Sales Tax Glossary
Updated
Definitions for 20 essential US sales tax terms that come up in nexus, compliance, and audit conversations.
- Sales tax nexus
- The legal connection between a seller and a US state that obligates the seller to register, collect, and remit sales tax on transactions shipped into that state. Nexus can be physical (inventory, employees, offices) or economic (revenue or transaction count thresholds).
- Physical nexus
- A form of sales tax nexus created by having physical presence in a state — offices, employees, inventory (including Amazon FBA warehouses), agents, contractors, or trade show attendance. Physical nexus applies regardless of revenue.
- Economic nexus
- A form of sales tax nexus created by crossing a revenue or transaction-count threshold on sales into a state. Every US sales-tax state adopted economic nexus after the 2018 South Dakota v. Wayfair Supreme Court decision.
- Economic nexus threshold
- The dollar amount or transaction count at which a remote seller must register and collect sales tax in a state. Thresholds vary: most states use $100,000; California, Texas, and New York use $500,000; Alabama and Mississippi use $250,000.
- Wayfair decision
- The 2018 US Supreme Court case South Dakota v. Wayfair, Inc., which overturned the 1992 Quill v. North Dakota physical-presence rule and allowed states to require sales tax collection from remote sellers based on economic nexus.
- Marketplace facilitator
- An online platform (Amazon, Etsy, eBay, Walmart Marketplace) that calculates, collects, and remits sales tax on behalf of third-party sellers. Every US sales-tax state has a marketplace facilitator law by 2026.
- Marketplace facilitator law
- State statute that shifts sales tax collection duty from individual sellers to the marketplace platform. The marketplace becomes the 'seller of record' for tax purposes on facilitated transactions.
- Streamlined Sales Tax (SST)
- A multi-state project (24 full-member states) that standardizes sales tax definitions and administration. SST offers uniform exemption certificates and one-stop registration via SSTRS to reduce remote-seller compliance burden.
- Sales tax permit
- Official registration with a state Department of Revenue authorizing a seller to collect and remit sales tax. Also called a seller permit or sales tax license. Required before collecting tax from customers.
- Resale certificate
- A document a buyer issues to a seller to purchase goods tax-free for the purpose of reselling them. The buyer uses their sales tax permit number on the certificate. Required for dropshipping relationships and wholesale purchases.
- Exemption certificate
- A document that supports a tax-free sale for a specific reason — resale, nonprofit organization, government entity, agricultural use. The seller must keep the certificate on file; missing certificates become audit assessments.
- Dropshipping
- A retail fulfillment method where the retailer doesn't hold inventory — instead, when a customer orders, the retailer forwards the order to a supplier who ships directly to the customer. Creates complex sales tax implications around resale certificates.
- SaaS (Software as a Service)
- Cloud-hosted software accessed via a web browser, typically on a subscription basis. SaaS taxability varies by state: some states treat it as taxable personal property; others as a non-taxable service. Economic nexus applies either way.
- Specified digital products
- Tax term (from Streamlined Sales Tax) covering digital audio, video, and book products delivered electronically. Many states tax SDPs but treat SaaS and other digital services separately.
- Destination-based sourcing
- A sales tax sourcing rule where tax is calculated based on the buyer's delivery address. Most US states use destination sourcing for remote sales.
- Origin-based sourcing
- A sales tax sourcing rule where tax is calculated based on the seller's location. A minority of states use origin sourcing for in-state sales; destination sourcing is more common for remote sales.
- Filing frequency
- How often a registered seller must file sales tax returns — monthly, quarterly, or annually. States assign frequency based on expected tax liability; high-volume sellers file monthly.
- Use tax
- A complement to sales tax: when a buyer purchases taxable goods without paying sales tax (e.g., from an out-of-state seller without nexus), the buyer owes use tax to their state. Use tax rates match sales tax rates.
- Voluntary disclosure agreement (VDA)
- A program offered by most state DORs that lets a seller come forward to disclose unpaid historical sales tax. VDAs typically limit the lookback period (e.g., 3-4 years) and waive penalties, making it much cheaper than waiting to be audited.
- AND / OR nexus logic
- Describes whether a state's economic nexus threshold requires BOTH a dollar and transaction threshold (AND), or EITHER one (OR), or just a dollar amount (SINGLE). New York and Connecticut use AND; many states use OR; California and Texas use dollar-only SINGLE.