Tax Strategy
eCommerce Sales Tax Strategy: A CFO's Guide to Nexus, Marketplaces, and Multi-State Compliance
Most states trigger economic sales tax nexus at $100,000 in revenue or 200 transactions per year, and once crossed you must register, collect, file, and remit in that state. Amazon FBA sellers also create physical nexus wherever their inventory sits, so a $20M FBA brand can carry unfiled exposure across 15 to 20 states. This is the number one surprise at M&A diligence, where multi-state exposure can add $100K to $2M to the deal.
Sales tax is the dullest, riskiest CFO topic in ecommerce. Most brands don't think about it until M&A diligence surfaces multi-state exposure that adds $100K-$2M to the deal-killing pile. Here's the playbook to avoid being that brand.
The two types of nexus
Physical nexus
Any of these in a state creates physical nexus:
- Warehouse or inventory (including FBA inventory in Amazon warehouses)
- Employee or contractor
- Office or business location
- Equipment or property
- In some states, an affiliate or marketing partner
Economic nexus (post-Wayfair, 2018)
Most states use one of two thresholds:
- $100,000 in revenue per year, OR
- 200 transactions per year
Once you cross the threshold in a state, you have nexus from that point forward and must register, collect, file, and remit. A handful of states have higher revenue thresholds ($250-500K) or different transaction counts; check each state individually.
The FBA inventory trap
Amazon distributes your inventory across its national warehouse network. If your units sit in California, Texas, Pennsylvania, and Ohio, you have physical nexus in all four states — even if you never set foot there. Amazon collects the marketplace-facilitator sales tax on your Amazon sales in those states, but:
- Any DTC (non-Amazon) sales to customers in those states are still taxable to you
- You may need to register and file even if you have zero direct DTC revenue in the state
- Pre-2018 inventory exposure may have created additional historical liability
This is the #1 surprise at M&A diligence. A FBA seller with $20M revenue can easily have unfiled exposure in 15-20 states.
Marketplace facilitator laws
All 45 states with sales tax now have marketplace facilitator laws. The marketplace (Amazon, eBay, Walmart, sometimes Shopify) collects + remits sales tax on third-party seller transactions. For Amazon FBA sellers, this means:
- Amazon handles sales tax on Amazon-channel sales
- You still have nexus from FBA inventory
- You're still responsible for non-Amazon channel sales tax in those states
- You may still need to register and file in nexus states even if Amazon is the only collector
Voluntary Disclosure Agreements (VDAs)
If you discover past unfiled nexus, a VDA lets you come forward with limited look-back and reduced penalties. Most states offer 3-4 year look-back (vs unlimited for non-VDA discovery), penalty abatement, and a defined path to compliance.
Cost vs penalty: VDA typically costs 30-50% less than a penalty assessment if the state catches you first. The math strongly favors proactive VDA, especially 12-18 months before M&A.
The right strategy at each stage
| Stage | Strategy |
|---|---|
| $0-1M ARR | Register in home state, monitor economic nexus thresholds |
| $1-5M ARR | Annual nexus analysis, register in states crossed, basic sales tax software ($100-300/mo) |
| $5-20M ARR | Quarterly nexus analysis, full sales tax software (Avalara/TaxJar/Anrok, $300-1,500/mo), VDA any historical exposure |
| $20M+ ARR | Dedicated tax compliance (internal or outsourced), pre-M&A sales tax audit, exposure remediation |
The CFO checklist
- Run nexus analysis across all 45 sales-tax states using revenue + FBA warehouse footprint + employee locations
- Register in all nexus states + start collecting
- Use VDA in any state where past liability is meaningful
- Implement sales tax software (Avalara, TaxJar, or Anrok)
- Reconcile sales tax filings to GL quarterly
- Audit nexus annually for changes (new warehouses, growing channels)
Frequently Asked Questions
What is sales tax nexus?
Legal connection requiring a business to collect sales tax. Physical (warehouse/employee/inventory) or economic ($100K rev / 200 transactions per state).
Marketplace facilitator law?
Requires marketplace (Amazon, eBay) to collect/remit sales tax on third-party seller transactions. All 45 sales-tax states have it.
Does FBA inventory create nexus?
Yes. Inventory in an FBA warehouse creates physical nexus in that state.
What is a VDA?
Voluntary Disclosure Agreement. Proactive disclosure with reduced look-back + penalties.
Sales tax strategy at $20M DTC?
Nexus analysis, register in all states crossed, VDA past exposure, full sales-tax software.
Related
Worried about sales tax nexus exposure? Talk to a CFO.