remote sellers. It says a state may require you to collect its sales tax once your sales into the state cross a numeric threshold — a dollar amount, a transaction count, or both — even if you never set foot there. The connection is economic rather than physical: enough business activity directed at the state's residents is treated as a sufficient reason for the state to tax those sales. This is why a Wyoming LLC owned by someone in Lagos, Manila, or Berlin can end up registered for sales tax in Pennsylvania or Georgia despite never visiting the United States.

For a non-resident running a Wyoming LLC, this is one of the most misunderstood obligations in the entire US tax picture. People conflate it with income tax, with federal filings like Form 5472, or with Wyoming's own rules. It is none of those. Sales tax is a separate, state-level, transaction-level tax, and economic nexus is the trigger that pulls you into a state's system. You can owe zero US income tax and still be legally required to collect sales tax in a dozen states.

The Wayfair decision that created the rule

The modern framework comes from South Dakota v. Wayfair, Inc., decided by the Supreme Court in June 2018. South Dakota had passed a law requiring out-of-state sellers to collect its sales tax once they exceeded $100,000 in sales or 200 separate transactions into the state in the current or prior calendar year. Wayfair and other large online retailers challenged it, relying on the old physical-presence rule from Quill.

The Court overruled Quill. It held that physical presence was no longer the constitutional standard, and that a seller with substantial economic activity in a state could be required to collect tax there. The justices specifically pointed to features of South Dakota's law that made it fair: a meaningful threshold so small sellers were not burdened, no retroactive enforcement, and membership in a simplified, standardized system. Those features became the template most other states copied, which is why the "$100,000 or 200 transactions" pair shows up again and again.

The practical result was a stampede. Within roughly eighteen months of the decision, nearly every state with a sales tax had adopted an economic nexus statute. The thresholds are not identical, the measurement periods differ, and some states have since amended their rules, but the architecture is shared. Understanding Wayfair tells you why the rules exist; understanding each state's statute tells you when you actually have to act.

How thresholds are structured

Almost every economic nexus threshold is built from two possible tests, and a state will use them in one of three ways. The first is a dollar test alone, such as $500,000 in sales with no transaction count. The second is a transaction test alone, which is now rare. The third, and most common, is a combination — and the combination itself comes in two flavors that matter enormously.

The two flavors are "or" and "and." In an "or" state, you have nexus when you cross either the dollar figure or the transaction count, whichever comes first. In an "and" state, you only have nexus when you cross both. This single conjunction changes who gets pulled in. A seller of cheap, high-volume digital goods can blow past 200 transactions while staying well under any dollar figure; in an "or" state that creates nexus, in an "and" state it does not.

A few representative structures, useful as starting points rather than gospel:

Treat every cell in that table as a value to confirm, not memorize. States amend these rules, and several have dropped the transaction-count prong since 2019. The point of the table is to show the shape of the landscape: a cluster of big states at $500,000, a large middle at $100,000, and a meaningful split between "or" and "and" logic.

Where Wyoming itself fits

Founders forming a Wyoming LLC often assume Wyoming's tax stance shields them from all sales tax. It does not, and the confusion is worth dismantling. Wyoming has no state income tax and no franchise tax, which is excellent for income-tax purposes. But Wyoming does have a state and local sales tax, and the state your LLC is registered in has almost nothing to do with where you owe sales tax.

Sales tax follows the customer, not the company. A Wyoming LLC selling to a customer in Ohio is a remote seller into Ohio, and Ohio's economic nexus rule decides whether the LLC must register there. The LLC's Wyoming home base is irrelevant to that Ohio question. Likewise, if the same LLC makes sales to Wyoming residents, Wyoming's own economic nexus rule (a $100,000 threshold) governs those in-state sales. Being a Wyoming entity gives you no special pass anywhere.

For a non-resident, this means the formation state is chosen for liability protection, privacy, and income-tax simplicity — all real benefits — but it is not a sales-tax planning tool. Your sales-tax footprint is determined entirely by where your buyers live and how much you sell to each of them. A US-formed entity does not change that; a non-US person selling the same goods would face the same destination-based analysis.

What actually counts toward the threshold

Measuring your sales sounds trivial until you try to do it precisely, and the details decide whether you have crossed a line. The general rule is gross sales of taxable and, in many states, exempt tangible goods delivered into the state, plus taxable services and digital products where the state taxes them. But states diverge on the edges, and those divergences are where mistakes live.

Several recurring questions matter:

• Marketplace sales. If you sell through Amazon, Etsy, eBay, or Walmart, those platforms are "marketplace facilitators" and generally collect and remit tax on your behalf. Many states exclude marketplace-facilitated sales from your own threshold count, because the marketplace is already handling them. Other states still count those sales toward your personal threshold even though you are not the one remitting. You must check each state.
• Exempt and wholesale sales. Some states count all gross sales toward the threshold, including resale and exempt sales; others count only taxable retail sales. A wholesaler can cross a gross-sales threshold without owing a cent of actual tax, yet still face a registration obligation.
• Services and digital goods. Whether SaaS, downloads, streaming, or consulting count depends on whether the state taxes that category at all, and the rules are inconsistent across states.
• Returns and refunds. Most states measure net of returns, but the mechanics vary.

The safe operating posture is to track gross sales and transaction counts by state every month, and to know, for each state where you are getting close, exactly which sales that state counts. Tools like TaxJar and Avalara exist precisely because this bookkeeping is tedious and state-specific.

A worked example: digital downloads across three states

Concrete numbers make the "or" versus "and" distinction obvious. Imagine a Wyoming LLC run by a non-resident selling a $25 design template as a digital download. Over the trailing twelve months it makes the following sales into three states: 300 transactions into Illinois totaling $7,500; 180 transactions into Texas totaling $9,000; and 50 transactions into New York totaling $600,000 (because a few enterprise buyers placed large orders).

Illinois uses "$100,000 OR 200 transactions." The dollar figure, $7,500, is nowhere near $100,000. But 300 transactions exceeds the 200-transaction prong, so nexus is triggered. The LLC must register in Illinois despite earning only $7,500 there — a fact that stuns founders who watch revenue and ignore order count. Texas uses "$500,000, dollars only." Both the $9,000 in sales and the 180 transactions are below any line, and Texas has no transaction prong, so there is no nexus. Even though Texas saw fewer transactions than Illinois, the structure of the rule produces opposite outcomes.

New York is the instructive case. Its rule is "$500,000 sales AND 100 transactions" — both required. The LLC sold $600,000 there, clearing the dollar prong easily. But it had only 50 transactions, below the 100-transaction prong. Because New York requires both, nexus is not triggered despite $600,000 in sales. Change the conjunction to "or," and the LLC would owe registration immediately. The lesson: read the conjunction before you panic about a big sales number, and watch your transaction count even when revenue is small.

When and how to register

Once you cross a threshold, the clock starts. Most states expect you to register and begin collecting prospectively — typically by the first day of the month or quarter after you cross, often described loosely as "within 30 days." The exact trigger date depends on whether the state measures the current calendar year, the prior calendar year, or a rolling twelve months, so the same set of sales can create different start dates in different states.

The registration sequence is broadly consistent:

1. Confirm you have crossed the specific state's threshold using that state's measurement rule and its definition of countable sales.
2. Register with the state's department of revenue for a sales tax permit. This is usually free or low-cost and done online; you will need your EIN and entity details.
3. Configure tax collection in your checkout (Stripe Tax, Shopify, or your platform's tax engine) so the correct destination rate is charged at the point of sale.
4. File returns on the schedule the state assigns — monthly, quarterly, or annually, usually based on your volume — even in months with zero sales.
5. Remit the tax you collected by each due date.

A subtle but important point: registering in a state generally creates an ongoing filing obligation. Once you have a permit, most states want a return every period whether or not you made sales, until you formally close the account. So do not register casually or "just in case." Register when you have actually crossed, in the states where you have actually crossed, and be deliberate about it.

Physical nexus still exists alongside economic nexus

Economic nexus did not abolish physical nexus; it added to it. You can have a sales-tax obligation in a state with zero economic-nexus-level sales if you have physical presence there. For non-resident e-commerce sellers, the most common trap is inventory.

If you use Amazon FBA (Fulfillment by Amazon) or any third-party logistics provider, your inventory may sit in warehouses across many states, and Amazon moves it without asking you. Stored inventory is physical presence. In states that take this view, holding goods in a fulfillment center creates nexus regardless of how little you sell to customers in that state. The mitigating factor today is marketplace facilitator laws: Amazon collects and remits the tax on the FBA sales themselves, which covers most of the exposure. But if you also sell the same goods off-Amazon (your own Shopify store, say) into a state where FBA inventory sits, the physical nexus from that inventory can reach your non-marketplace sales too.

Other physical-nexus triggers include employees or contractors in a state, an office, attending trade shows in some states, and owning or leasing property. A non-resident with a purely digital, drop-shipped, or print-on-demand operation may have no physical nexus anywhere. A non-resident using FBA almost certainly has physical nexus in several states. Map your inventory and your people before assuming economic nexus is the whole story.

Common mistakes non-resident owners make

The errors here are predictable, and most are expensive only because they compound over time. Watching them deliberately is most of the battle.

• Confusing sales tax with income tax. A non-resident with no US-effectively-connected income may owe no federal income tax, yet still must collect sales tax once nexus is triggered. These are unrelated systems with different triggers, agencies, and forms.
• Assuming the Wyoming entity provides cover. As covered above, the formation state does not determine where you collect. Customer location does.
• Tracking dollars but not transaction counts. Low-price, high-volume sellers trip the 200-transaction prong in "or" states long before any revenue alarm sounds.
• Forgetting FBA inventory. Treating economic nexus as the only test ignores the physical nexus that stored inventory creates.
• Ignoring marketplace nuances. Assuming marketplace sales never count toward your threshold, when some states include them; or assuming you must remit on marketplace sales, when the facilitator already does.
• Registering everywhere out of fear. Over-registration creates a permanent filing burden — a return every period in every state until you close the account — for sales you may never make.
• Treating thresholds as frozen. States amend rules; the figures you memorized in 2020 may be wrong now.

The throughline is that sales tax punishes inattention more than it punishes any single decision. Monthly tracking by state, with both metrics, prevents almost every one of these.

Edge cases worth knowing

A handful of situations sit at the boundary and trip up even careful sellers. Pure service businesses are the first: if you sell consulting, design, or development and the destination state does not tax services, you may have no collection obligation there even at high revenue — but a minority of states do tax some services, and SaaS is taxed in a growing number of states, so "services are never taxed" is false. Confirm the category in each state.

The measurement-period mismatch is the second. A state that measures the prior calendar year and one that measures a rolling twelve months can produce different nexus start dates from the identical sales history. A spike in December might create current-year nexus in one state immediately and only next-year nexus in another. When you cross close to a year boundary, read the period carefully. A related edge case is the seller who crossed a threshold years ago, dropped below it, and assumes nexus lapsed — many states keep you registered and filing until you formally deregister, regardless of later volume.

Finally, there is the trailing-nexus and back-period problem. If you discover you crossed a threshold months or years ago and never registered, you may owe back tax, penalties, and interest, and several states offer voluntary disclosure programs that reduce the look-back period and waive some penalties in exchange for coming forward. The worst move is to keep selling while knowingly uncollected; the back exposure grows with every sale. If you suspect historical exposure across several states, that is the moment to involve a sales-tax specialist or a CPA rather than guessing.

Economic nexus is a state-by-state, customer-driven obligation that has nothing to do with where your company is formed — but a clean, well-documented Wyoming LLC makes every downstream filing easier, from registering for a sales tax permit to setting up Stripe Tax with a valid EIN. If you are ready to put the entity in place, you can form a Wyoming LLC for $397 all-inclusive, with the LLC typically formed in about 24 hours and your EIN obtained in 8 to 10 business days even without an SSN — no US visit, US address, or visa required.