The Hidden Danger: Why Your Sales Tax Nexus Triggers Change Year to Year

Here’s a scenario that happens more often than you’d think. A business owner logs into their accounting software in early 2026, only to discover a compliance notice from a state they didn’t know they owed sales tax in. By then, it’s too late. The clock has already been ticking for months, penalties are accumulating, and the stress of an audit looms large.

Sound familiar? This is precisely why your year-end sales tax nexus review matters so much right now.

Since the 2018 Supreme Court decision in South Dakota v. Wayfair, everything changed about how states determine whether you owe them sales tax. No longer does having a physical office, warehouse, or employee in a state trigger automatic tax obligations. Instead, economic nexus rules have transformed the landscape entirely. Now, reaching certain sales thresholds — typically around $100,000 in annual revenue or 200 transactions — automatically makes you responsible for collecting and remitting sales tax, even if you’ve never set foot in that state.

Think about this: if your business had explosive growth this year, you may have quietly crossed multiple state thresholds without even realizing it. That’s why conducting a thorough year-end sales tax nexus review right now gives you the breathing room to handle new obligations proactively rather than reactively facing audit penalties later.

The worst part? Many businesses discover their nexus obligations only after receiving a compliance questionnaire or, worse, an audit notice. By then, years of back taxes, penalties, and interest have accumulated. A recent survey of online sellers revealed that most are surprised by how many activities actually trigger economic nexus. Every expansion changes your risk profile, and the rules move faster every year.

Your year-end sales tax nexus review protects you by giving you control over the narrative before states do.

Understanding Economic Nexus in 2026: More Than Just Numbers

How Economic Nexus Differs From Physical Presence

Let me explain the fundamental shift that tripped up thousands of businesses after Wayfair.

Previously, you had to be physically located in a state; meaning you had an office, warehouse, employees, or property there; for the state to require you to collect sales tax. This made sense in the brick-and-mortar era.

But here’s what changed: economic nexus doesn’t require any physical footprint whatsoever. Instead, it’s purely about dollars and transactions. Sell $100,000 worth of products into North Carolina? Boom, you likely have economic nexus there. Process 200 orders to customers in Illinois? You’re nexus-ed in Illinois now.

The implications are massive. Suddenly, a California software company selling entirely online to customers nationwide triggered sales tax obligations in numerous states without realizing it. E-commerce businesses exploded into uncharted territory, and the complexity multiplied.

Moreover, economic nexus captures far more businesses than physical presence ever did. A small business operating out of a home office, selling exclusively online, might have nexus in fifteen states or more. Traditional compliance structures broke down overnight.

The Wayfair Decision Changed Everything

Understanding the Wayfair decision itself matters because it explains why your year-end sales tax nexus review is non-negotiable.

The Supreme Court ruled that states could require out-of-state sellers to collect sales tax based purely on economic thresholds. Since that June 2018 ruling, all states with sales tax have enacted economic nexus legislation. This decision aligned with what states desperately needed: revenue generation in an increasingly digital economy where traditional sales tax collection methods no longer worked.

The decision also created an enforcement vacuum that states have been steadily filling. Tax authorities realized they’d gained the legal power to require compliance from remote sellers, and many states have responded with increasingly sophisticated auditing mechanisms, data analytics, and enforcement priorities. For businesses, this means the stakes are higher than ever before.

Additionally, the landscape has continued evolving since 2018. States have modified thresholds, changed what counts toward nexus calculations, and refined their laws. Utah and Illinois both dropped transaction count thresholds in 2025, shifting to pure revenue-based determinations. These refinements might seem technical, but they directly impact your year-end sales tax nexus review calculations.

State Thresholds Vary More Than You Think

Here’s where complexity really ramps up during your year-end sales tax nexus review.

Most states use a $100,000 annual sales threshold or 200 transactions as their economic nexus trigger. But critically, the details vary dramatically. Some states only count taxable sales toward the threshold, while others count exempt sales too. Some include marketplace facilitator sales in your calculation, and others don’t.

Consider New York versus New Jersey. New Jersey triggers economic nexus at either $100,000 in sales OR 200 transactions. New York, by contrast, requires BOTH $500,000 in sales AND 100 transactions. That’s a significantly higher bar. If you’re operating across multiple states, tracking these different thresholds becomes a nightmare without proper systems and expertise.

Furthermore, some states measure the threshold year differently. Connecticut and New York use different measurement periods than other states. Illinois counts a cumulative calculation differently than, say, Texas. Your year-end sales tax nexus review must account for these nuanced differences, or you’ll miss crucial obligations.

Additionally, states keep tinkering with their rules. First half of 2025 alone saw over 400 sales tax rate and rule changes across jurisdictions. This frenetic pace makes it nearly impossible for internal teams to stay current without dedicated expertise.

Year-End Sales Tax Nexus Review: Your Accountability Checklist

Track Multiple Sales Channels Across Platforms

Here’s what most business owners miss: calculating your year-end sales tax nexus review across all your sales channels simultaneously.

Many businesses sell through multiple platforms. You might have your own e-commerce website, sell on Amazon, list products on eBay, and use Shopify for mobile sales. Additionally, you might have wholesale accounts where distributors buy from you, and separate B2B revenue streams.

When calculating whether you’ve triggered economic nexus, each channel must be accounted for. Remarkably, some states require you to aggregate sales across ALL platforms and channels into a single calculation. This means your direct website sales, Amazon sales, eBay transactions, and any other revenue sources all add together to determine if you’ve crossed the threshold.

Moreover, this aggregation rule catches many businesses off guard. Someone selling $60,000 through their website and $50,000 on Amazon wouldn’t think they’ve triggered $100,000 nexus. But they have. Your year-end sales tax nexus review must consolidate everything.

Furthermore, if you operate through a spouse’s account, business partner’s channel, or related entity, some states require aggregating those sales too. Understanding “related person” rules in each state becomes essential.

Account for Exempt Sales in Nexus Calculations

Here’s another shocker that trips up many business owners: some states count EXEMPT sales toward your economic nexus threshold.

You’d think that only taxable sales would count, right? After all, you’re not collecting tax on exempt sales anyway. But many states disagree. They count all sales—whether taxable or exempt—toward your economic nexus calculation.

Consider a business selling tangible personal property in conjunction with taxable services. Some states count both toward the threshold, even if the tangible goods are exempt from sales tax in their jurisdiction. Other states separate them. Technically, some states only count certain types of exempt sales.

Your year-end sales tax nexus review must classify each sale correctly to determine your true nexus status. If you’re uncertain whether exempt sales count in your states, that uncertainty is exactly why consulting an expert matters.

Moreover, this becomes especially complicated for businesses selling across multiple product categories. A distributor selling food items (often exempt), cleaning supplies (taxable), and office equipment (taxable) needs to segregate these properly. Getting this wrong by leaving exempt sales out of your calculation could mean missing a nexus trigger entirely.

Monitor Marketplace Facilitator Complications

Let me address a particularly tricky element of your year-end sales tax nexus review: marketplace facilitators.

If you sell through Amazon, eBay, Walmart Marketplace, or similar platforms, those marketplaces may be collecting and remitting sales tax on your behalf. This seems helpful until you realize the complications.

Some states allow marketplace facilitators to handle your sales tax collection while others require you to register separately anyway. Even when the marketplace collects on your behalf, many states still count those sales toward your economic nexus threshold for future obligations. This means you might be hitting nexus thresholds even though the marketplace is handling tax collection.

Additionally, marketplace facilitator rules vary significantly by state. Some states exclude marketplace sales from nexus calculations entirely, while others include them in full. Your year-end sales tax nexus review must identify which rule applies in each state where you sell.

Furthermore, changes are happening frequently. New states are adopting marketplace facilitator laws regularly, and existing laws keep evolving. What applied last year might not apply this year.

Review Remote Employee and Warehouse Locations

While economic nexus focuses on sales volume, physical nexus still matters tremendously in your year-end sales tax nexus review.

Many businesses maintain warehouses, fulfillment centers, or inventory storage in multiple states. Even a modest amount of inventory sitting in a third-party warehouse in another state triggers physical nexus automatically. This obligation exists regardless of whether you’ve hit economic thresholds.

Additionally, remote employees create nexus complications. During the pandemic, many companies shifted to remote work. An employee working from home in another state might trigger nexus for your business. Some states treat remote employees like physical presence. Others don’t. Understanding which states impose remote employee nexus becomes part of your year-end sales tax nexus review.

Moreover, physical nexus often requires registering for income tax, payroll taxes, and potentially franchise taxes—not just sales tax. A remote employee in a new state might create multi-tax obligations beyond just sales tax.

The 2026 Compliance Landscape: What’s Changing

States Are Tightening Enforcement

Let’s be direct: state tax authorities are getting much more aggressive.

After Wayfair, states discovered a potential revenue goldmine. Remote sellers who previously escaped tax obligations were suddenly fair game. Naturally, states have invested in enforcement infrastructure accordingly. They’re using data analytics to spot discrepancies in filings, sending compliance questionnaires to suspected out-of-state sellers, and conducting targeted audits at increasing rates.

The statistics are compelling. Sales tax audits have increased measurably in recent years, and that trend shows no sign of slowing in 2026. States facing budget pressures are particularly aggressive, viewing sales tax collection as a straightforward way to generate revenue.

Your year-end sales tax nexus review is preventative medicine against this enforcement surge. Early compliance costs far less than penalties, interest, and the operational disruption of an audit.

Automation Doesn’t Replace Human Judgment

Here’s a critical truth that many business owners miss: software and automation tools are essential, but they cannot replace human expertise and judgment in your year-end sales tax nexus review.

Many entrepreneurs rely entirely on e-commerce platforms, accounting software, or basic tax tools to manage their nexus status. These tools are helpful for tracking sales volumes and rates. However, they often lack the contextual knowledge to navigate nuanced state rules, specific exemptions, and unique business situations.

Consider a SaaS company selling software subscriptions. Some states tax SaaS, others don’t. A generic accounting tool might not correctly classify whether you’ve triggered nexus in software-taxing states. Without human review and expertise, you could be missing obligations in multiple states.

Additionally, automation systems frequently lag behind state law changes. States modify their rules faster than software vendors can update their systems. Your year-end sales tax nexus review needs human judgment to catch these gaps that automation misses.

Furthermore, unusual business circumstances—like mergers, expansion into new product lines, or marketplace selling—require expertise beyond what software provides. These situations demand professional analysis to determine proper nexus status.

New Reporting Requirements Are Coming

States are increasingly demanding additional reporting and documentation from remote sellers.

Many states now send “notice and report” requirements to sellers suspected of crossing nexus thresholds. These questionnaires ask detailed questions about your sales activity. Failing to respond accurately or promptly can inadvertently trigger an audit.

Interestingly, these compliance questionnaires are increasingly becoming the first step in many state audit processes. Treating them casually is a significant mistake. Professional guidance in responding to these questionnaires protects your business.

Additionally, some states are implementing marketplace reporting requirements. Amazon, eBay, and other platforms now provide state tax authorities with detailed sales data on sellers. This transparency creates accountability mechanisms that make compliance easier to verify—and violations easier to detect.

Your year-end sales tax nexus review should include assessing whether you’ve received any compliance questionnaires or state inquiries requiring response.

Common Mistakes That Trigger Audits (And How to Avoid Them)

Most audit triggers fall into predictable categories. Understanding these helps your year-end sales tax nexus review focus on risk areas.

First, inconsistent reporting between sales tax returns and your financial records raises red flags immediately. If your company’s financial statements show $500,000 in revenue but your sales tax returns report only $200,000 in taxable sales, auditors take notice. Your year-end sales tax nexus review should reconcile these numbers before states discover discrepancies.

Second, incomplete nexus registration triggers audits. If you’ve hit economic thresholds in multiple states but only registered in a few, state tax authorities will eventually discover the gaps through data matching or information sharing with other states.

Third, late filings or repeatedly missed deadlines signal non-compliance to auditors. States view chronic lateness as potential non-compliance indicators. Your year-end sales tax nexus review should include implementing filing calendars and reminders.

Fourth, insufficient exemption documentation exposes your business significantly. If you claim exempt sales but don’t maintain proper resale certificates, exemption documentation, or certificates of exemption, auditors will disallow those claims during an audit. Your year-end sales tax nexus review must ensure documentation exists for all claimed exemptions.

Fifth, classified transactions incorrectly. Misclassifying services as non-taxable, or tangible goods as exempt, creates audit vulnerability. Your year-end sales tax nexus review should involve product classification verification.

Sixth, failure to register when you should have remains the most common trigger. Many businesses discover too late that they should have registered months or years prior. The accumulated back tax liability becomes devastating.

Why Your Year-End Sales Tax Nexus Review Can’t Wait

Think of your year-end sales tax nexus review as essential preventative maintenance for your business.

The costs of procrastination are severe. Penalties for late registration and uncollected taxes average around 30% of the tax owed, though some states impose penalties as high as 39%. If you owed $50,000 in sales tax over two years and missed it, penalties could push your liability to $65,000 or more. For small businesses, this is catastrophic.

Penalties accumulate silently. Interest compounds monthly on unpaid taxes. The longer you delay compliance, the deeper the hole becomes. Interest rates vary by state but typically run 10-15% annually. Combined with penalties, your original tax obligation might double or triple before you address it.

Audits are increasingly sophisticated. State tax authorities now use advanced data analytics to match information reported by marketplaces, payment processors, and other third parties against seller tax filings. When anomalies appear, audits follow. Your year-end sales tax nexus review preempts this process by ensuring accuracy.

Your business growth depends on compliance. Many lenders, investors, and acquirers scrutinize a company’s tax compliance history. Undisclosed sales tax liabilities create due diligence nightmares during financing or acquisition conversations. Proactive year-end sales tax nexus reviews demonstrate responsible business management.

Voluntary Disclosure Agreements exist for a reason. If you’ve missed nexus obligations in previous years, most states offer Voluntary Disclosure Agreements (VDAs). These agreements reduce your lookback period to 3-4 years instead of potentially much longer, waive penalties, and give you a fresh start. However, you must act proactively—once an audit begins, VDA options disappear. Your year-end sales tax nexus review positions you to pursue VDAs before state initiation becomes necessary.

Conclusion

Your year-end sales tax nexus review is non-negotiable in today’s enforcement environment. The landscape has fundamentally shifted since Wayfair, and states are more aggressive than ever in pursuing compliance.

Here’s what matters most: understanding that reaching economic nexus thresholds in new states is increasingly easy, tracking those thresholds requires expertise across multiple states with varying rules, and missing obligations creates severe financial and operational consequences. The complexity of modern multi-channel selling, marketplace facilitator dynamics, and rapidly changing state rules makes this task far too important for approximation or guesswork.

This is precisely where professional guidance becomes invaluable. While software and automation help track sales volumes, they cannot replace experienced human judgment navigating nuanced state rules, identifying exemptions, and responding to compliance questionnaires. An expert can efficiently conduct your year-end sales tax nexus review, identify any gaps before states do, and position your business for compliance going forward.

Don’t wait until you receive a state compliance notice or audit inquiry. Reach out to My Sales Tax Firm today for a quick, free consultation. Let our experts review your sales tax nexus status, identify any obligations you might have missed, and develop a compliance strategy tailored to your specific business situation. The investment in professional guidance now protects your business far more effectively than facing penalties and audits later. Your business deserves the confidence that comes with knowing you’re compliant and protected.