Choosing an entity for an online business answers the income-tax and liability questions. It does nothing for a separate obligation that trips up online sellers more often: sales tax nexus, which is triggered by where you sell, not by what kind of entity you are.
Economic Nexus Doesn’t Care About Your Entity Type
Since the Supreme Court’s 2018 decision in South Dakota v. Wayfair, states can require an out-of-state seller to collect sales tax based purely on economic activity in that state — no physical presence required. Nearly every state with a sales tax adopted an economic nexus threshold within a couple of years of that ruling, most commonly $100,000 in sales into the state during the current or prior calendar year. Once a seller crosses that threshold, the obligation to register and collect applies the same way whether the seller is an LLC, S-corp, or sole proprietor — entity choice is irrelevant to this specific trigger.
The Transaction-Count Prong Is Disappearing
Many states originally paired the dollar threshold with an alternate 200-separate-transactions trigger, meaning a seller with many small, low-dollar sales could hit nexus even under $100,000. That transaction-count prong has been getting phased out state by state — Utah dropped it in mid-2025 and Illinois removed its transaction-count threshold at the start of 2026 — leaving a shrinking number of states, roughly 18 as of 2026, where transaction count alone can still create nexus.
Fulfillment Networks Can Create Physical Nexus Too
Sellers using a third-party fulfillment network that stores inventory in state-based warehouses can trigger physical nexus in those states independent of the economic-nexus dollar threshold entirely — inventory sitting in a fulfillment center counts as a physical presence for sales tax purposes in most states, which is why a seller doing a fraction of their total revenue in a state can still owe sales tax there if their inventory happens to be warehoused within it.
Marketplace Facilitator Laws Shift the Burden, But Not Entirely
Most states now require marketplaces like Amazon, Etsy, or Walmart Marketplace to collect and remit sales tax on behalf of third-party sellers automatically, which removes the collection burden for sales made through that channel. That relief generally doesn’t extend to direct sales made through a seller’s own website, where the seller’s own entity remains directly responsible for registering, collecting, and remitting in every state where nexus exists.
Where Entity Choice Actually Does Matter
Entity structure affects a separate, unrelated set of state-level business taxes that apply on top of sales tax collection — Texas imposes a margin tax on gross receipts over roughly $1 million regardless of entity type, and Ohio’s Commercial Activity Tax applies once gross receipts cross its own threshold, both calculated on revenue rather than profit. An LLC or S-corp election changes federal and state income tax treatment, but it doesn’t reduce or eliminate either the sales tax collection obligation or these gross-receipts-based business taxes.
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Related reading: Converting a Sole Proprietorship to an LLC and LLC vs. S-Corp vs. C-Corp: The Real 2026 Tax Tradeoffs.
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