Navigating Multi-State Compliance for E-Commerce Businesses: Do You Need to Register in Every State?
- Anthony Jabbour
- Apr 9, 2025
- 3 min read
As e-commerce continues to expand, so do the legal and regulatory obligations that come with selling across state lines. One of the most common and complex questions faced by online business owners is whether they must register their business in every state where they have customers. The answer, as with many legal issues, is that it depends.
Understanding Nexus: The Key to Compliance
At the heart of this issue is the concept of "nexus," a legal term that describes the level of connection a business must have with a state before that state can impose tax or regulatory requirements. There are two primary types of nexus that concern e-commerce retailers:
1. Physical Nexus: Traditionally, nexus was established when a business had a physical presence in a state—such as an office, warehouse, or employees. For example, storing inventory in a third-party warehouse (like an Amazon FBA center) located in a particular state generally creates nexus there.
2. Economic Nexus: In 2018, the U.S. Supreme Court in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), fundamentally reshaped nexus laws by allowing states to impose tax obligations based on economic activity alone, even without physical presence. As a result, most states now have economic nexus thresholds, typically triggered when sales into the state exceed $100,000 or 200 transactions per year.
When Must You Register?
If your business establishes nexus in a state, you may be required to register there as a "foreign" entity, even if your company is domiciled elsewhere. The specific obligations can include:
• Registering with the Secretary of State to operate as a foreign business entity.
• Obtaining a sales tax permit and collecting and remitting sales tax on taxable sales within that state.
• Filing state income or franchise tax returns, depending on the nature and scope of your activities.
Examples of When You Must Register with a State
You may be required to formally register your business in a state if any of the following conditions apply:
• You open a physical office or storefront in the state.
• You hire employees, contractors, or sales representatives based in the state.
• You store inventory in a warehouse or fulfillment center located in the state (e.g., Amazon FBA).
• You regularly solicit business or have recurring in-person client meetings in the state.
• You exceed a state's economic nexus threshold, thereby triggering a requirement to register for sales tax purposes.
In such cases, states typically require that you file for a Certificate of Authority or foreign qualification to legally transact business within their borders.
What Doesn't Require Registration?
Merely selling to customers in another state via your website or online marketplace usually does not, by itself, require business registration. However, if those sales push you over a state's economic nexus threshold, you may still have tax obligations even if you’re not required to register your business with the state’s corporate authority.
Best Practices for E-Commerce Sellers
• Track Your Sales Activity: Use accounting and e-commerce platforms to monitor sales volume and transaction counts by state.
• Stay Up to Date: State nexus thresholds and registration requirements can change. Regularly review guidance from trusted sources like the Sales Tax Institute or Avalara.
• Consult with Professionals: The interplay between state tax laws and business registration rules can be intricate. Work with a tax advisor or business attorney to ensure you remain compliant.
Conclusion
As your e-commerce business grows, so does your exposure to legal obligations in multiple jurisdictions. Understanding where you’ve established nexus—and what that means for your registration and tax responsibilities—is essential to maintaining compliance and avoiding penalties. With proper planning and professional guidance, you can expand your business across state lines with confidence.