Understanding the Foundation: What is Nexus?
In the world of U.S. tax, “Nexus” is the most important term you will learn. Nexus is the legal term for a “sufficient connection” between your business and a U.S. state. If you have nexus in a state, you are legally required to register for a sales tax permit, collect sales tax from customers in that state, and remit those funds to the state government.
There are two primary ways UK sellers trigger nexus:
1. Physical Nexus
Physical nexus is triggered if you have any tangible presence in a state. For UK sellers, the most common trigger is inventory storage. If you use Amazon FBA, your stock is likely distributed across dozens of warehouses in multiple states. Each of those states considers that “physical presence,” regardless of your sales volume. Other triggers include having employees, contractors, or a home office in a U.S. state.
2. Economic Nexus
Following the landmark Wayfair decision, states can now require you to collect sales tax even if you have no physical presence. Most states set a threshold, commonly $100,000 in annual sales or 200 separate transactions within that state. Note that these thresholds are per state. You might have nexus in California but not in Wyoming.
U.S. Sales Tax vs. UK VAT: A Different Beast
Do not make the mistake of assuming sales tax is just “American VAT.” They are fundamentally different systems.
- State-Level Control: There is no federal sales tax in the USA. There are 45 states (plus D.C.) that have their own sales tax laws, rates, and filing deadlines.
- Destination-Based Sourcing: Most states use “destination-based” rules, meaning the tax rate is determined by where the customer is located. This includes not just the state rate, but also local city, county, and district taxes.
- No Input Tax Credits: Unlike VAT, where you can often reclaim tax paid on business inputs, U.S. sales tax is a consumption tax paid by the end consumer. You are simply the “collector” for the state.
The Registration Process: Your First Major Hurdle
Once you identify that you have nexus, you must register. Do not begin collecting tax before you have a permit. It is illegal to collect tax in the name of a state without being registered first.
Step 1: Obtain a Federal EIN or ITIN
While you are dealing with states, you often need a federal Employer Identification Number (EIN) or an Individual Taxpayer Identification Number (ITIN) to facilitate the registration. This identifies your business to the IRS and state authorities.
Step 2: State Registration
You must apply for a Sales Tax Permit in every state where you have triggered nexus. This process can be cumbersome for international sellers because many state systems are not designed for businesses with no U.S. address.
Step 3: Establish a U.S. Remittance Method
Most states require you to pay the collected tax via an ACH transfer from a U.S. bank account. This is often a significant barrier for UK companies.
Marketplace Facilitator Laws: Are You Off the Hook?
If you sell exclusively through platforms like Amazon, eBay, or Walmart, you might have heard of “Marketplace Facilitator Laws.” These laws require the platform to collect and remit sales tax on your behalf.
Does this mean you don’t need to register? Not necessarily.
Many states still require you to register for a permit even if the marketplace handles the tax. Why? Because the state wants to monitor your total sales volume and ensure you aren’t making “off-platform” sales (like through your own website) that are going untaxed. Furthermore, having inventory in an FBA warehouse still creates physical nexus, which may trigger other filing requirements.
Maintaining Compliance: The Filing Cycle
Registering is only the beginning. Once you are in the system, you must fulfill ongoing filing obligations.
- Calculate Correct Rates: Ensure your checkout (or marketplace) is charging the correct tax rate based on the customer’s zip code.
- File on Time: States will assign you a filing frequency (Monthly, Quarterly, or Annually) based on your sales volume.
- The “Zero Return”: This is a common trap for UK sellers. Even if you had zero sales in a state during a specific period, you must still file a return. Failure to file a “zero return” can lead to automatic penalties and the eventual revocation of your permit.
- Keep Records: Maintain detailed records of all transactions and tax collected for at least seven years to protect yourself in the event of an audit.
Practical Steps for UK Sellers in 2026 (March 2026 updates you can’t ignore)
To succeed in the U.S. market this year, follow this checklist:
- Audit Your Inventory: Use your seller reports to see exactly where your stock is being held. If it’s in a U.S. warehouse, you likely have a registration obligation.
- Monitor Economic Thresholds (Illinois update): Most states talk about “$100,000 or 200 transactions”, but Illinois has removed the 200-transaction threshold (effective 2026). For many remote sellers, it’s now a sales volume-only test (commonly $100,000 in gross receipts into Illinois over the relevant period). Keep a rolling view of your Illinois sales so you don’t drift into nexus without noticing.
- Lock in filing deadlines (Nevada update): Nevada moved its Sales & Use Tax return deadline earlier. Returns are now due on the 20th of the month following the reporting period (starting with the January 2026 period due February 20).
