From Cookies to Clicks: How Digital Presence is Quietly Rewriting Sales Tax Nexus

This is the first in a series of articles by our professionals detailing emerging trends in state taxation.

For decades, the traditional sales tax nexus question was simple: Does the business have a physical presence in the state? For many digital businesses operating in a post-Wayfair world, that question no longer gets you very far.

Wayfair did more than overturn the physical presence rule. It accelerated a shift toward market-based taxation. As states adopted economic nexus standards, they also created marketplace facilitator laws, updated sourcing methods, and adapted existing rules to address digital business models that operate without connection to physical location.

States did not make this shift through a single policy decision. They moved gradually; shifting administrative focus away from where a business sits and toward how the business engages with users in a state.  Economic nexus thresholds still exist, but nexus is no longer limited to physical presence or sales within state lines.

How Did Wayfair Change the Starting Point?

Prior to Wayfair, businesses generally needed physical presence in a state before collection obligations arose. Wayfair, an online furniture retailer, challenged a South Dakota law that required certain remote sellers to collect and remit sales tax despite having no physical presence in the state. Wayfair sold products to South Dakota customers through its website but maintained no property, employees, or offices in the state.

In 2018, the U.S. Supreme Court addressed this issue in South Dakota v. Wayfair, Inc., and upheld South Dakota’s economic nexus law requiring remote sellers with more than $100,000 in sales or 200 transactions in the state to collect and remit sales tax even without a physical presence. The Court did not eliminate physical presence requirements but allowed states to impose collection obligations based on economic activity alone.

While the Wayfair Court did not indicate a minimum threshold of economic activity that would create nexus, most state taxing authorities adopted bright-line thresholds similar to South Dakota’s, typically $100,000 in sales or 200 transactions, and businesses split their focus between physical footprints and their revenue or transaction counts. For years, those thresholds provided a straightforward way to evaluate sales tax obligations. Businesses could now monitor their activity, track their exposure, and make informed decisions about when to register and collect sales tax.

How Marketplace Facilitators Changed the Analysis

As digital business models expanded, the thresholds remained in place, but they were gradually overtaken by other rules that reach activity the thresholds were never designed to capture.

Amazon’s marketplace exposed a practical problem for states. By the time Wayfair reached the Supreme Court, thousands of businesses sold products through Amazon’s platform. States could require each seller to register and collect tax, but enforcement was difficult and relied heavily on voluntary compliance.

Fulfillment by Amazon (FBA) made the issue more complicated. Under FBA, Amazon stored inventory owned by third-party sellers in warehouses throughout the country. States argued that inventory stored in an Amazon warehouse could create nexus for the seller, even when the seller did not control where Amazon placed the inventory.

States responded with marketplace facilitator laws. These laws generally require companies that have online selling platforms (such as Amazon, Etsy, Walmart Marketplace, and eBay) to collect and remit sales tax on behalf of the sellers using their marketplaces. Rather than pursuing thousands of individual sellers, states could collect tax through a single platform that controlled the transaction and payment process. If the platform fails to remit tax, the state will generally target the platform for back taxes, penalties, and interest. However, individual sellers may be held liable if they provided incorrect information to the marketplace, causing the marketplace facilitator to calculate tax incorrectly or if they made sales outside of the marketplace platform.

Many states applied similar collection requirements to food delivery platforms such as DoorDash and Uber Eats, extending the marketplace facilitator model beyond traditional online retail transactions.

Some states were already testing other nexus ideas before Wayfair. For instance, New York’s 2008 “Amazon Tax,” treated certain in-state referral relationships as evidence of solicitation. If a seller paid New York residents for customer referrals, including website links, and those referrals produced more than $10,000 in New York State sales during the prior four quarterly periods, the state presumed the seller was soliciting business and the seller was required to collect and remit New York State sales tax.

California later adopted click-through and affiliate nexus rules, and Illinois adopted a click-through nexus law that courts later struck down on federal preemption grounds. The main idea was similar -- states looked beyond the seller’s own property, payroll, or offices. A related entity, in-state representative, referral partner, or commission-based website could create nexus even when the seller lacked its own physical footprint in the jurisdiction.

Digital Products and User-Based Taxation

Software-as-a-service (SaaS), platform-as-a-service (PaaS), and other digital products follow a different model which provides customers with ongoing, subscription-based access instead of one-off transactions. SaaS delivers a complete, ready-to-use application accessed online (such as Workday, Ticketmaster, Canva, Slack, Zoom, or Google Workspace), while PaaS provides a platform where developers can build and host their own applications (such as Google App Engine or Salesforce). These services usually involve users across multiple states, raising questions about where the activity occurs and which state has the right to tax it.

A few states use origin-based sourcing, in which sales tax is tied to the seller’s business location or warehouse. Arizona and Ohio use modified versions of origin-based sourcing: In-state sellers apply origin-based sourcing, while remote out-of-state sellers apply destination-based sourcing. Texas also uses a hybrid approach, applying origin-based sourcing for state and local sales taxes and destination-based sourcing for local use taxes. California uses a modified sourcing method as well, applying origin-based sourcing for state, county, and city taxes, but destination-based sourcing for district taxes. However, most states use destination-based sourcing and source transactions to the customer’s location and rely on billing addresses, IP data, and usage information to determine where sales tax applies. Destination-based sourcing expands the reach of the states’ taxing authority significantly.

For example, New York classifies SaaS as taxable tangible personal property. On the other hand, Minnesota does not treat SaaS as tangible personal property. Instead, it places digital products into taxable categories (digital audio, digital audio visual, and digital books) and nontaxable categories (custom software, SaaS subscriptions, and access to digital news articles). As of July 1, 2025, Maryland takes yet a different approach and classifies SaaS as a taxable digital product, but applies different sales tax rates for individual use (6%) versus commercial use (3%). Although New York and Maryland use destination-based sourcing for SaaS, their approaches to taxability differ significantly.

As a result, nexus tends to follow the user rather than the seller. As states focus on where software is accessed, understanding how a business operates becomes critical to determining taxability.

Exposure Before Scale

One major consequence of nexus following the user rather than the seller is that businesses can establish a multistate footprint before they reach a meaningful economic scale in any single state. Revenue may be dispersed across jurisdictions in amounts that fall below traditional thresholds yet still create exposure.

This occurs because nexus is no longer tied exclusively to revenue or physical location. For digital businesses, geographic reach can develop early. A company may acquire users across many states before revenue becomes concentrated in any one jurisdiction. Under a system that emphasizes user location and digital interaction, that distribution of activity can create a broad nexus footprint.

In that environment, thresholds do not disappear, but they no longer function as effective boundaries.

When Digital Activity Becomes Tax Presence

States are also placing greater emphasis on how businesses engage with users within their borders. Cookies, tracking technologies, and platform-based interactions are an important part of the nexus analysis, not because they independently establish nexus in every case, but because they show ongoing connections to in-state users.

Massachusetts is one of the clearest examples. The state has taken the position that certain internet-based activities, including the use of cookies and in-state software to establish and maintain a market, can create nexus for corporate income tax purposes. Although this position arises in the income tax context, it reflects a broader willingness to treat digital interaction itself as a form of in-state activity.

Unlike income tax, there is no federal limitation similar to Public Law 86-272 that restricts how far this analysis can extend in the sales tax context. As a result, the definition of presence continues to expand through administrative interpretation and enforcement.

Digital activity is not only a challenge to sales tax. Chicago’s social media amusement tax, while not a sales tax, applies to charges for access to online platforms based on where users are located. That approach reflects the same principle that user presence, rather than seller location, often creates nexus. These developments suggest that sales tax is no longer a threshold question but an operational one.

Managing Multistate Exposure

The gradual transition from physical presence nexus to economic thresholds and user-based taxation comes with consequences. Sales tax operates in real time, and collection obligations arise as soon as nexus is established. That timing creates pressure, especially when digital activity triggers nexus and the business cannot easily see it.

States are also relying more heavily on third-party data to identify potential exposure. Marketplace reporting, payment processor information, and transaction-level data now provide visibility into activity that businesses could not easily access in the past. This creates a gap between how states define nexus in theory and enforce it in practice.

For many businesses, especially those operating in digital markets, this means that compliance obligations arise earlier, extend further, and require more active management than the economic nexus framework alone would suggest.

Steps to Take Now

• Reassess nexus beyond thresholds
• Map digital touchpoints, not just revenue
• Evaluate marketplace exposure separately
• Confirm sourcing methods for digital products
• Prepare multistate registration earlier
• Do not rely on income tax protections

Sales tax has not replaced economic nexus with a new formal standard. Instead, it has evolved into a system where digital presence carries increasing weight along with traditional thresholds.

EisnerAmper can help businesses navigate this shift by evaluating how their operations, technology, and customer base impact nexus and taxability across states. This includes analyzing digital transactions, reviewing sourcing methods, and identifying where obligations may arise based on user location.