Sales tax for startups: when you might owe it in other states

You don't need an office in a state to owe sales tax there. Here's how economic nexus works.

Sales tax used to be simple: if you had a store or office in a state, you collected its sales tax. Since 2018, selling enough into a state can be enough, even if you’ve never set foot there.

Economic nexus, in plain English

After the Supreme Court’s Wayfair decision, states can require you to collect sales tax once your sales into the state cross a threshold. That’s called economic nexus.

Thresholds vary by state. A common one is $100,000 in sales into the state in a year, and some states also count the number of transactions. Each state sets its own rules and measurement period.

Does it apply to what you sell?

That depends on the state and the product.

Physical products are taxable in most states that have a sales tax.
Software and SaaS are where it gets messy. Some states tax SaaS, some don’t, and some tax it partially.
Services are mostly not taxable, but there are lots of state-specific exceptions.

What to do

Track your sales by state. Your payment processor or billing system can usually report this.
Check thresholds in the states where you sell the most.
Register before you collect. Collecting sales tax without a permit is its own problem.
Use software to calculate and file once you’re registered in more than a state or two.

If you’re already over

If you’ve crossed a threshold and haven’t been collecting, don’t panic, and don’t ignore it. Many states offer voluntary disclosure programs that limit how far back you owe and reduce penalties.

The short version

You can owe sales tax in a state without being physically there. Know where your customers are, check whether what you sell is taxable, and register before you start collecting. If you’re not sure where you stand, we’ll help you sort it out.