Updated – Originally published June 21, 2023
In 2018, a single Supreme Court case reshaped sales tax collection across the U.S. — South Dakota vs. Wayfair, Inc. This landmark ruling changed how states determine when a business is required to collect and remit sales tax, even if that business has no physical presence in the state.
If you sell online or across state lines, understanding the Wayfair decision — and what it means for your company — is essential.
What Was the South Dakota v. Wayfair Supreme Court Case?
South Dakota v. Wayfair, Inc. was a 2018 U.S. Supreme Court case that granted states the authority to require out-of-state sellers to collect and remit sales tax based on economic activity, not just physical presence.
Before this case, under Quill Corp. v. North Dakota (1992), states could only require tax collection if a business had a physical nexus — such as an office, store, or warehouse — within their borders.
Wayfair overturned that limitation. It established the concept of economic nexus, which means that a company may owe sales tax in a state if it meets specific economic thresholds (like total sales or transaction count), even if it operates entirely online.
Most states now enforce their own version of this rule, typically modeled after South Dakota’s original law.
What Did South Dakota vs. Wayfair Mean for Online Sellers?
The Wayfair decision dramatically expanded sales tax obligations for online retailers, e-commerce sellers, and remote service providers.
Under Quill, online sellers without a physical presence were off the hook for collecting state sales tax. After Wayfair, that exemption disappeared.
Today, many businesses must register, collect, and remit sales tax in multiple states — sometimes in dozens of jurisdictions — simply because they meet economic nexus thresholds.
For example:
- Selling over $100,000 in goods or services into a state, or
- Conducting more than 200 separate transactions with customers in that state
(Thresholds vary by state — some as low as $10,000, others as high as $500,000.)
What Is Sales Tax Nexus?
Nexus is the legal connection that determines whether a business must collect and remit sales tax in a state. Think of it as the “trigger” for sales tax obligations.
How Did Quill Define Nexus?
Before Wayfair, only physical nexus counted. A company needed a tangible presence — like a store, office, warehouse, or even a remote employee — to establish nexus.
If you didn’t have boots on the ground, you likely didn’t have to worry about sales tax there. These rules stemmed from long past case–National Bellas Hess v. Department of Revenue and Quill.
How Did Wayfair Expand the Definition of Nexus?
Wayfair introduced economic nexus, expanding the definition to include economic activity as a qualifying factor.
In other words, if your business sells enough into a state — regardless of physical operations — you might now be required to register, collect, and remit sales tax there.
➡️ Learn more about economic nexus
Is Physical Nexus Still Relevant After Wayfair?
Yes — physical nexus is still very much alive. Wayfair didn’t erase it; it added a new layer on top.
You’ll still create physical nexus if you:
- Operate a brick-and-mortar location in a state
- Employ staff or contractors there
- Store inventory in a warehouse or fulfillment center (including as an FBA seller)
Even if you already have economic nexus, you may also qualify for physical nexus in multiple states — creating overlapping obligations.
➡️ Read more about physical nexus
Are There Other Types of Sales Tax Nexus?
Absolutely. While economic and physical nexus get the most attention, other forms can also create tax obligations.
What Is Click-Through (Affiliate) Nexus?
Click-through nexus (also called affiliate nexus) originated with New York’s “Amazon Law” in 2008. It applies when in-state affiliates or marketers refer buyers to an out-of-state retailer through links or promotions.
If those referrals generate sales above a state’s threshold, nexus is triggered — even if the seller never steps foot there.
Other types include:
- Marketplace facilitator nexus (for platforms like Amazon, Etsy, or eBay)
- Inventory nexus (for businesses storing goods in third-party warehouses)
- Franchise or drop-shipper nexus (depending on relationships between entities)
What Should Businesses Do After Wayfair?
The Wayfair ruling made compliance more complicated — but not impossible. The key is understanding where you have nexus and building a plan to stay compliant.
How to Evaluate Your Nexus Footprint
Start by reviewing where your customers are and how much you sell in each state. Then, compare that data to each state’s economic nexus thresholds.
If you meet or exceed a state’s threshold, it’s time to:
- Register for a sales tax permit
- Collect and remit sales tax on taxable sales
- Maintain records to support filings and potential audit inquiries
Compliance Strategies for Online Sellers
To stay compliant post-Wayfair:
- Automate tax collection using platforms like Avalara or TaxJar
- Regularly monitor threshold changes — states adjust them often
- Reconcile reports and returns monthly to ensure accuracy
- Seek professional guidance if you’re uncertain — mistakes can be costly
If your nexus footprint is unclear, our team can help you evaluate it.
Call (800) 940-9433 or schedule a free consultation to start your What’s Next sales tax discovery process.
Frequently Asked Questions About Wayfair and Sales Tax
The 2018 Supreme Court decision allowed states to enforce sales tax collection based on economic activity, not just physical presence.
It expanded obligations for online sellers, requiring many to register, collect, and remit sales tax in multiple states.
Yes. Physical nexus remains in effect alongside economic nexus. A business can be liable under one or both rules.
Almost every state with a sales tax has adopted economic nexus laws since Wayfair, though thresholds differ by state.
Other forms include click-through (affiliate) nexus and marketplace facilitator nexus, depending on state regulations.
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