.png)
Sales Tax Nexus for Foreign E-Commerce Sellers in the US
Updated: Oct 6
Want this set up for you? See US LLC for Non-Residents: Wyoming formation with your EIN, from $795.
Economic nexus — why physical presence isn't required anymore
In today's digital age, e-commerce businesses are expanding their reach globally, often without a physical presence in the countries they serve. For foreign sellers looking to ship products into the United States, one of the most significant changes is the concept of economic nexus. Unlike traditional sales tax rules that require a business to have a physical presence in a state before collecting and remitting sales taxes, economic nexus laws allow states to impose sales tax collection responsibilities based on the volume or value of transactions within their borders.
This shift means a foreign seller can be required to collect and remit sales tax without owning property, keeping an office or having employees in a state. For example, once your sales to California customers pass $500,000 in a year, California expects you to register and collect its tax, whether or not you have any physical presence there.
As an Enrolled Agent, I often advise clients that understanding economic nexus is crucial because it can significantly impact their financial obligations. Ignoring these requirements could lead to hefty penalties and interest charges from the state tax authorities.
State-by-state threshold basics
Each state sets its own economic nexus threshold. The most common is $100,000 of sales into the state in a year, and some states also count 200 separate transactions. The largest states set the bar higher: California and Texas use $500,000, and New York uses $500,000 together with more than 100 sales. Five states (Alaska, Delaware, Montana, New Hampshire and Oregon) have no statewide sales tax.
Understanding these thresholds is essential for foreign sellers who are shipping products into multiple states because it directly affects when you need to start collecting sales taxes. Failing to meet a specific state's threshold doesn’t mean you can ignore its laws; instead, it means you’re not yet required to collect and remit sales tax until your transactions exceed the established limit.
For example, if you ship products into Texas and your Texas sales are under $500,000 for the year, you do not need to collect Texas sales tax on those shipments. Track sales by state throughout the year, because crossing a threshold starts the obligation quickly.
Marketplace facilitator laws and what they cover for you
Marketplace facilitator laws shift the collection duty to the platform. When you sell through a marketplace such as Amazon, eBay, Etsy or Walmart, the marketplace calculates, collects and remits the sales tax on those orders, and the tax is reported under the marketplace's account, not yours.
Every state with a sales tax has now adopted a marketplace facilitator law, so a foreign seller who sells only through marketplaces has most of the work done for them. The laws do not cover your own website or other direct channels, and some states still expect marketplace sellers to register or file returns, especially sellers with inventory in the state.
For instance, if you sell through Amazon to a customer in California, Amazon collects and remits the California tax on that order. An order the same customer places on your own online store is yours to handle once you have nexus in California.
Registering for sales tax as a non-resident-owned LLC
When setting up a U.S.-based Limited Liability Company (LLC) to conduct business or receive payments in the United States, one of the first steps is registering for any applicable taxes, including sales tax. As a foreign seller with no Social Security Number or Individual Taxpayer Identification Number (ITIN), you’ll need to obtain an Employer Identification Number (EIN) from the IRS before proceeding.
Once your EIN is secured, you can then register for state-level sales tax accounts in states where you meet economic nexus requirements. This process typically involves filling out a simple application form on each state’s Department of Revenue website and providing basic information about your business, such as its name, address, and the nature of its operations.
For example, if your LLC is formed in Delaware and you sell into New York, you register with the New York Department of Taxation and Finance once you pass New York's threshold. You do not register for sales tax in Delaware, which has none. Where the LLC is formed does not decide where you collect; where your customers and your inventory are does.
Common exposure points for dropshippers and FBA sellers
Dropshippers and Fulfillment by Amazon (FBA) sellers face different exposure. A dropshipper usually holds no US inventory, so the question is economic nexus: sales volume by state. An FBA seller's inventory sits in US warehouses, which creates physical nexus in every state where Amazon stores it, regardless of sales volume.
For instance, a dropshipper selling through its own website can pass several states' thresholds in a good year and must register in each one. An FBA seller's Amazon orders are taxed by Amazon under the marketplace facilitator laws, but the physical nexus from the inventory means direct sales into those states are taxable from the first dollar, and some of those states expect a registration.
Both models require careful monitoring of sales volumes and a proactive approach to registering for and collecting applicable taxes as soon as you meet the economic nexus criteria. Ignoring these requirements can lead to significant penalties, so it’s crucial to stay informed about your obligations and take action accordingly.
Building compliance in from day one
Starting a U.S.-based business with an eye towards sales tax compliance is critical for long-term success and avoiding costly mistakes down the line. As you establish your LLC and begin selling products into the United States, it's important to build a robust compliance framework right from the start.
This involves not only understanding economic nexus laws but also staying ahead of changes in state regulations and marketplace facilitator requirements. Regularly reviewing sales volumes against each state’s threshold can help you identify when registration becomes necessary. Additionally, maintaining accurate records of all transactions is essential for timely reporting and avoiding potential audits.
By proactively managing your tax obligations from the outset, you set yourself up for smoother operations and reduced risk over time. This approach not only protects your business financially but also enhances its reputation among customers who value transparency and reliability in their dealings with vendors operating across international borders.
Frequently Asked Questions
Do I need to register for sales tax if my sales are below a state's threshold?
Generally no, if your only connection to the state is sales below its economic nexus threshold. Physical presence is different: inventory stored in a state, including FBA inventory, creates nexus regardless of sales volume. Track sales by state so you know when a threshold is close.
Can Amazon collect sales tax on behalf of foreign sellers in all states?
Yes, for orders placed on Amazon. Every state with a sales tax has a marketplace facilitator law that makes the marketplace responsible for collecting and remitting tax on its orders. Sales through your own website or other direct channels are not covered, and some states still require marketplace sellers to register or file.
What happens if I don't comply with economic nexus requirements?
Non-compliance can result in penalties and interest charges from state tax authorities. It’s crucial to understand your obligations and stay compliant to avoid financial repercussions.
Related Reading
Talk to an Enrolled Agent
This article is general information, not individual tax advice. If you want to talk through your specific situation, book a free 20-minute review or call or text us directly.
Comments