What is economic nexus and does it apply to my Shopify store?

Economic nexus is the legal standard — established by the Supreme Court in South Dakota v. Wayfair (2018) — that allows states to require out-of-state sellers to collect and remit sales tax even when the seller has no physical presence in the state. Before Wayfair, states could only require sellers with a physical presence (office, warehouse, employees) to collect sales tax. After Wayfair, economic activity alone is sufficient to create an obligation.

Almost every state with a sales tax has enacted economic nexus thresholds since 2018. The most common threshold is $100,000 in sales or 200 transactions in the state in a calendar year, though thresholds vary by state and some states have no transaction count component. Once a Shopify seller exceeds a state's threshold, they are generally required to register with that state's tax authority, begin collecting the appropriate sales tax rate, and file periodic sales tax returns.

Shopify provides tools that help sellers apply the correct sales tax rates to transactions and track sales by state, but the platform does not automatically handle nexus determination, registration, or filing. A seller may not realize they have crossed a state's economic nexus threshold until after the fact, creating potential back-tax liability. Sellers with significant multi-state revenue should periodically audit their sales by state and consult a tax professional familiar with state sales tax law. IRS Publication 334 covers federal income tax, but sales tax is a state-level obligation.

This is general tax information, not tax advice. Your situation may differ; consult a licensed CPA before making tax decisions.