When a business must collect sales tax in a state

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A business must collect US sales tax in a state when it has physical presence there or meets that state's economic nexus threshold. Selling into a state starts that duty when the seller reaches the state’s stated sales or transaction test, subject to that state’s registration and collection timing.

State or rule	What creates the duty	Result or timing
Physical presence	A business has a connection within the state	Register at any sales level
California	Qualifying deliveries exceed $500,000 in the current or prior calendar year	Active sellers of tangible property register with CDTFA
Texas	Total Texas revenue reaches $500,000 during the prior 12 calendar months	Collection is due by the start of month four after the threshold month
New York	Receipts exceed $500,000 and delivered goods sales exceed 100 over four sales tax quarters	Register within 30 days, then collect 20 days after registration
Illinois	$100,000 or more from qualifying Illinois property sales during the lookback period	The 200-transaction test ended January 1, 2026
Michigan	Sales exceed $100,000 or transactions reach 200 in the prior calendar year	January 1 after the year the test is met

Physical presence still requires registration

Streamlined Sales Tax Governing Board guidance says registration is required in a state where a seller has physical presence, whatever its sales amount. That rule can apply before a business reaches a remote-seller threshold.

California gives practical examples. A place of business, stored inventory, or representatives who sell, deliver, install, or take orders can create physical presence. Inventory held by a third-party fulfillment center in California also counts.

California sellers that actively sell tangible personal property in the state must obtain a seller's permit from the California Department of Tax and Fee Administration. The state also combines the seller’s qualifying sales with those of related persons for its $500,000 test.

Economic nexus comes from state thresholds

The Supreme Court removed the old physical-presence requirement in South Dakota v. Wayfair, Inc., No. 17-494, decided June 21, 2018. States can now require collection from sellers whose connection is based on economic activity rather than a location.

Many states set economic nexus thresholds for remote sellers. The measuring periods in California, Texas, New York, Michigan, and other named states differ.

Many states use sales or transaction counts as alternative tests. Some states require a seller to meet both tests, and New York is an example.

The definition of sales also differs. Streamlined Sales Tax guidance says states may test gross sales, gross revenue, retail sales, or taxable sales. Many states count taxable and nontaxable sales when measuring whether a seller passed the threshold.

Passing a threshold can create a requirement to collect and remit sales tax.

Marketplace sales can count

Marketplace sales can matter even where the marketplace handles customer tax. California includes marketplace-facilitator sales in its $500,000 calculation.

Texas has included marketplace sales in its threshold calculation since April 1, 2020, including sales where the marketplace collects the tax.

Texas includes taxable, nontaxable, resale, exempt, and marketplace sales when testing its revenue threshold. A seller cannot assume that an exempt customer sale falls outside the Texas calculation.

Examples of state tests

Texas applies its test to remote sellers with $500,000 or more in total Texas revenue during the preceding 12 calendar months.

Michigan tests the prior calendar year. A seller meets its economic nexus threshold through gross sales above $100,000 or by making at least 200 separate transactions with Michigan customers.

Michigan counts taxable, nontaxable, and exempt sales. Michigan applies the rule to sellers outside the United States as well.

North Carolina tests gross remote sales against $100,000 using either the current calendar year or the prior one. Its transaction threshold ended July 1, 2024.

New York requires both tests

In New York, a remote seller registers only after meeting two conditions across the preceding four sales tax quarters. Its receipts must be above $500,000, and its delivered sales of goods must total more than 100.

Those sales tax quarters are March through May, June through August, September through November, and December through February. They are not calendar quarters. Exempt sales and resale sales count toward the 100-sale measure.

The New York State Department of Taxation and Finance gives a remote seller 30 days after passing both tests to register for sales tax. Collection begins 20 days after that registration step.

New York requires a Certificate of Authority from a business planning taxable sales. Goods are taxable in New York unless an exemption applies. Services are generally exempt unless New York specifically taxes them.

A worked Texas timing example

Assume a remote seller passes Texas’s $500,000 threshold during May. The seller must begin collection no later than September 1, which is the start of the fourth month following May.

June is the first month after May. July is the second, August is the third, and September is the fourth.

Texas applies a 6.25 percent state sales and use tax rate. Local tax can add as much as 2 percent, so the combined ceiling is 8.25 percent.

For a taxable $200 sale at that combined rate, tax equals $200 multiplied by 8.25 percent, or $16.50. The customer’s price including tax is $216.50.

When collection begins after nexus

Texas, New York, Michigan, and North Carolina give stated collection timing after a seller passes the relevant test. Their rules do not make collection begin on the day the threshold is passed.

In Texas, collection must begin no later than the day month four starts after the month the threshold is crossed. Michigan starts collection on January 1 following the year when its threshold was met.

New York allows 30 days for registration, then starts collection 20 days after registration.

What business owners should check

Check whether the business has physical presence under the rules of the state involved. California’s examples include a business location, inventory, representatives, and inventory held at a third-party fulfillment center.

Apply the state’s stated threshold and measuring period. Texas counts several kinds of sales, while New York includes exempt and resale sales in its sales-count test.

The Streamlined Sales Tax Governing Board says its guidance is general information and does not override state law.

Common questions

Does one sale into a state create sales tax nexus?

One sale can matter if the business already has physical presence in that state. For remote sellers, the stated economic threshold usually determines when selling creates the duty.

Do marketplace sales count toward a threshold?

They count in California’s $500,000 calculation. Texas also includes them in the threshold calculation, even where the marketplace collects the tax.

Are transaction tests still used?

Michigan still uses a 200-transaction alternative test. Illinois ended its transaction test on January 1, 2026, and North Carolina ended its test on July 1, 2024.

Does passing a threshold start collection that day?

Texas requires collection by the start of the fourth month after the threshold month. New York, Michigan, and North Carolina also have separate collection timing rules for remote sellers.

Sources

• Cornell Legal Information Institute: SOUTH DAKOTA v. WAYFAIR, INC.
• Streamlined Sales Tax Governing Board: Remote Seller State Guidance
• California Department of Tax and Fee Administration: Tax Guide for Marketplace Facilitator Act
• Texas Comptroller of Public Accounts: Remote Sellers
• Texas Comptroller of Public Accounts: Local Sales and Use Tax Collection - A Guide for Sellers
• Texas Comptroller of Public Accounts: Remote Sellers and Marketplace Frequently Asked Questions
• Texas Comptroller of Public Accounts: Sales and Use Tax
• New York State Department of Taxation and Finance: Do I Need to Register for Sales Tax?
• New York State Department of Taxation and Finance: Registration requirement for businesses with no physical presence in New York State
• tax.illinois.gov: FY 2026-12, Destination-Based Retailers' Occupation Tax Changes
• ncdor.gov: Sales and Use Tax Directive 24-1
• ncdor.gov: Important Notice: Extended Compliance Period for Certain Remote Sellers
• michigan.gov: Remote seller faq