When a small Oregon supplier of sports equipment started getting regular orders from a notable New York retailer, its business soared and expanded across state lines. A few years later, an ominous audit notice from New York’s tax authorities landed on its CEO’s desk. It turns out that unknowingly, the supplier, which operated from a state that doesn’t levy sales tax, never collected or remitted sales tax on its New York State sales. Now it faces back taxes, penalties, and a financial hit that could wipe out a good share of its hard-earned revenue. This scenario isn’t unusual; it’s a wake-up call for many entrepreneurs who overlook the complexities of sales tax compliance in today’s multi-state marketplace.
Navigating Confusing Nexus Rules
The landmark South Dakota v. Wayfair, Inc. decision in 2018 transformed how businesses handle sales tax across state lines. The U.S. Supreme Court ruled that states could require out-of-state sellers to collect and remit sales tax based on economic activity—like sales volume or transaction count—even without a physical presence. This overturned old rules and unleashed a wave of “economic nexus” standards across the country, making compliance far more demanding for businesses nationwide.
Nexus refers to the legal connection to a state that obligates you to collect and remit taxes. Before the Wayfair ruling, nexus typically meant a physical footprint, like a warehouse or employee. Now, economic nexus triggers based on sales thresholds, such as $100,000 in revenue or 200 transactions annually in many states. For our Oregon supplier, those steady shipments to New York quietly created nexus and raised a red flag for New York tax authorities.
Because standards vary by state, interstate sales tax compliance becomes complex. For example, California sets a $500,000 bar, while Texas sticks closer to $100,000. Some states even factor in affiliate referrals or inventory in third-party fulfillment centers. Businesses expanding online or through distributors often miss these triggers, leading to surprise registrations and filings.
Managing Multiple State and Local Tax Rates
Once nexus is established, tax rates shift not just by state, but by county, city, and even special districts. Imagine a scenario where our Oregon supplier shipped team sweatshirts to two New York high schools that were at the edge of two neighborhoods, where crossing a single block could mean a completely different tax rate.
For multi-channel sellers, like those blending online orders with wholesale deliveries, this creates a minefield of potential errors. Manual tracking invites errors and under-collecting can trigger an audit, while over-collecting frustrates customers and hurts business.
Using geolocation-based automation can eliminate much of this risk by ensuring accurate tax calculations at checkout. For many businesses, the value becomes clear only during audits or reviews, when small discrepancies can turn into significant liabilities. Getting the rates right is the foundation—only then can you move on to determining which products and services are actually taxable.
Handling Taxability of Products and Services
Not every sale is taxed the same way and figuring out what’s taxable can be complex. Physical goods, such as furniture, electronics, or clothing, are usually taxed, but exemptions apply for resale or certain buyers. Additional services, like consultations or subscriptions, may fall under other rules depending on the state. Even product bundles can be complex: one jurisdiction might tax the whole package, another only part of it.
For businesses selling across states, keeping products correctly classified is essential. A simple error, such as marking a taxable delivery fee as “nontaxable shipping”, can lead to penalties. The best defense is a clean, well-coded inventory system and regular checks of state tax rules. Once taxability is under control, staying compliant becomes far more manageable.
Maintaining Compliance in a Shifting Regulatory Landscape
Sales tax regulations continue to evolve in response to legislative changes, judicial rulings, and economic developments. Since Wayfair, many states have refined nexus thresholds and expanded taxable categories to include digital goods, eco-friendly packaging, and related services. Several states have recently updated their marketplace facilitator rules, shifting tax collection duties to platforms and tightening reporting requirements. For example, in 2024, California expanded its laws to require more seller data.
Monitoring these changes across states demands structure and diligence. Businesses should establish a formal compliance routine. This proactive approach minimizes exposure and strengthens audit readiness.
Equally critical is the management of exemption certificates. When customers claim resale or exempt status, documentation that is incomplete, expired, or missing can result in full tax liability and accrued interest. Implementing digital certificate management, automated expiration alerts, and validation at the point of sale ensures consistent compliance and mitigates audit risk. The combination of efficient monitoring and accurate recordkeeping make for a strong sales tax strategy.
Managing Filing Deadlines and System Integration
Timely and accurate filing is central to sales tax compliance, yet requirements vary widely across jurisdictions. High-volume sellers may file monthly in one state and quarterly or annually in another, with due dates ranging from the 15th to the end of the month. For multi-state businesses, maintaining an organized schedule is critical; a single missed deadline can trigger penalties ranging from 5% to 25% of the tax owed, and may draw unwanted audit attention.
It’s important for a business to connect its sales tax processes with its accounting, e-commerce, and point-of-sale systems. When systems don’t work together, they can apply the wrong rates, miss exemptions, or make reconciliations difficult—especially when a business grows online. Using reliable tax software and API integrations keeps rates up to date and calculations accurate. Investing in these connections improves accuracy, saves time, and helps protect a business during audits.
Sales tax compliance might seem like a steep learning curve, but tackling these challenges with smart tools keeps a business strong and protected. Whether you are a business shipping sports gear across state lines or scaling any other venture, proper planning, along with expert guidance, will go a long way.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
