Sales tax does not ask where you live, and for marketplace sales it does not ask you at all

I told a seller in Porto last year that sales tax nexus for foreign sellers was not her problem, because she had never set foot in the United States. That was bad advice, and it was wrong twice over, in opposite directions. Physical presence stopped being the test in 2018. And the panic that replaced my answer, when she read about it herself, was also wrong, because for most of her sales somebody else does the collecting.

Both halves of that answer matter. The first decides whether a state can reach you at all, and it turns on a question about your customers rather than about you, which is the reversal that catches every seller who learned the old rule and never heard that it had been replaced. The second decides whether the obligation lands on you or on the platform you sell through, and for a small seller that difference is the whole burden. The bank question sits right next to this one; Bank Index's list of US banks shows the regulator for each.

I went looking for the actual state pages after that conversation, because the summaries I found disagreed and 2 of them contradicted each other in the same paragraph. I read what 2 revenue departments publish about their own rules. What follows is what replaced physical presence, who collects on a marketplace sale, and the 1 record I would keep from the first month of trading.

There is no single number, and that is the point

California states the trigger and the date plainly. Its page is headed “Use Tax Collection Requirements Based on Sales into California Due to the Wayfair Decision”, and the rule applies to sales “on and after April 1, 2019, and is not otherwise retroactive”. The threshold is 500 thousand dollars: retailers who exceed it “in the preceding or current calendar year are now required to register”.

Washington sets a different bar. From 1 January 2020 a business must register if it has physical presence in the state, or if it has “more than $100,000 in combined gross receipts sourced or attributed to Washington”, or if it is organised or commercially domiciled there.

So the same seller, with the same catalogue, crosses the line in Washington at 100 thousand dollars and in California at 500 thousand. That is a factor of 5 between 2 neighbouring west coast states, and I find it hard to read past that gap, because it means the single most common question about this subject has no single answer. Anybody who quotes you a single national number is quoting a state they happen to know.

What a threshold actually counts

The wording repays 2 minutes of attention, because the states do not count the same thing. Washington measures “combined gross receipts sourced or attributed to Washington”, which is broader than taxable retail sales and pulls in activity a seller might not think of as retail at all. California frames its rule around sales of tangible personal property to California consumers.

The measuring period differs as well. California looks at the preceding or the current calendar year, so a seller who crosses in March is inside the rule for that same year rather than the next one. Washington applies its thresholds in the current or prior year on the same logic.

Two consequences follow from that. A good quarter can put you over the line mid year, without any decision on your part. And the figure that matters is the one measured per state, not your total revenue, which is the mistake I hear most often from sellers who assume a 2 million dollar business must be registered everywhere. It might be registered nowhere, if no single state took more than the threshold.

Your nationality is not part of the question

This is the part that surprises founders most, and I had it wrong for years myself. Sales tax does not ask where the seller lives. There is no treaty to invoke, no residence test, no certificate of foreign status that helps.

The question is where the buyer is. Then how much you sold into that state. A company in Lisbon selling to a customer in Seattle is in exactly the same position as a company in Denver selling to the same customer, which is precisely what the rule was designed to achieve.

That cuts the other way too. Being foreign does not add an obligation either, and I have watched sellers assume it does, then register in 5 states they had no business registering in.

Who actually collects on a marketplace sale

Here is the relief, and it is bigger than the exposure for most small sellers. States write their rules around 3 different roles, and Washington names them: a business can be a marketplace facilitator, a marketplace seller, a remote seller, “or any combination of the three. There are different tax responsibilities depending on which definition a business fits.”

If you sell through a large marketplace, the marketplace is usually the facilitator, and the collecting obligation for those sales sits with it rather than with you. That is not a favour to you. It is how the states made the system enforceable at all, by putting the duty on a few dozen large companies instead of on several hundred thousand small ones, which is also why the relief disappears the moment you sell somewhere the rule does not reach.

So the exposure usually sits outside the marketplace column entirely. It is the direct sales: your own website, your own checkout, your own invoices.

What the marketplace does not cover

Three kinds of sale fall outside the facilitator rules more often than sellers expect. Each lands back on you.

Sales through your own checkout are the obvious one, and they are also the ones a growing shop adds deliberately, because a direct sale keeps the marketplace commission, which means the decision that improves your margin is the same decision that moves a tax duty onto your desk. A shop that runs a marketplace listing and a website is running 2 different tax positions at once, and the website side has nobody standing in front of it.

Wholesale orders taken by invoice are the second kind. They may be exempt with the right certificate from the buyer, and the certificate is a document you have to collect and keep rather than a status you can assume, which is a filing habit rather than a tax question.

Sales through a small platform are the third kind. Facilitator rules generally reach platforms above a threshold, and a niche marketplace with 40 sellers may sit below it in a given state, which means the collecting duty stays with the seller and nobody sends a notice explaining that.

I cannot tell you where each platform sits, because platforms do not publish that per state, and the honest move is to ask the platform in writing which sales it collects on. That is 1 email, and the answer is yes or no per state.

What I would work out, in the order I would do it

Split your sales into 2 buckets before anything else at all. Marketplace sales, where a facilitator is collecting, and direct sales, where nobody is collecting unless you are. That split takes about 3 hours with a payouts report, and it is the 1 number that decides everything after it.

Then look only at the direct bucket. State by state, and only where it is substantial. Most sellers find the answer is 2 or 3 states rather than 45. For the other 42 the question stays theoretical for years.

Then read the actual revenue department page for each of those states, not a summary. The thresholds are published, short, and they change every year or 2. I do not publish a table of all of them here for exactly that reason: a table that is 2 numbers out of date is worse than no table, because somebody will act on it.

Then keep the record from the first month rather than the month you need it. Sales by state, by month, split into 2 columns. That is 1 pivot table. Rebuilding 36 months of it later from platform exports, which typically keep a rolling window of 90 days, is the part that turns a small question into a 2 week project.

None of this is tax advice and I am not the person to give it. A state and local tax specialist answers this properly in about 1 hour, and I have never met a founder who regretted that hour.

Registering is not the end of it

Worth being honest about what crossing a threshold actually starts, because the word register sounds like a single form. It is a permit, then a filing frequency assigned by the state, then a return every month or every quarter or every 12 months, including for the periods when you sold 0 dollars.

The zero returns are the part that catches people out. A seller who registers, then has a quiet year, still files, and a missed return in a state you had forgotten about generates penalties on a tax liability of nothing at all. I have watched somebody pay 3 figures in penalties on 0 dollars of tax, in a state they had registered in defensively 2 years earlier on advice that sounded prudent at the time and turned out to be an annual subscription to a form.

That is the argument against registering early out of caution. I gave that advice for 2 years and have stopped giving it. Registering before you have to converts an obligation you do not yet have into a permanent administrative one. Cross the line first, then register, and keep the record that proves when you crossed.

A short digression about the word nexus

Nexus is a terrible word, and it does real damage. It sounds like a legal doctrine you need a lawyer to approach, and what it means is connection, which is a word a shop owner could have understood on the first reading without anybody's help. Have you enough connection with a state for it to ask you to collect its tax. For 50 years the answer was a warehouse or an employee. The new answer is often just a number of dollars. I find the vocabulary harder to get past than the rule underneath. A shop owner can understand the rule in 1 sentence. Anyway, back to the 2 buckets.

What I could not establish

The full state by state table. More than 40 jurisdictions each set their own threshold and their own effective date. I cannot verify 40 of them in 1 sitting to the standard this paper uses, and a table that is 2 numbers out of date does more harm than no table, because somebody registers on the strength of it. I have given you only the 2 states I read today. Treat every other number you see, including in this paper, as needing a check against the state's own page.

Whether states actually pursue foreign sellers who cross a threshold and never register. I have not found published enforcement figures. I do not know whether any of the 40 states keeps them. My guess is that collection against a company with no United States assets is difficult and rarely attempted, and that the practical risk arrives later, at a sale of the business, when a buyer's diligence asks the question. That is a guess, and I would not build a plan on it, because the version of this that actually bites arrives years later at a sale of the business, when a buyer's advisers ask the question nobody asked at the time and the answer has to be assembled from records that were never kept.

The thing I keep coming back to is how the burden was moved rather than reduced. The states did not simplify anything at all. They shifted most of the collecting onto a handful of marketplaces, and every rule underneath stayed exactly as varied as it had been. A seller who leaves those marketplaces walks straight back into the complexity that was never cleaned up. Nobody I asked will say what share of small sellers know that before they build their own checkout.