What is US economic nexus and when does a Canadian online seller cross it?

Economic nexus replaced the old physical-presence rule in 2018

Economic nexus is a connection to a US state created purely by the volume of sales you make into it. Until 2018, a state could only force a business to collect its sales tax if the business had a physical presence there: a store, a warehouse, an employee. In South Dakota v. Wayfair, the US Supreme Court allowed states to use sales volume instead, and within a few years nearly every state with a sales tax had written an economic nexus rule of its own.

The change matters to Canadian sellers because it was never limited to American businesses. A Brampton company shipping product from Ontario to customers in Illinois has the same obligation as a company shipping from Indiana. Neither the border nor the Canada-US tax treaty helps here, because the treaty covers income tax, not state sales tax.

Physical presence still counts as well. If you store inventory in a US fulfillment centre, use a US third-party logistics warehouse, or have a US-based employee, you have nexus in that state from the first dollar of sales, regardless of any threshold.

Most states use US$100,000 of sales, but the details vary state by state

The most common economic nexus threshold is US$100,000 of sales into the state during the current or previous calendar year. South Dakota's original law also counted 200 separate transactions as a trigger, and many states copied that test at first. A large number have since dropped the transaction count, but not all, so a seller with many low-value orders should check each state rather than assume the dollar figure is the only test.

Three further details differ by state, and as at the time of writing there is no single national rule:

• Which sales count. Some states measure gross sales, including exempt and wholesale sales; others measure only taxable retail sales.
• Which period counts. Most use the current or prior calendar year, but a few use a rolling twelve-month window.
• Where the line sits. A handful of larger states, California and Texas among them, set the threshold at US$500,000 instead of US$100,000.

Five states, Alaska, Delaware, Montana, New Hampshire and Oregon, have no statewide sales tax. Alaska is the exception to the exception: its municipalities levy local sales taxes and run a shared remote-seller programme with its own threshold.

Marketplace sales usually count toward the threshold, even though the marketplace collects the tax

Every state with a sales tax now has a marketplace facilitator law, which makes Amazon, Etsy, eBay and Walmart responsible for collecting and remitting tax on the orders they process. That takes the collection job off your hands for those orders. It does not take those orders out of the nexus calculation in many states: they add your marketplace sales and your direct sales together when testing whether you have crossed US$100,000.

The practical result is that a seller doing US$90,000 through Amazon and US$20,000 through a Shopify store may have economic nexus in a state, with a collection obligation on the Shopify orders alone. A minority of states exclude marketplace sales from the count, so the answer is state-specific. We explain the mechanics in our page on marketplace facilitator laws, and the Amazon-specific answer in does Amazon collect US sales tax for Canadian FBA sellers.

Once you cross, you register, collect on the next sale, and file on the state's schedule

Crossing the threshold starts a sequence of obligations rather than a one-time payment:

1. Register for a sales tax permit with that state's revenue department. A Canadian business normally needs a US Employer Identification Number first, and most state portals accept a Canadian address. Roughly two dozen states also accept a single registration through the Streamlined Sales Tax system.
2. Start collecting the correct rate, which in most states combines a state rate with county, city and district rates that vary by delivery address. Some states allow a short grace period after you cross; others expect collection on the very next order.
3. File returns on the frequency the state assigns, usually monthly, quarterly or annually depending on how much tax you collect. A return is due even for a period with zero sales.
4. Keep the permit current, and close it properly if you stop selling into the state, since an open permit with missing returns generates notices and estimated assessments.

The cost of finding out late is that tax you should have collected from customers becomes your own expense, plus penalties and interest. Most states run voluntary disclosure programmes that limit the lookback and waive some penalties for sellers who come forward before the state contacts them.

Tracking nexus across fifty states needs software, not a spreadsheet

Nexus tracking tools compare your sales by ship-to state against each state's current threshold and flag the ones approaching the line. TaxJar and Avalara both do this and can also calculate the tax at checkout and file the returns; Shopify Tax calculates rates and shows a nexus dashboard inside Shopify but does not file for you. Whichever tool you pick, connect every sales channel to it, including marketplaces, so the count is complete.

The GST/HST side is simpler. Goods shipped to US customers are zero-rated exports for Canadian purposes, so the same order can carry Colorado sales tax and 0% HST at the same time. Our guide to US sales tax for Canadian e-commerce businesses walks through both systems side by side, and the e-commerce accounting hub covers the bookkeeping that ties them together. Sellers running their own storefront carry the whole collection job themselves, which is why our Shopify seller accountant page treats nexus as a standing part of the monthly routine.

How we handle US economic nexus for Canadian sellers

We start with a nexus study: a state-by-state review of your last two years of US sales by ship-to address, marketplace and direct channels separated, measured against each state's threshold as it stands today. From that we produce a short list of states where you must register now, states to watch, and any past exposure worth cleaning up through a voluntary disclosure. Then we set up the tracking tool, connect the channels, and fold the filing calendar into your regular bookkeeping so a new state never arrives as a surprise.