Sales Tax Nexus Glossary and Frequently Asked Questions
Reviewed for 2026, updated September 8, 2026.
Plain-English definitions of the terms you will meet on state websites, registration forms, and audit letters, followed by answers to the questions sellers ask us most.
- Audit
- A formal review by a state's department of revenue of your sales records, returns, and exemption documentation to verify that you collected and remitted the correct tax. Audits can cover several years and typically assess tax on any exempt sale you cannot support with a certificate.
- Click-through nexus
- A pre-Wayfair rule adopted by some states under which a remote seller had nexus if in-state affiliates referred customers through links in exchange for a commission. Most of these rules have been overshadowed by economic nexus, but a few remain on the books.
- Destination-based sourcing
- A sourcing rule under which the tax rate applied to a sale is determined by the location where the customer receives the goods or services. Most states use destination sourcing for remote sales, which means the rate can vary by city and county within a single state.
- Drop shipping
- A fulfillment arrangement in which a seller accepts an order and has a third-party supplier ship directly to the customer. Drop shipping creates layered sales tax questions, because the supplier may need a resale certificate from the seller and the seller may have nexus in the destination state.
- Economic nexus
- A connection to a state created purely by the volume of sales into that state, measured against a dollar threshold, a transaction count, or both, with no physical presence required. Economic nexus became widely enforceable after the 2018 Wayfair decision.
- Exemption certificate
- A document a buyer provides to a seller to establish that a purchase is exempt from sales tax, for reasons such as resale, manufacturing use, or nonprofit status. The seller must keep it on file to justify not charging tax on that sale.
- Filing frequency
- How often a state requires you to submit a sales tax return, typically monthly, quarterly, or annually, with some states also using semiannual schedules. The state assigns your frequency based on expected tax liability and can change it as your volume grows.
- Gross sales
- The total dollar amount of all sales into a state before subtracting exempt, wholesale, or nontaxable transactions. Some states measure economic nexus on gross sales, which can push a seller over a threshold even when most of its sales are exempt.
- Home rule jurisdiction
- A city or county that administers its own sales tax separately from the state, with its own registration, returns, and sometimes its own rules. A few states have many home rule jurisdictions, which adds meaningful complexity for remote sellers.
- Lookback period
- The number of past years a state will examine, and for which it will require back tax, when a seller comes forward through a voluntary disclosure program. Lookback periods are commonly three or four years, and liability before that window is usually forgiven.
- Marketplace facilitator
- An online marketplace that is required by state law to collect and remit sales tax on behalf of the third-party sellers using its platform. Nearly every state with a sales tax has a marketplace facilitator law, though whether those sales count toward a seller's own threshold varies.
- Measurement period
- The window of time over which a state totals your sales to compare them against its economic nexus threshold. Common choices are the previous or current calendar year, a rolling twelve months, or the prior four quarters, and the choice affects when you cross.
- Nexus
- The legal connection between a business and a state that gives the state authority to require the business to register, collect, and remit sales tax. Nexus can be established through physical presence or through economic activity above a threshold.
- Nexus questionnaire
- A letter from a state asking a business to describe its activities in the state, including sales volume, employees, inventory, and property. Receiving one usually means the state suspects you have nexus, and in many states it closes the door to voluntary disclosure.
- Origin-based sourcing
- A sourcing rule under which the tax rate is determined by the seller's location rather than the buyer's. A minority of states use origin sourcing for in-state sales, and even those states generally apply destination rules to remote sellers shipping in from outside.
- Physical nexus
- Nexus created by a tangible presence in a state, such as an office, warehouse, inventory, employees, contractors, or property. Physical nexus exists regardless of sales volume and remains fully in force alongside economic nexus rules.
- Prepayment
- A partial payment of estimated sales tax that some states require from larger filers before the regular return is due, often in the middle of the period. Missing a required prepayment can trigger penalties even if the eventual return is filed on time.
- Registration
- The process of applying to a state for authority to collect sales tax, which results in a permit or account number and an assigned filing frequency. Registration is typically completed online through the state's department of revenue and requires basic business and ownership information.
- Resale certificate
- A specific type of exemption certificate a buyer gives a seller to purchase goods tax free because the buyer intends to resell them. The seller must retain the certificate, and many states require it to be valid and complete at the time of the sale.
- Sales tax permit
- The license or account a state issues after registration that authorizes a business to collect sales tax and obligates it to file returns. Some states call it a seller's permit, a certificate of authority, or a sales tax license, but the function is the same.
- Seller's use tax
- The use tax that some states require out-of-state sellers to collect from in-state buyers in place of sales tax on sales shipped into the state. It is often collected and remitted on a separate account or return, and remote sellers are sometimes registered for seller's use tax rather than sales tax.
- Streamlined Sales Tax
- A cooperative agreement among roughly two dozen member states that simplifies and standardizes certain sales tax rules and offers a single registration system covering all member states. It also supports certified service providers that can handle calculation and filing for sellers.
- Taxability
- Whether a specific product or service is subject to sales tax in a given state. Taxability varies widely, especially for software, digital goods, services, food, and clothing, and having nexus in a state does not by itself mean everything you sell there is taxable.
- Threshold
- The level of sales or transactions into a state above which a remote seller is deemed to have economic nexus. Many states use a dollar threshold alone, while some still pair it with a transaction count, and the figures and counting rules differ by state.
- Trailing nexus
- A rule in some states under which a seller that has established nexus remains obligated to collect for a period of time after the activity that created nexus ends, such as dropping below a threshold. The trailing period varies and is sometimes the remainder of the current year.
- Transaction count
- The number of separate sales into a state during the measurement period, used by some states as an alternative economic nexus test alongside the dollar threshold. A number of states have repealed their transaction count in recent years, but not all.
- Use tax
- A tax owed by a buyer on taxable goods or services purchased without paying sales tax, typically because the seller was not required to collect it. Use tax is the companion to sales tax and exists so that untaxed remote purchases do not escape taxation entirely.
- Voluntary disclosure agreement
- A formal arrangement with a state in which a seller comes forward about past uncollected tax before being contacted, pays the tax for a limited lookback period, and receives a waiver of most penalties. Interest is usually still owed, and many states allow anonymous initial contact through a representative.
- Wayfair decision
- The 2018 United States Supreme Court ruling in South Dakota v. Wayfair that overturned the prior physical presence requirement and allowed states to require remote sellers to collect sales tax based on economic activity. It is the legal foundation for every state's economic nexus law.
- Zero return
- A sales tax return filed for a period in which the seller had no taxable sales or collected no tax in that state. Most states require a return for every period once an account is open, so skipping a zero return can generate penalties and estimated assessments.
Questions people ask
What is sales tax nexus in plain terms?
Nexus is the connection between your business and a state that lets the state require you to collect sales tax from customers there. You can create it by having a physical presence in the state or by selling enough into the state to pass its economic threshold. Once you have nexus, you are expected to register, collect the right tax at checkout, and file returns on the state's schedule.
How did the Wayfair decision change sales tax for online sellers?
Before 2018, a state could only require sellers with a physical presence to collect its sales tax. The Wayfair ruling allowed states to base that requirement on sales volume instead, and nearly every state responded with an economic nexus law. The practical effect is that a seller shipping from one state can now have collection obligations in dozens of others without any office or employee outside its home state.
Which states have no statewide sales tax?
Alaska, Delaware, Montana, New Hampshire, and Oregon do not impose a statewide sales tax. Alaska is the exception worth watching, because many of its local jurisdictions do levy sales tax and administer remote seller rules through a shared commission. The other four generally require nothing from remote sellers on the sales tax side.
Do marketplace sales count toward my economic nexus threshold?
It depends on the state. Some states include sales made through a marketplace facilitator when measuring your threshold even though the marketplace collects the tax, while others exclude them. This matters because a seller with heavy marketplace volume can have nexus in a state and be required to register and file for its direct sales even if the marketplace handles the rest.
How often should I check my sales against state thresholds?
Monthly is the practical minimum for a growing seller, because most states measure over a calendar year or a rolling twelve months and a strong quarter can push you over a line quickly. Checking once a year at tax time often means discovering you crossed a threshold many months earlier. A warning level well below each threshold gives you time to prepare instead of scrambling.
What should I do the moment I cross a threshold in a new state?
Confirm that your count matches how the state measures the threshold, check whether the state gives a grace period before collection must begin, and register through the state's portal with an accurate start date. Then enable tax collection for that state in every system that charges customers, note the assigned filing frequency, and add the due dates to your calendar.
Can I lose nexus in a state if my sales drop?
Sometimes, but not immediately. Many states apply a trailing nexus rule that keeps your obligation in place for a period after your sales fall below the threshold, often through the end of the current year or the following one. Physical nexus continues as long as the physical presence does. If you believe your obligation has ended, most states require you to formally close the account and file a final return.
Is software delivered as a service subject to sales tax?
It varies by state. Some states treat software as a service as taxable software or a taxable data processing service, others treat it as a nontaxable service, and a few have specific rules that depend on how the software is accessed or whether anything is downloaded. Having nexus in a state means you must check its taxability rules for your product, not that you automatically owe tax on it.
What is the difference between sales tax and use tax?
Sales tax is collected by the seller at the time of sale and remitted to the state. Use tax is owed by the buyer on taxable purchases where no sales tax was collected, such as goods bought from an unregistered out-of-state seller. The two rates are typically the same, and the use tax exists so that remote purchases do not escape taxation.
What happens if a state sends me a nexus questionnaire?
Answer it accurately and on time, ideally after reviewing it with a sales tax professional. The questionnaire means the state suspects you have nexus and is gathering facts, and in many states it closes the option of a voluntary disclosure agreement. Ignoring it does not make the inquiry go away and can lead to an estimated assessment based on whatever data the state already has.
Do I need a resale certificate from every wholesale customer?
Yes, for every exempt sale you do not charge tax on. In an audit the state will assess tax, penalties, and interest on any exempt sale you cannot support with a valid certificate, and the burden of proof is on the seller. Collect the certificate at or before the first exempt sale, verify that it is complete, and store it where you can find it by state and customer years later.
Should I register in a state before I actually cross the threshold?
It can make sense when a state is clearly on the horizon and you want the registration and collection settings in place before the crossing date, because some states expect collection almost immediately. The tradeoff is that once registered you must file returns every period, even zero returns, so early registration in a state you may never reach is wasted effort. Make the choice deliberately based on your trajectory.
How do voluntary disclosure agreements work?
You or your representative contact the state before it contacts you, often anonymously at first, and disclose that you had nexus and did not collect. The state agrees to limit the lookback to a set number of years, commonly three or four, and to waive most penalties in exchange for payment of the back tax and usually interest. Once the agreement is signed you register, pay, and file going forward like any other seller.