In South Dakota v. Wayfair, Inc., the U.S. Supreme Court ruled on June 21, 2018 that a state may require an out-of-state seller to collect its sales tax based on the seller’s economic activity in the state, even if the seller has no property or employees there. The 5-4 decision overturned a physical-presence rule that had stood for over fifty years and cleared the way for every state with a sales tax to reach remote and online sellers. If you sell across state lines, your collection obligations now depend on how much you sell into each state, not where your business sits.
What the Court Decided
Justice Anthony Kennedy wrote the majority opinion, joined by Justices Thomas, Ginsburg, Alito, and Gorsuch. The Court held that the physical presence requirement drawn from Quill Corp. v. North Dakota and National Bellas Hess, Inc. v. Department of Revenue of Illinois was “unsound and incorrect” and overruled both cases.1Supreme Court of the United States. South Dakota v. Wayfair, Inc. (06/21/2018)
Two ideas carried the opinion. A large online retailer’s virtual presence in a state can be as economically significant as a storefront, so a rule that ignored virtual activity did not track the Commerce Clause’s “substantial nexus” requirement. And the physical-presence line was the kind of arbitrary, formalistic distinction the Court had been moving away from in its modern Commerce Clause cases.
The Court did not write a national rule. It approved South Dakota’s law as a workable model and left states free to draw their own lines, so long as they do not discriminate against interstate commerce or impose undue burdens on it. The South Dakota statute the Court blessed required collection from sellers who, in the current or previous calendar year, exceeded $100,000 in gross revenue from sales into the state or completed 200 or more separate transactions delivered into the state, and it barred retroactive enforcement.2South Dakota Legislature. 2016 Senate Bill 106
Chief Justice Roberts, joined by Justices Breyer, Sotomayor, and Kagan, dissented. Roberts did not defend the physical-presence rule on its merits. He argued that “any alteration to those rules with the potential to disrupt such a critical segment of the economy should be undertaken by Congress.”
Economic Nexus, State by State
The rule that replaced physical presence is called economic nexus. What matters is the volume of your sales or transactions into a state. South Dakota’s $100,000-or-200-transactions test became the starting template, and every state with a sales tax has since enacted its own version.
The numbers are not uniform. Most states use $100,000 in sales as the revenue trigger, but some sit higher or lower. The bigger trend is on the transaction side: states have been dropping the 200-transaction count because it swept in small sellers whose dollar volume was trivial. As of mid-2025, at least 15 states had eliminated the transaction threshold entirely, including South Dakota itself, and Illinois followed effective January 1, 2026. Those states now trigger collection on revenue alone.
Five states have no general sales tax and no economic nexus requirement: Alaska, Delaware, Montana, New Hampshire, and Oregon. Alaska is a partial exception because local municipalities there can impose their own sales taxes, and some Alaska localities require remote-seller collection through a multistate compact.
If You Sell Through a Marketplace
Every state with a sales tax has enacted a marketplace facilitator law. Those laws put the collection and remittance obligation on the platform, not on the individual seller. Amazon, for example, handles sales tax collection and remittance on all orders shipped to states where marketplace tax collection applies, and third-party sellers do not remit those taxes a second time.3Amazon. US Marketplace Tax and Regulatory Fee Collection FAQ
You are not entirely off the hook. You may still have a reporting obligation for tax the platform collected on your behalf, and the platform does not handle any income or gross receipts taxes triggered by those same sales. If you sell both through a marketplace and through your own website, the direct sales are yours to tax, and you need to track each channel on its own. In some states, a seller whose entire volume flows through a marketplace can request non-reporting status for sales tax while staying registered.
If You Sell Direct to Customers
Direct sellers carry the full weight of state-by-state compliance. The cycle looks the same everywhere, but the details change at every border.
- Track your sales, and where applicable your transaction count, into each state. Once you cross a state’s threshold in the current or previous calendar year, the collection obligation attaches.
- Register with the state’s tax authority before you begin collecting. Most states charge nothing to register; a few charge a small application fee.
- Charge the correct rate. Sales tax rates vary not just by state but by city, county, and special taxing district, and a single state can have hundreds of rates depending on the delivery address.
- File returns and remit the tax on the state’s schedule, which may be monthly, quarterly, or annually based on your volume.
The Streamlined Sales and Use Tax Agreement, which about half the states participate in, softens some of this. Member states run a central registration system that lets you sign up for multiple states at once without registration fees, publish free electronic databases of rates and jurisdiction boundaries, and give sellers liability protection for relying on those databases in good faith.4Streamlined Sales and Use Tax Agreement. Streamlined Sales and Use Tax Agreement Certified service providers can handle the calculation and remittance for you. In non-Streamlined states, compliance is more manual, and many sellers pay for commercial tax automation rather than track dozens of jurisdictions by hand.
If You Missed a Threshold
A seller who crossed a state’s threshold and failed to register and collect faces the same consequences as any business that owes tax it never remitted. The specifics vary, but they typically include back taxes for the period of noncompliance, interest, and a penalty calculated as a percentage of the tax due.
There is a way to come in from the cold. The Multistate Tax Commission runs a Multistate Voluntary Disclosure Program that lets a business approach participating states to negotiate compliance. In exchange for registering and paying back taxes for a limited lookback period, the state typically waives penalties and forgives liability for periods before the lookback window.5Multistate Tax Commission. Multistate Voluntary Disclosure Program Procedures Many states run their own voluntary disclosure programs with similar terms.
Timing matters. Once a state contacts you about a potential obligation, you generally lose the ability to enter voluntary disclosure for that tax type. If you suspect you have unfiled obligations, coming forward before the state finds you is the safer play.
Ripples Beyond Sales Tax
Wayfair decided a sales tax case, but its reasoning has spread. Many states have adopted or expanded economic nexus standards for corporate income tax and franchise tax on the same logic: enough revenue from a state can be enough to tax, whether or not the business has anything physical there.
The Multistate Tax Commission’s model statute sets factor presence thresholds for income tax nexus at $50,000 in property, $50,000 in payroll, or $500,000 in sales within a state. Several states use versions of this standard, with their own numbers. A national seller can end up filing income tax returns in states where it has no employees or offices, purely because sales into the state cross the line. Some states apply franchise taxes or gross receipts taxes on the same basis. If your volume in a state triggers sales tax collection, check whether that same volume triggers income or franchise tax there too. Those are separate obligations with separate registrations and filings.
Why Congress Hasn’t Unified This
The dissent asked Congress to take over. Congress has not. A Government Accountability Office report noted that as of early 2026, no comprehensive federal legislation had been introduced, though a Senate subcommittee held hearings on the topic in 2024 and a legislative discussion draft was circulated. The GAO concluded that “a comprehensive approach has yet to be adopted” to address the multistate complexities sellers face.6U.S. Government Accountability Office. Remote Sales Tax: Federal Legislation Could Resolve Some Complexities
Without a federal rule, compliance stays a patchwork. Each state sets its own thresholds, defines its own tax base, and runs its own registration and filing systems. The Streamlined Sales Tax Agreement takes some friction out in the states that joined, but it covers only part of the country. Until Congress acts, sellers navigate 46 sales tax regimes on their own.