As Australian businesses prep for the busy Black Friday and Cyber Week sales in the US, there's an often-overlooked compliance risk to watch out for - aside from the usual inventory, marketing, and logistics planning. It's called economic nexus, a US sales tax rule that could catch you off guard with an unexpected tax bill, even if your sales are booming.
What economic nexus actually means
Economic nexus is a sales tax collection obligation that kicks in once a business crosses a certain level of sales into a US state, regardless of whether that business has any physical presence there. Once a seller crosses a state’s threshold, they are required to register for sales tax in that state and begin collecting it on future sales.
Chris Calverley, Head of Sales and Partnerships ANZ at tax compliance software provider Avalara, says the risk is easy for exporters to overlook during peak trading periods. “If you’re an exporter to the US and hoping to rack up a stack of stateside orders, there’s another piece of preparatory work you may not have thought about, and it’s one you can’t afford to neglect if you want to end up ahead financially when the peak season rush is over,” he said.
Why this is more complicated than it sounds
Part of what makes economic nexus difficult to manage is the sheer scale of the US tax system. The US has more than 13,000 separate sales and use tax jurisdictions, spanning state, county and city level taxes, along with separate rules for marketplace facilitators, third parties like Amazon or Etsy that collect tax on a seller’s behalf in some cases, and remote sellers who handle their own compliance. A business selling through multiple channels can find itself subject to different rules depending on where and how a sale was made.
Thresholds also vary significantly from state to state. California’s threshold sits at $500,000 in gross sales within the current or previous calendar year, with no separate transaction-count test. Colorado’s threshold is considerably lower, at $100,000 in sales over the same measurement period. Most other states that impose sales tax use a $100,000 baseline, though a handful, including New York and Texas, set higher bars, and some states combine a sales threshold with a minimum transaction count.
Calverley says this variation is part of what catches exporters out. “Staying on top of your nexus status is complicated, courtesy of the fact thresholds vary considerably from state to state,” he said.
Why Black Friday is the risk point
The concentrated nature of Cyber Week sales is what makes the timing significant. For successful exporters, it’s not uncommon to turn over as much revenue in the final weeks of the year as in the previous ten months combined, which means a business sitting comfortably under a state’s threshold in October could cross it within days once Black Friday sales begin.
Calverley says the operational pressure of peak season compounds the risk. “Tracking your position can be even more challenging when you’re under the cosh and the focus is on getting orders out the door fast, not on tallying their value and counting how many of them are headed for New York, New Jersey or New Hampshire,” he said.
If a business crosses a threshold and doesn’t register, the consequence isn’t a warning, it’s a retrospective bill. According to Calverley, state tax authorities will eventually identify the shortfall and bill the business directly, with penalties and compound interest calculated from whenever the threshold was first crossed, in some cases going back years. Passing that cost on to customers after the fact typically isn’t realistic, meaning any shortfall usually comes directly out of the business’s margin.
Where to get help
Australian exporters don’t need to navigate this alone, and several free resources exist specifically to help SMEs manage export compliance.
Austrade’s Go Global Toolkit, available at export.business.gov.au, includes an export rules finder that checks rules, registrations and compliance requirements in a target market, alongside market search tools and export readiness guides, covering more than 6,300 goods and 120 overseas markets.
The TradeStart Network, run through business.gov.au, offers free, Australia-wide advisory services specifically for small and medium-sized exporters, combining Austrade’s resources with partner organisations in export markets. It provides in-person and phone support and can connect businesses with local expertise in their target market.
Beyond government resources, a few practical steps reduce the risk heading into peak season:
Check current thresholds for every state you sell into, directly through each state’s department of revenue or taxation website, since thresholds and rules change from year to year.
Track cumulative sales by state, not just in total. A business can be well under nexus everywhere individually while still being close to a threshold in one or two key states.
Register proactively if you’re approaching a threshold, rather than waiting until after Black Friday sales have pushed you over it. Registration can take time to complete properly.
Keep sales records organised by state and date in case a retrospective review is ever needed, this also makes registration faster if and when it’s required.
Get specific advice for your situation. US sales tax rules vary enough by state that general guidance only goes so far; an accountant, tax specialist or Austrade adviser familiar with US economic nexus can confirm where a specific business actually stands.