US Sales Tax Nexus for UK E-commerce Brands: Economic vs Physical Triggers

US sales tax is the part of cross-border tax that catches the largest number of UK e-commerce brands by surprise. There is no federal sales tax and no equivalent of a single VAT registration. Each of the forty-five states that imposes a sales tax (plus the District of Columbia) sets its own rules, its own nexus thresholds, its own rates, and its own return cycle. A UK Shopify or Amazon seller can trigger a registration obligation in a dozen states almost simultaneously once US revenue grows, without anything visible happening at the border.

This piece sits inside [the cross-border VAT pillar](/guides/cross-border-ecommerce-vat-ioss/) and walks the two nexus triggers UK sellers run into, the state-by-state thresholds, the role of marketplace facilitator laws, and the practical registration process. Its companions in this Week 3 series cover [the VAT treatment of digital products and downloadable e-commerce goods](/blog/vat-treatment-digital-products-downloadable/) and [utilising the Union and Non-Union OSS schemes for B2C European sales](/blog/union-non-union-oss-b2c-european-sales/).

There is no US VAT

A UK seller used to a single national VAT registration needs to drop that mental model entirely. US sales tax is a state-level retail tax, generally charged only at the final sale to the end consumer rather than at every step of a supply chain. There are roughly thirteen thousand individual taxing jurisdictions in the US once counties, cities, and special districts are counted, all sitting on top of a state-level framework. The job of US sales tax compliance is therefore inherently multi-jurisdictional, not a single registration with extra paperwork.

The two nexus triggers

Nexus is the legal connection between a seller and a state that gives the state the right to require sales tax collection. There are two main routes a UK e-commerce brand can establish nexus in a US state.

• Physical nexus: storing inventory, having an employee, an office, or other tangible presence in the state. For UK Amazon sellers, FBA inventory stored in a state warehouse is the classic physical-nexus trigger.
• Economic nexus: exceeding a sales or transaction threshold in the state without any physical presence. Established after the 2018 Supreme Court decision in South Dakota v. Wayfair and now adopted by every state that imposes a sales tax.

A UK seller can have neither, either, or both. Each triggers an independent registration obligation in the relevant state, and physical nexus typically activates the day inventory arrives in the warehouse rather than waiting for a sales figure to accumulate.

Economic nexus thresholds as a working guide

Economic nexus thresholds vary by state, but the most common pattern is a 100,000 US dollar sales floor or a 200-transaction floor, measured over the current or previous calendar year. Several states have moved to a sales-only threshold and removed the transaction count, and a handful use a different sales figure. The table below shows the broad shape of the threshold landscape rather than a state-by-state list, because individual thresholds are changed by state legislatures often enough that the current state revenue department guidance is the only safe primary source for a specific filing.

The five states with no general sales tax are typically described as the NOMAD states: New Hampshire, Oregon, Montana, Alaska, and Delaware. Alaska has no state-level tax but allows local taxes, so a UK seller with Alaska customers may still have local filings in specific boroughs. The other four are clean: no registration, no collection, no return for sales into those four states.

Physical nexus through FBA inventory

The most common physical-nexus trigger for UK sellers is Amazon FBA. When a UK seller sends inventory into the US Amazon network, Amazon distributes that inventory across multiple state warehouses for delivery-speed optimisation. Each state in which inventory is stored is a potential physical-nexus trigger, even where the seller has no other connection to the state.

Marketplace facilitator laws have changed the practical impact of this. Almost every US state with a sales tax now requires marketplaces such as Amazon, eBay, Walmart, and Etsy to collect and remit sales tax on behalf of third-party sellers for sales made through the marketplace. The seller is still considered to have nexus in the state, but the actual collection on those marketplace sales is handled by the platform. The exposure that remains is for sales made outside the marketplace, for example through a Shopify storefront, where the seller is the merchant of record and the marketplace facilitator rules do not apply.

What marketplace facilitator rules do not cover

Even where Amazon is collecting and remitting marketplace sales tax on a UK seller behalf, several exposures remain: direct sales through the seller own website, sales through smaller platforms not covered by marketplace facilitator rules in a given state, and registration obligations themselves where some states require sellers to register even when the marketplace is doing the collecting. Treating the marketplace facilitator regime as a complete answer rather than a partial one is a common UK seller mistake.

How sales are measured against the threshold

States differ on whether gross sales, taxable sales, or only retail sales count toward the economic nexus threshold, and whether marketplace sales are included or excluded. A small but growing number of states exclude marketplace facilitated sales from the threshold calculation, because those sales are already being collected by the marketplace. Many states still include all sales, marketplace or otherwise, in the threshold test. The state revenue department guidance is the only authoritative source for a specific state, and software providers update their state-by-state matrices when those rules change.

The registration process by state

Registration is state by state. There is no central US sales tax registration, no single number, and no consolidated return. A UK seller registering in five states will deal with five state revenue departments, five separate registration applications, five separate logins, and five filing cadences. Most states accept online registrations from foreign sellers without requiring a US entity, though some states require a US bank account or an EIN (Employer Identification Number) from the IRS as part of the registration.

Destination-based rates and the rooftop problem

Most US states apply destination-based sales tax: the rate charged is the rate at the customer delivery address, combining state, county, city, and special district rates. The total rate can vary block by block within a single city because of overlapping special districts. Manual calculation is not realistic at any volume; a UK seller running US sales tax compliance needs automated rate determination through a specialist provider such as Avalara, TaxJar, Sovos, or Vertex, or through the rate engines built into Shopify Tax or similar.

Filing frequency and zero returns

States assign filing frequency based on expected liability: monthly for high-volume sellers, quarterly for mid-volume, annual for low-volume. The frequency is set by the state on registration and can be adjusted later. Once a registration exists, returns are mandatory in every period whether sales occurred or not. A UK seller who registers in fifteen states and then stops selling into several of them still owes zero-value returns until the registrations are formally closed, and missed filings draw penalty notices the same way missed UK VAT returns do.

Closing a registration when sales fall away

Where a UK seller drops below the economic nexus threshold and loses physical nexus (for example, by withdrawing FBA inventory from the state), the registration can be formally closed by submitting a final return and a closure notice. States typically require the registration to have run at least one full calendar year, and a final return covering the closure period must be filed. Leaving a registration open and unfiled is the wrong way to exit; the state continues to expect returns until the closure is processed.

Common errors UK sellers make

• Treating marketplace facilitator collection as removing the need to monitor nexus or register, when several states still require registration regardless.
• Forgetting that FBA inventory creates physical nexus from day one, even before any sale crosses an economic threshold.
• Charging UK VAT on US sales by accident; sales to US customers are outside the scope of UK VAT and should not carry UK VAT on the invoice.
• Using a single state rate rather than the destination address rate, under-collecting in high-rate jurisdictions.
• Letting registrations sit open and unfiled after sales drop away, accumulating non-filing penalties.

Do I need a US entity to comply?

No. A UK limited company can register for US state sales tax as a foreign entity without forming a US LLC or corporation. A US entity may be desirable for other reasons such as US banking, payment processing, or income tax planning, but it is not a precondition for sales tax registration. The decision to form a US entity should be made on those wider grounds rather than driven by sales tax compliance alone.

How does this interact with UK VAT?

Sales to US customers are exports from a UK VAT perspective. They are outside the scope of UK VAT on the customer side, and the UK seller does not charge UK VAT on the sale. The UK seller can still recover input VAT on UK costs associated with making those US sales. The US sales tax collected from US customers is not UK output VAT and does not appear on the UK VAT return; it is held as a liability and remitted to the relevant US state.

When is the right time to start US compliance?

The pragmatic trigger is total US revenue approaching 100,000 US dollars per year combined with any FBA inventory in the US, whichever happens first. Below that volume, marketplace facilitator coverage on Amazon and eBay handles most of the obligation, and direct-storefront US revenue is typically small enough that exposure is limited. Above that level, a state-by-state nexus review and a structured registration plan, usually run with a specialist US sales tax provider, becomes the right next step.