There’s never been more freedom for freelance professionals to build businesses around e-commerce sales and remote work. The globalization of client and work opportunities has revolutionized the freelance market, and opened up unprecedented access for business owners to expand their reach across states and even countries. 

However, this newfound flexibility comes with its own set of challenges—particularly when it comes to tax compliance. Multi-state and multi-country operations can expose your freelance business to complex tax nexus rules, creating audit risks and potential liabilities. Sales tax, in particular, has become a critical area of concern as jurisdictions tighten regulations and enforcement.

Sales tax compliance is nuanced and can lead to penalties in a number of different areas, therefore as tax laws evolve, it’s critical to stay informed about the rules governing tax nexus to navigate the complexities of national and global sales.

The Critical Nature of Your Sales Tax Nexus for Freelance Business Owners

A sales tax nexus is the connection you establish with a state or country that triggers tax obligations there. For freelancers, these obligations often arise from factors including conducting business in a state, reaching specific revenue thresholds, or making online sales across borders.

There are two primary types of sales tax nexus:

• Physical Nexus: This occurs when a business has a tangible presence in a state, such as an office, warehouse, or employees working within that jurisdiction. If a freelancer registers for sales tax in a state where they have a physical presence, they are required to collect and remit sales tax on taxable transactions.
• Economic Nexus: This applies when a business does not have a physical presence in a state but meets certain revenue or transaction thresholds. Many states impose economic nexus rules, meaning freelancers may need to register for sales tax even if they do not have a physical location in that state.

The 2018 South Dakota v. Wayfair, Inc. Supreme Court decision paved the way for states to impose sales tax obligations on businesses without a physical presence. By 2025, these rules have grown more stringent, and freelancers must remain vigilant to avoid financial pitfalls.

Why Does Sales Tax Nexus Matter?

When you sell products, provide services, or travel for gigs across state lines or internationally, you could unknowingly create a tax nexus. For example:

• Selling Digital Products: If you sell e-books, software, or online courses, states may require you to collect and remit sales tax if your revenue or transaction volume surpasses specific thresholds.
• Traveling for Work: Conducting in-person services or managing projects in different states may establish a nexus, even if it’s temporary.
• International Clients: Selling to international clients might trigger Value Added Tax (VAT) obligations or customs duties in other countries.
• Having a Remote Employee: If you have a remote team in a state other than your primary business location, this may also create a sales tax nexus.

Failure to comply with these rules can result in penalties, including fines for non-filing and non-payment of sales tax, as well as potential back taxes and interest on taxes owed.

Know How Your Sales Tax Nexus Varies by Your State and Local Activities

Each state (and in some cases local cities and towns) has different sales tax nexus rules, which can impact freelancers differently. Here are some state-specific examples 

• New Jersey:  Imposes an economic nexus threshold for sales tax when a business either has sales in the state exceeding $100,000 in gross revenue or has 200 or more separate transactions during the current or last calendar year.
• California: Imposes an economic nexus threshold of $500,000 in gross sales. Freelancers selling digital or physical products across state lines must monitor their sales closely.
• New York State: Enforces a 100-transaction limit for economic nexus. If a freelancer sells digital goods or services exceeding this threshold, they may need to register for sales tax.
• Connecticut: Requires businesses with $100,000 in sales or 200 transactions to register for sales tax, even if they do not have a physical presence.

These are just a few examples of how sales tax liabilities may or may not align with income tax obligations, making it essential for freelancers to track their transactions carefully and be aware of all sales tax obligations they may have depending on their activities and sales.

Tips to Manage Sales Tax Compliance for Your Freelance Business

The best way to avoid penalties and other sales tax issues is to be proactive and seek professional advice. These tips can help you get started:

• Track your transactions: Use sales tax tracking tools in any e-commerce platform to monitor sales by state or country.
• Automate tax compliance: Platforms like Shopify, Etsy, TaxJar and QuickBooks offer automated tax tools tailored for e-commerce businesses.
• Understand product-specific taxation: Research what’s taxable and what’s exempt in each jurisdiction where you operate.
• Seek professional guidance: Partnering with a tax advisor specializing in freelance businesses can save you from costly errors.
• Stay informed about legal changes: Sales tax laws are constantly changing, particularly for online sales and global transactions.

Sales tax compliance for your freelance business is critical, which is why staying informed and proactive is so important. Given the time and expertise necessary to stay on top of your sales tax nexus requirements and to avoid penalties and interest, consulting with a tax professional is strongly encouraged so that you don’t encounter unexpected issues which may threaten the continuation of your freelance business.