What changed for ecommerce sellers after the 2018 Wayfair ruling?

Before June 2018, the rule was simple: if you didn’t have a physical presence in a state (no store, no warehouse, no employees) you didn’t owe that state’s sales tax. Online sellers routinely shipped to customers nationwide without collecting tax in most states.

The Supreme Court’s South Dakota v. Wayfair decision ended that. Here’s what actually changed.

The old rule: physical presence required

Under the 1992 Supreme Court ruling in Quill Corp. v. North Dakota, states could only require a business to collect sales tax if it had “substantial nexus” (meaning physical presence) in the state. A mail-order or online seller with customers in Ohio but no Ohio warehouse, employee, or office had no obligation to collect Ohio sales tax.

This was the framework for ecommerce’s first two decades. Online retailers had a structural tax advantage over brick-and-mortar stores. Customers who wanted to avoid sales tax could buy online and owe “use tax” in theory, but virtually no one paid use tax voluntarily.

The new rule: sales volume is enough

On June 21, 2018, the Supreme Court ruled 5-4 in South Dakota v. Wayfair that physical presence is not required. States can require sellers to collect tax based on economic activity alone, how much they sell into the state.

South Dakota’s law, which the Court upheld, set the standard: $100,000 in annual sales or 200 transactions into the state triggers a collection obligation. Within 18 months, nearly every sales-tax state had enacted similar economic nexus laws.

What this meant for ecommerce sellers

Before Wayfair, a seller shipping to customers in 40 states might only collect tax in 2 or 3 (their home state and wherever they had a warehouse). After Wayfair, that same seller potentially has collection obligations in every state where they cross the threshold.

For a seller with $2M in annual revenue spread across the country, crossing $100K in 15–20 states is common. Each of those states now requires registration, collection, and regular filing.

What changed for marketplace sellers

Amazon, Etsy, eBay, Walmart, and other major marketplaces responded to Wayfair by implementing marketplace facilitator laws, collecting and remitting sales tax on marketplace-facilitated transactions in all 45 states. A seller whose only channel is Amazon largely has the collection handled.

But several things still require attention even for marketplace-only sellers:

• Own-channel sales (Shopify, website) are not covered by marketplace collection
• Physical nexus from FBA inventory still creates registration obligations
• Threshold tracking still matters, as marketplace sales count toward economic nexus thresholds
• Registration is a separate obligation from tax collection

Who was most affected

The sellers most significantly affected by Wayfair were mid-size direct-to-consumer brands selling primarily through their own websites, businesses with $500K–$5M in annual revenue, selling to customers in many states, who had largely been non-compliant under the old rules because no compliance obligation existed for most of their sales.

For these sellers, Wayfair retroactively created exposure for periods after each state’s economic nexus effective date. Many discovered significant back-tax liability when they finally assessed their nexus footprint.

The practical impact today

Economic nexus is fully established law. Every sales-tax state has a threshold in effect. Sellers who haven’t assessed their nexus footprint since 2018 (or who have been growing without revisiting compliance) likely have obligations in more states than they’re registered in.

Related: What is economic nexus and how does it work? | I haven’t been collecting sales tax — what do I do now?