If you sell online, your tax map is bigger than you think. Most sellers worry only about sales tax. But you can also owe income tax in states you have never set foot in. The two are separate. Getting one right does not fix the other.
This guide explains when an online seller owes income tax across state lines in 2026 — and why “Amazon collects my sales tax” does not mean you are covered. The federal rule below is sourced to U.S. Code; the state rules vary, which is exactly why a review matters. Current as of June 29, 2026.
Key takeaways:
- Sales tax and income tax are separate. You can owe both, in different states.
- Storing inventory in a state — including Amazon FBA — usually creates nexus there.
- P.L. 86-272 is a narrow shield: net income tax only, tangible goods only, and not if you have inventory in the state.
- Marketplace tax collection does not cover your income tax or your filing duties.
- Many states now reach you through economic nexus based on sales volume alone.
Sales tax is not the whole story
Since the 2018 Wayfair decision, states can require out-of-state sellers to collect sales tax once they pass a sales threshold. Marketplaces like Amazon and Shopify now handle much of that collection for you under marketplace facilitator laws. We cover that side in detail on our e-commerce multi-state sales tax page.
Income tax is a separate system. A state can tax the income you earn from selling into it if you have nexus there — a connection strong enough for the state to tax you. Sales-tax collection by Amazon does nothing to settle that.
P.L. 86-272: the narrow federal shield
There is one federal protection, and sellers often overrate it. The Interstate Income Act of 1959 — P.L. 86-272, codified at 15 U.S.C. 381 — stops a state from charging you net income tax in one specific case.
It applies only when all of these are true:
- Your only activity in the state is soliciting orders.
- The orders are for tangible personal property (physical goods).
- The orders are approved and shipped from outside the state.
That is a small box. P.L. 86-272 does not protect you from:
- Sales tax, franchise tax, or gross-receipts tax.
- Selling services or digital products.
- Any state where you have physical presence — such as inventory.
So the moment your goods sit in a state’s warehouse, the shield is gone for that state.
Amazon FBA quietly creates nexus
This is the trap that catches FBA sellers. When you use Fulfillment by Amazon, Amazon stores your inventory in its warehouses and moves it between states. Your inventory is your property. Property in a state is physical presence, and most states treat physical presence as nexus — for both sales tax and income tax.
Because Amazon shifts stock around, a single seller can build nexus in many states without ever choosing to. Your Amazon fulfillment reports show where your inventory has been. That report is the starting point for figuring out where you may owe.
Economic nexus can reach you anyway
Even with no inventory in a state, you can still owe. Many states now use economic nexus: if you sell more than a set dollar amount into the state, you have nexus there. Wayfair created this idea for sales tax. A growing number of states apply a similar sales-threshold test for income or franchise tax too.
The thresholds and rules differ from state to state. That is the hard part — there is no single national number. It has to be checked state by state.
Services and digital products get even less protection
P.L. 86-272 protects only sellers of tangible goods. If you sell services, software, SaaS, digital downloads, online courses, or subscriptions, that federal shield does not apply to you at all.
It gets harder. Many states treat digital and SaaS revenue as sourced to the customer’s location. So a digital seller can have income-tax nexus in a state on sales alone — no inventory, and no federal protection to fall back on. The rules for sourcing digital revenue vary widely from state to state. If your catalog mixes physical and digital products, the same state may treat each line differently. This is one of the most common blind spots we see in seller books.
Common online-seller nexus mistakes
These are the errors that turn into back-tax assessments:
- “Amazon handles my taxes.” It collects sales tax on its own channel. It does nothing about income tax, franchise tax, or your filings.
- Ignoring the FBA inventory report. Your stock locations are your nexus map. Not checking them means not knowing where you owe.
- Treating sales tax and income tax as one decision. They use different thresholds and different rules, state by state.
- Leaning on P.L. 86-272 without meeting its narrow terms. Inventory in the state, or selling services, voids the protection.
- Waiting for a state to send a notice. A voluntary disclosure agreement is usually far cheaper than an assessment with back tax, penalties, and interest.
What this can mean for your business
Owners in this situation often find they have filing duties in several states at once. That can include:
- State income-tax returns where you have nexus, with your income apportioned by sales.
- Franchise or minimum taxes that apply even in a low-profit year.
- Registration and annual filings the marketplace never handled for you.
The fix is a nexus study. It maps where your inventory has been, how much you sell into each state, and what each state requires. We run this as part of our multi-state tax service and e-commerce bookkeeping, and we keep the books clean enough to apportion income correctly. See our e-commerce CPA services for the full picture. It is far cheaper to map this early than to be assessed back taxes and penalties later.
Online seller multi-state tax FAQ
Do online sellers pay income tax in other states?
They can. If your business has nexus in a state, that state can tax the income you earn from sales into it. Online sellers most often create nexus two ways: storing inventory there (including Amazon FBA warehouses) or selling enough into the state to trigger economic nexus. Sales tax and income tax are separate questions, and a seller can owe both.
Does P.L. 86-272 protect my online business from state income tax?
Only narrowly. The federal Interstate Income Act (P.L. 86-272, 15 U.S.C. 381) shields a business from a state’s net income tax only when its sole activity in the state is soliciting orders for tangible goods that are approved and shipped from outside the state. It does not cover sales tax, franchise or gross-receipts taxes, sellers of services or digital products, or any seller that has physical presence such as inventory in the state.
Does Amazon FBA create tax nexus?
Yes. When Amazon stores your inventory in a state, that is physical presence, and most states treat physical presence as nexus for both sales tax and income tax. Because Amazon moves FBA inventory between fulfillment centers, a seller can end up with nexus in many states at once. You can see your inventory locations in Amazon’s fulfillment reports.
If Amazon or Shopify collects the sales tax, am I covered?
No. Marketplace facilitator laws make the platform collect and remit sales tax on your sales. They do not cover your income tax, franchise tax, or your own registration and filing obligations in states where you have nexus. Marketplace collection is one tax on one channel — it does not erase the nexus your inventory created.
What is economic nexus for income tax?
Many states now assert nexus based on how much you sell into the state, even with no physical presence. This is called economic or factor-presence nexus. The 2018 Wayfair decision established it for sales tax, and a growing number of states apply a similar sales-threshold test for income or franchise tax. The exact threshold varies by state.
How do I find out which states I owe?
A nexus study is the standard step. It reviews where your inventory has been stored, how much you sell into each state, and what each state’s thresholds and tax types are, then maps your registration and filing obligations. It is far cheaper to do this proactively than to be assessed back taxes, penalties, and interest after the fact.
This article is general information for online sellers. It is not tax or accounting advice and does not create a CPA-client relationship. State nexus rules and thresholds vary and change. The federal rule cited is current as of June 29, 2026 (15 U.S.C. 381). Confirm your situation with a licensed CPA before you act.