I Make Sales to Customers in Multiple States. Do I Owe Tax?
Many entrepreneurs still cling to the pre-Internet rule of thumb: “If I don’t have a store or warehouse in that state, I don’t have to collect its sales tax.” In 2025, that antiquated belief can potentially bankrupt a healthy business & its owner(s).
Post-Wayfair Reality
Since South Dakota v. Wayfair, Inc. (2018), the U.S. Supreme Court allows every state to impose “economic-nexus” thresholds that trigger sales-tax collection even when you have zero physical presence.
Fifty Different Statutes
By May 2025, 46 states plus D.C. will enforce economic-nexus rules; most require you to register once you exceed $100,000 in sales or 200 transactions (some lower, some higher).
Income/Franchise Tax, Too
Many states piggyback on economic nexus for sales tax and claim you now have to file corporate or pass-through income tax returns as well (so-called “factor-presence” nexus). If you start providing them with sales tax returns, they will then start looking for income tax reporting.
Personal Exposure
State trust-fund rules make corporate officers, LLC managers, and even out-of-state marketplace sellers personally liable for uncollected sales tax, penalties, and interest.
Bottom Line
If you ship tangible goods, digital goods, SaaS, or drop-ship inventory into multiple states, including California, you must map your contacts and register before an IRS or California state tax auditor does it for you.
Wayfair Eliminated the Physical-Presence Safe Harbor
Pre-2018
Quill v. North Dakota (1992) required physical presence to create sales-tax nexus.
Post-2018
Wayfair overruled Quill. South Dakota’s law (exceeding $100,000 or 200 transactions) became the template for other states.
Constitutional Test Now
After Wayfair, a state law survives Commerce-Clause scrutiny if (1) the seller’s in-state economic activity creates a “substantial nexus” and (2) the compliance burden is not unduly discriminatory. California state meets this test: under RTC § 6203(c)(4) (statewide) and § 7262(a)(1) (district), any remote seller with more than $500,000 in California sales must collect sales tax. Because the vast majority of states adopted thresholds modeled on South Dakota’s statute, their regimes now carry a strong presumption of constitutionality.
Classic Nexus Still Counts: Inventory, Employees, Trade Shows
Even one traveling salesperson or a consigned pallet in an Amazon FBA warehouse can create physical state nexus instantly. Common triggers we see in audits:
Fulfillment Centers
Storing your goods (in California, Texas, and Florida) rarely waives penalties.
Remote Employees
Handling customer service.
Independent Contractors
Installing or training on-site.
Annual Trade-Show Booths
Marketplace-Facilitator Laws — Not Always a Free Pass
Amazon, Walmart, and Etsy now collect their hosted sales, but you still owe:
Own-Site or Shopify Sales
Shipped into that state.
Wholesale/Drop-Ship Sales
Where you, not Amazon, are the seller of record.
California Income-Tax Nexus for Stored Inventory
If the annual average value of your in-state inventory or other tangible property exceeds the Franchise Tax Board’s indexed floor (≈ $70,000 for 2025) or that property makes up 25% or more of your worldwide property, your business has “doing-business” nexus under Cal. Rev. & Tax. Code § 23101(b) and must file a California income/franchise-tax return—even if every sale ships out of state.
“I Didn’t Know” Mistakes That Trigger Multi-State Audits
Failing to Track Transaction Count
Many sellers clear 200 orders in a single holiday weekend.
Relying on Payment-Processor Addresses
Ship-to location controls, not billing address.
Ignoring Drop-Shipped Goods
Most states treat the middleman as the retail seller.
Merely “Reimbursing” Freight
Separately stated shipping may not be exempt if handling is included.
Personal Liability & Criminal Exposure Are Real
Trust-Fund Theory
Sales tax you collected (or should have) is the state’s money. Once assessed, officers and “responsible persons” become personally liable (e.g., California RTC § 6829, New York Tax Law § 1133).
Tax Fraud Penalties
Willful failure to collect or remit can lead to felony tax charges (California RTC § 7153).
Bankruptcies
Won’t discharge trust-fund sales-tax debts.
Clean-Up Tools: Voluntary-Disclosure, Amnesty & Managed Compliance
If a nexus review shows you should have been collecting—or remitting—tax in prior years, move before California or another state contacts you. Three proven programs can mitigate historical exposure:
California (CDTFA) Voluntary-Disclosure Agreement
Look-back: Normally 3 years for out-of-state sellers (per Rev. & Tax. Code §6487.06). Could be up to 8 years if approached through enforcement action.
Penalties: 100% waived; only statutory interest is due.
Anonymity: Initial filings may be made through counsel to keep your identity confidential until terms are approved.
California (FTB) Income/Franchise-Tax VDP
Look-back: 6 years of returns.
Penalties: Most late-file and late-pay penalties waived; interest still applies.
Anonymity: Application can be submitted through an attorney on a “no-name” basis until the state accepts.
Multistate Tax Commission (MTC) National VDA
Look-back: 4 years (agreed by 40-plus participating states—California is not a participant for sales-and-use tax, but many other jurisdictions are).
Penalties: 100% penalty relief and, in some states, partial interest relief.
Anonymity: Outside counsel files on an anonymous basis until each state signs off.
California CDTFA — Special Hazards for Golden-State Sales
Economic nexus threshold: $500,000 in combined sales by the seller and affiliates into California (RTC § 7262).
Marketplace-facilitator protections apply; however, the CDTFA routinely issues dual-audit notices—one for marketplace sales and one for direct sales.
Income/franchise tax: California minimum franchise tax kicks in as soon as sales exceed $610,395 or property/payroll exceeds $61,040 (R&TC § 23101(b) 2025 inflation index).
Personal liability: Corporate officers become liable under RTC § 6829 when the corporation dissolves or “fails to remit.”
Building a 2025-Ready Compliance Plan
Run a 50-state nexus matrix (sales, transactions, employees, inventory, and affiliate links).
Register prospectively in every state where 2024 totals met or 2025 projections exceeded the threshold.
Implement tax-automation software (e.g., Avalara, TaxJar, Vertex) and validate default taxability codes.
Segregate resale and retail customers, and collect exemption certificates (the Streamlined Sales Tax SST database helps).
Reconcile sales-tax payable to GL monthly; remit early to capture vendor discounts (e.g., 0.75% in Florida).
If past exposure exists, engage experienced dual-licensed Tax Attorney & CPAs to evaluate VDA, amnesty, and managed-audit options.
Contact the Tax Law Offices of David W. Klasing if Multistate Sales-Tax Exposure Is Keeping You Up at Night
When a late-night Google search leaves you staring at 50 different sales-tax thresholds—each threatening high-risk tax audits, civil and criminal tax penalties, and personal officer liability—you need more than software or a one-dimensional accountant. At the Tax Law Offices of David W. Klasing, every matter is quarterbacked by a dual-licensed Tax Attorney-CPA who blends courtroom-ready legal strategy with Big-Four-caliber tax accounting.
We will deliver a written game plan that outlines where you must register now, where you can safely wait, and where prior liability demands immediate damage control.
If historical exposure exists, we file Voluntary-Disclosure Agreements (VDAs)—capping the look-back period, waiving every civil tax penalty, and keeping your name off the state’s radar until the terms are locked in. Because our VDAs are submitted through attorney channels, the entire negotiation enjoys attorney–client and work-product protection—something no stand-alone CPA or software vendor can promise.
Should an auditor from the CDTFA, the Texas Comptroller, or the New York Department of Taxation & Finance already be at your door, we step in as a frontline defense: challenging nexus assertions, limiting document production, and forcing the state to meet its burden of proof. Meanwhile, our forensic accounting team reconciles your Amazon, Shopify, Stripe, and Etsy data to bank deposits, closing the “reconciliation gap” that auditors exploit to extrapolate phantom sales.
Because sales-tax liabilities often trigger parallel income-tax and franchise-tax assessments, we synchronize your corporate structure—S-corp, partnership, or single-member LLC—with your new sales-tax footprint so you do not pay twice on the same dollars. The result is a single, integrated solution that shields you from multi-state tax chaos, freeing you to focus on growth.
Stop guessing—and stop losing sleep. Call the Tax Law Offices of David W. Klasing at (800) 681-1295 or schedule a confidential, reduced-rate consultation online HERE. We will map your nexus, clean up prior years, and install a bullet-proof compliance system—so audits become a check-the-box formality, not a bet-the-company crisis.
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