Does Your 3PL Become a Nexus for Sales Tax? The Basics of US State Tax Nexus Laws for Ecommerce Businesses
- Nick Malinowski
- Jul 21
- 8 min read
Have you ever thought outsourcing your fulfillment across state lines would shield you from state sales-tax obligations? Think again.
Every one of the 45 states with a sales tax also enforces economic nexus thresholds.
On top of that, “owned inventory sitting in a third-party warehouse” instantly creates a physical nexus as soon as your goods arrive. If you ignore these obligations, you may face surprise audits, back-tax assessments, and penalties that can reach 10% of the taxes due compounded monthly.
At OTW Shipping, we work closely with US-based and international brands who sometimes are taken by surprise by the US state tax system. While taxes are not our specialty, we thought it would be helpful to write an article discussing the basics of how the US economic nexus laws work.
In this article, we’ll unpack how third-party warehousing creates both a physical and economic nexus for your business. We’ll also share a playbook to keep your 3PL operations fully compliant and penalty-free.
Disclaimer: We are a 3PL Fulfillment company, not a professional tax service. This information does not constitute tax advice. OTW Shipping recommends all readers seek professional help from a certified tax advisor for all US tax purposes.
👀 Looking to structure your fulfillment process in the US while operating from abroad? This guide will walk you through the basics. 👀
Does Having Inventory in a 3PL Count As Having a Physical Presence in the State For Tax Purposes?
The short answer is probably yes. If your inventory is managed by a third party, your business is technically considered to have a tangible connection to the state where the warehouse is located.
For example, if you store products in OTW’s fulfillment center in Utah, you create a physical nexus there. This obligates you to register with Utah’s tax authority, collect sales tax on orders shipped to customers in Utah at minimum, and remit those taxes accordingly.
There are of course nuances to this based on which state your 3PL is based in. As we mentioned in the disclaimer, we advise all readers to consult a tax professional in their state for a more detailed answer.
How to Determine If Your Ecommerce Business Has a Physical Presence in a State
Physical presence is complicated but it can generally be established in the following ways:
If you have a remote employee who lives in a particular state.
Maintaining an office, retail store, or other physical facility.
Having employees working in the state.
Storing inventory in warehouses or fulfillment centers.
Participating in trade shows, conventions, or business events.
However, physical presence is only one-half of the ecommerce tax equation. We want to touch a little bit on the other (more recent) type: the economic nexus.
How State Economic Nexus Works For Ecommerce Businesses
US states can collect and remit sales tax from any business that does business within them, even if those businesses are based elsewhere.
For decades, that authority was limited by a clear rule: A business needed to have a physical presence in the state to trigger tax obligations (an office, a bank account, etc). But everything changed in 2018 when the U.S. Supreme Court handed down a landmark decision in South Dakota v. Wayfair.
In the case, the highest court declared that states could require remote sellers to collect sales tax if they exceeded certain economic thresholds – even if they had no physical operations there.
This ruling introduced a new standard: the economic nexus. It allows states to require out-of-state sellers to collect sales tax if their sales cross certain thresholds, which are typically based on:
Total revenue generated in the state (e.g., $100,000)
Number of transactions made in the state (e.g., 200 transactions)
Since Wayfair, more than 40 states have enacted economic nexus laws. South Dakota alone estimates it now collects $38–$48 million annually from out-of-state sellers.
Here’s a great graphic we picked up from Avalara breaking down the economic nexus limits by state:
If Your D2C Business Has a Physical Presence in a State But Doesn’t Meet the Threshold For Economic Nexus, Do You Need to Collect Sales Tax?
In this case, yes you would need to collect sales tax on orders to that state. This is based on the classic rules for brick-and-mortar businesses. If you have a storefront (business address, employees, storage), you sell in that state and therefore collect sales tax.
If Your D2C Business Has a Physical Presence But Doesn’t Have Customers In a State, Do You Need to Remit Sales Taxes?
If this rare situation were to occur, you would not need to remit sales tax to that specific state.
Sales tax is based on the sale of taxable goods or services to end customers. You only collect and remit sales tax:
When a sale is made, and
When that sale is to a customer located in a state where you have nexus (physical or economic).
However:
You will be obligated to register for a sales tax permit in that state, even if you’re not actively collecting tax yet.
You don’t have to file sales tax returns with remittance until you have taxable sales to report.
This can change depending on the state as some states require you to at least send in a return even if it shows $0.
But while you may evade sales tax, physical presence opens you up to things like:
Franchise tax
Corporate income tax
Gross receipts tax
etc
We recommend you don’t establish a physical presence in a state if you don’t plan to ever sell there.
If You Make D2C Sales in a State Where You Don’t Have Physical Presence or Economic Nexus Do You Need to Collect Sales Tax?
You do not expressly need to collect or remit sales tax in a state where you do not meet the requirements for physical presence or economic nexus.
However, online sources claim that while you’re not required to collect sales tax in those states, your customers may be liable to pay that tax themselves.
To mitigate this inconvenience to your customers, you can choose to collect sales tax and remit it for them. Collecting the tax for your customers eases their burden in those states. There are many great sales tax software that let you collect tax in states where you don’t have nexus.
Origin‑Sourcing vs. Destination‑Sourcing Tax Models
Most small ecommerce brands regularly overlook sales tax sourcing, a mechanism which determines where a sale is considered taxable. States divide how they perform tax sourcing in two ways:
In origin-based states, sales tax is applied based on the seller’s location (or the location of the warehouse or fulfillment center).
In destination-based states, the tax is determined by the buyer’s delivery address.
Currently, Washington, D.C. and most US states use destination-based sourcing. Only 12 states follow an origin-based model, where sellers charge tax based on their own location:
Arizona
California (Hybrid: state, county, and city tax is origin-based. District tax is destination-based)
Illinois
Mississippi
Missouri
New Mexico
Ohio
Pennsylvania
Tennessee
Texas
Utah
Virginia
If you store inventory in one of these 12 states or operate your business there, you’ll likely need to charge a flat tax rate for all in-state customers based on your nexus location, regardless of their ZIP code. Everywhere else, tax must be calculated dynamically per transaction based on the buyer’s address and whether you meet the economic nexus or have a physical nexus in that state.
Taxing Remote Sales Across State Lines
When selling across state lines without a physical presence in the buyer’s state, you’re considered a remote seller. In these cases, sales tax is generally applied based on the customer’s location, following destination-based rules.
In other words, if you have a taxable connection (nexus) in another state, you’ll calculate tax using that destination’s rate. If you’re shipping into a state where you haven’t established nexus, you generally aren’t required to collect sales tax on those orders until you do (economic or physical nexus).
Which Things Should You Always Track to Make Sure You Meet Ecommerce State Tax Requirements?
Check your annual sales volume.
Does your revenue in a given state exceed $100,000, or did you process 200 or more separate transactions there in the past 12 months? Review your order history across all sales channels to confirm.
Evaluate physical presence.
Do you store inventory in a U.S. warehouse? Operate a pop-up? Employ staff or agents in certain states?
Understand each state’s nexus thresholds.
Rules vary widely. Some include only taxable sales, while others count all gross revenue. Cross-check your data against each state’s specific thresholds.
Know your facilitator exposure.
If you sell through marketplaces like Amazon or Etsy, those platforms may collect sales tax for you, but not always. Make sure you’re still compliant for any direct sales or gaps in facilitator coverage.
Stay current on legal changes.
Nexus laws evolve regularly. Many states are repealing transaction count thresholds or tightening definitions of what is a sale. Monitoring updates and consulting with a tax advisor can help avoid unexpected liabilities.
Missing a nexus obligation can lead to back taxes, penalties, and audits. Meticulous tracking, state by state, is your best defense.
Which Platforms Automatically Handle Ecommerce Sales Tax?
Numeral automates every part of sales tax compliance, including:
Real-time nexus tracking
Automatic registration in new states
Return filing
Remittance.
It also manages exemption certificates, tax-code classification, and even provides virtual mailboxes to satisfy physical nexus requirements where needed.
What sets Numeral apart is its transparent flat-fee pricing.
$75 per return
$150 per registration
It integrates with Shopify, Stripe, Amazon, Walmart, QuickBooks, and more, and offers API support for custom setups.
Avalara is one of the oldest and most enterprise-oriented tax automation platforms on the market.
It supports over 1,400 integrations and can manage tax obligations in all US jurisdictions and several international ones.
Its core products, AvaTax and Avalara Returns, calculate tax in real time, store and verify exemption certificates, prepare and file returns, and remit funds on your behalf.
Pricing is custom-quoted based on your order volume, filing frequency, and system integrations, but typically ranges from several thousand dollars per year and up.
Avalara also offers audit protection and is often used by large retailers, SaaS companies, and high-growth DTC brands needing global scale.
Now owned by Stripe, TaxJar offers a more affordable entry point for small to midsize ecommerce operations.
It calculates taxes in over 11,000 jurisdictions and handles AutoFile returns in all 50 states.
With plans starting at $19/month (or $205/year), it supports multiple store integrations, provides a dashboard for tracking nexus thresholds, and handles sales from marketplaces like Amazon and eBay.
Higher-tier plans unlock unlimited AutoFiles and additional integrations.
While it doesn’t offer the same support coverage or advanced features as Avalara or Numeral, TaxJar is a solid, accessible option for brands under $2M in annual revenue.
TaxCloud is another mature platform geared toward compliance in all 50 states, with a special emphasis on the Streamlined Sales Tax (SST) program. Unlike most platforms, TaxCloud offers free tax calculation and only charges for fillings.
Their tiered pricing starts at $39/month for one return and goes up to $599/month for unlimited returns.
TaxCloud also supports virtual mailboxes, exemption tracking, and integrations with Shopify, BigCommerce, WooCommerce, and accounting platforms like QuickBooks.
It’s particularly valuable for sellers operating in SST member states or those who want a low-cost way to stay compliant with minimal up-front investment.
Want to Streamline Fulfillment in the US? Work With OTW Shipping
While we’re not tax experts, it's part of our job to know a little bit about everything when fulfilling in the USA. And we're happy to hop on a consulting call with any DTC operator curious about expanding operations in the US.
We created our 3PL warehousing and fulfillment service, OTW Shipping to give clients like you the personal touch of a mom-and-pop shop experience with the tech and operations of a massive operator like Shipbob.
When you ship with OTW Shipping, you get:
Fast and accurate fulfillment – 99.99% order accuracy ensures customers get what they expect, on time.
Optimized shipping – Multiple warehouse locations mean lower shipping costs and faster delivery.
Real-time communication – A dedicated support team available through our Slack-like channel, so you always know what’s happening with your orders and can communicate quickly with customers.
Scalable solutions – Whether you're expanding your eCommerce store or breaking into retail, our custom fulfillment plans grow with you.
Ready to give your US customers a five-star experience from checkout to delivery? Fill out our form and let’s start shipping!
🇪🇺 Want to start fulfilling in the EU but are scared of taxes? Read our short article on EU VAT for ecommerce businesses.