Economic Nexus in 2026: States Dropping the 200-Transaction Test

Economic nexus is the sales level that forces an out-of-state seller to collect a state's sales tax. Most states set it at $100,000 in sales, and many once added a second trigger of 200 orders. As of 2026, about 17 states have dropped that order count, so small-order shops may owe less filing than they think.

The 200-order test was always a strange fit for small online sellers. A shop selling $25 candles could cross it with $5,000 in sales to a state, then spend more on filing returns than it collected in tax. States have noticed, and they keep removing it.

This guide is for owners of small online stores, marketplace sellers and anyone who handles sales tax setup for an ecommerce business. It covers which states dropped the test, what changed in Illinois and Kentucky this year, and how to check whether you can stop filing somewhere. It ends with a short review routine you can run each quarter.

Where the 200-Order Economic Nexus Test Came From

The order count dates back to 2018. In South Dakota v. Wayfair, decided by the U.S. Supreme Court on June 21, 2018, the Court let states require sales tax collection from sellers with no physical presence. South Dakota's law used two triggers: $100,000 in sales or 200 separate transactions.

Most states copied South Dakota's law almost word for word. They saw that the Supreme Court had approved it, so copying the thresholds looked safe. That is why so many states ended up with the same pair of numbers, even though the order count punished low-price sellers far more than large ones.

The scale of online selling makes this matter more each year. The U.S. Census Bureau's quarterly e-commerce report put online retail sales at $340.2 billion in the second quarter of 2026. That was 17.1% of all retail sales and 12.2% higher than a year earlier, by the Census Bureau's estimate.

Which States Have Dropped the Transaction Threshold?

About 17 states had removed the 200-transaction test as of April 2026, according to Avalara's tracking. They include California, Colorado, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Massachusetts, North Carolina, North Dakota, South Dakota, Utah, Washington, Wisconsin and Wyoming, plus Alaska's local remote-seller system.

Avalara's running list of states eliminating transaction thresholds also notes that 13 states never had one. Texas, Florida and Pennsylvania are in that group. About 15 states, plus Washington, D.C., and Puerto Rico, still use an order count.

The holdouts matter most for small sellers. Georgia, Michigan, New Jersey and Virginia are among the states that still treat 200 orders as enough on their own. New York and Connecticut use a stricter pairing that requires both a sales amount and an order count, so a small shop is less likely to trip them.

Lists like this go stale quickly, so treat any count as a snapshot. Before you act, confirm the current rule on each state revenue department's own site.

What Changed in Illinois and Kentucky in 2026

Illinois and Kentucky are the two most recent removals, and both took effect this year. Each now uses only the $100,000 sales test for remote sellers.

The Illinois Department of Revenue spelled out its change in Bulletin FY 2026-12. From January 1, 2026, remote retailers and marketplace facilitators no longer owe Illinois tax just for making 200 sales there. The only test is $100,000 in gross receipts from Illinois buyers over a 12-month lookback period.

The Illinois bulletin also tells sellers what to do next. A seller that only met the 200-order test should review its sales for the 12 months ending December 31, 2025. If those sales were under $100,000, it stops remitting the tax on remote sales from January 1, 2026. The Illinois Department of Revenue switches that seller's registration to voluntary use tax on its own.

The Illinois check is ongoing, though. For quarters starting after March 31, 2026, sellers must test the $100,000 threshold on a rolling quarterly basis. A strong holiday quarter can bring you back in.

Kentucky made the same change effective August 1, 2026. Its $100,000 threshold, measured over the current or previous calendar year, did not change.

A Worked Example: The $30 Average Order

The arithmetic shows why this change matters so much to small shops. Take a hypothetical seller of art prints with a $30 average order.

Here is how that seller's position changes under each test.

For that seller, each state that drops the order count can remove a monthly or quarterly return. Filing software often charges per state, and each filing takes staff time. At Emazoo, we think the filing cost is the number most small sellers underestimate when they first register in a handful of states.

Sales tax is not the only threshold that changes your paperwork this year. Federal reporting for contractors moved too, as our guide to the new $2,000 1099 threshold explains.

Marketplace Sales Change the Math

If you sell on Amazon, Etsy, eBay or Walmart, much of your sales tax is already handled. Every state with a sales tax now has a marketplace facilitator law. These laws require the marketplace to collect and remit tax on sales made through it.

The harder question is whether marketplace sales count toward your own threshold. States split on this. Some exclude marketplace sales from a seller's own total. Others include them, which can push a seller over $100,000 even if its own website sells far less.

Illinois shows why the details matter. Its 2026 bulletin sets the same $100,000 test for remote retailers and for marketplace facilitators, but treats them as separate sellers. Other states word their rules differently, so check each state where your combined sales are close to $100,000.

Does Losing Economic Nexus Mean Your Customers Pay Less Tax?

No. Losing economic nexus only changes who handles the tax. The buyer still technically owes use tax on the purchase, but the seller no longer collects it. For a small shop, the real savings are in filing time and software fees, not in a lower price for the customer.

That distinction affects how you set up checkout. If you stop collecting in a state, your cart total for buyers there drops by the tax amount. Some sellers keep prices the same and enjoy a slightly better conversion rate. Others use the change as a quiet chance to absorb a supplier or shipping increase.

There is also a record-keeping cost to stopping. You need proof that your sales stayed under the threshold for each period you didn't collect. Keep the state-by-state sales export from each review, along with any letter the state sends confirming your new status. An auditor will ask for it years later.

Physical presence still overrides everything here. Economic nexus only covers sellers with no footprint in a state. If you keep inventory in a warehouse there, have an employee there or attend trade shows there, you may owe collection regardless of sales volume. That includes inventory stored in a marketplace's fulfillment center, which many sellers forget.

How to Review Your Sales Tax Registrations

A short review once a quarter keeps you from both overpaying and underpaying. It also catches the states where a good season pulls you back over a line.

Work through these steps in order.

Step five is the one to take slowly. Avalara notes that some states keep you liable for a period after you fall below the threshold, which is called trailing nexus. Closing an account early can leave you owing tax you no longer collect from buyers.

Also keep your checkout honest while you change tax settings. Price displays, taxes and reviews all face more scrutiny now, as covered in our guide to the FTC consumer review rule. And if January carrier increases are pushing you to reprice, see what the FedEx 2027 rate increase means for light parcels.

The Bottom Line on Economic Nexus in 2026

The economic nexus rules are slowly moving in small sellers' favor. In about 17 states, only sales over $100,000 count, and Illinois and Kentucky joined that group this year. A shop with many small orders may now be able to stop filing in a few states.

Your next step is the 12-month export. Emazoo covers how small companies sell online and what it costs them, and this review is one of the cheapest wins available. Run it with your accountant, close only what you are sure of, and repeat it every quarter.

Reviewed against state revenue department guidance and Avalara's threshold tracker as of October 19, 2026. This is general information, not tax advice.