A nexus state is any state where your business has a strong enough connection to trigger a legal duty to register, collect, and remit that state’s taxes. The connection can be as concrete as a warehouse or a single remote employee, or as invisible as crossing a dollar threshold in online sales. Forty-five states and the District of Columbia impose a sales tax, and each sets its own rules for when your activity crosses the line. Five states have no statewide sales tax at all, so nexus there is only relevant for income and payroll taxes.
Nexus is not a single test. It’s a family of them, and you can trip any one and owe tax in a state you’ve never visited.
Physical Presence: The Oldest Trigger
A physical footprint inside a state’s borders creates nexus. That includes the obvious things: a store, an office, a distribution center, or property you lease rather than own. It also includes short-term setups like trade show booths and seasonal kiosks.
People count as much as property. Employees, sales representatives, and contractors working in a state generally create nexus for the business that hired them. Inventory does the same. If a third-party fulfillment service stores your products in a particular state, you have a physical presence there, even if you’ve never set foot in the state yourself.
Remote Workers
A single remote employee working from a home in another state can create nexus. The employee doesn’t need to be selling anything. Their location is enough to establish a connection for sales tax, income tax, and payroll tax purposes. If your team works from wherever they want, you need to know where “wherever” actually is. Each state on that list is a potential new nexus state for the company.
Economic Nexus After Wayfair
In 2018, the Supreme Court decided South Dakota v. Wayfair, Inc. and ended the rule that a business needed a physical presence before a state could require it to collect sales tax. The Court upheld South Dakota’s law, which required remote sellers to collect tax if they delivered more than $100,000 in goods or services into the state, or completed 200 or more transactions there, in a single year.1Supreme Court of the United States. South Dakota v. Wayfair, Inc. Every state with a sales tax has since adopted some version of economic nexus.
Common Thresholds
$100,000 in gross sales is the most widely adopted threshold, mirroring the South Dakota model. A smaller group of states set the bar at $250,000 or $500,000.2Multistate Tax Commission. Update on Economic Nexus and Marketplace Facilitator Collection Laws The original 200-transaction alternative is falling out of favor because it swept in low-revenue sellers who happened to process a lot of small orders. As of mid-2025, roughly 16 states still use a transaction count. The direction is clearly toward revenue-only tests.
Gross Sales vs. Taxable Sales
Some states measure the threshold against total gross sales into the state. Others count only taxable sales. In gross-sales states, exempt transactions like wholesale or resale orders still count, which means you can cross the threshold without making a single taxable sale to a consumer. Check each state’s rule. There is no uniform national standard.
Look-Back Periods
States measure your activity over a look-back window, usually the previous 12 months or the current calendar year. Cross the threshold at any point in either window and the collection obligation begins. Waiting until year-end to check is dangerous, because uncollected tax liability builds up in the meantime.
Click-Through, Affiliate, and Marketplace Nexus
Physical and economic presence cover most situations. States have added three more categories to close the gaps.
About 15 states have click-through nexus laws. These apply when an out-of-state seller pays an in-state person or business for referring customers through website links, and those referrals generate sales above a threshold — most commonly $10,000 per year.
Affiliate nexus looks at your corporate family. If a related entity that shares your trademark, branding, or ownership has a physical presence in a state, that presence can be attributed to you. The rule prevents businesses from splitting into separate legal entities to dodge collection while still benefiting from an in-state brand.
Every state with a sales tax now has a marketplace facilitator law. These shift the duty to collect and remit sales tax from individual sellers to the platform hosting the sale. If you sell through a major online marketplace, that platform handles tax on transactions it facilitates. Sales through your own website or other direct channels remain your responsibility.
Income Tax Nexus and the P.L. 86-272 Shield
Nexus isn’t only about sales tax. States can also impose income tax on businesses with a sufficient connection. Thresholds vary more widely than for sales tax. The Multistate Tax Commission’s model uses benchmarks like $50,000 in property, $50,000 in payroll, or $500,000 in sales inside a state, and several states have adopted versions of that approach.
Federal law provides a narrow but powerful shield. Public Law 86-272 prohibits a state from imposing a net income tax on your business if your only activity in the state is soliciting orders for tangible goods, provided those orders are approved and shipped from outside the state.3Office of the Law Revision Counsel. 15 USC 381 – Imposition of Net Income Tax
Know the limits. P.L. 86-272 only covers tangible personal property. It does not cover services, software, digital products, or leasing arrangements.4Multistate Tax Commission. Statement of Information Concerning Practices Under Public Law 86-272 Employees doing anything beyond soliciting orders — training, repairs, investigating customer complaints — likely fall outside the protection. Several states have taken the position that certain internet activities, like placing cookies on in-state customers’ devices, exceed “solicitation” and strip away the federal shield. The law also does not help with sales tax; it only limits net income tax.
What to Do Once You Have Nexus
You need to register for a sales tax permit before collecting any tax. Most states charge no fee for the permit. Registration happens through the state revenue department’s online portal, and you’ll typically be asked for your Federal Employer Identification Number, business type, contact information for responsible officers, the date nexus was first established, and an estimate of monthly taxable sales. That estimate determines your filing frequency: monthly for high-volume sellers, quarterly or annually for smaller ones.
Some states issue a permit number immediately. Others take two to three weeks to mail a certificate. Either way, your obligation to collect begins on the date nexus was established, not the date the permit arrives. Sales made in between are still taxable. Registration does not create a grace period.
If you have nexus in several states, the Streamlined Sales Tax Registration System lets you register in 24 member states through a single free application and connects you with certified service providers that can handle calculation and filing.5Streamlined Sales Tax. Sales Tax Registration SSTRS Non-member states still require separate registration.
What Happens If You Ignore It
States actively find non-compliant sellers through data sharing, marketplace transaction records, and audits. The consequences run past the uncollected tax.
Expect penalties and interest. Structures vary, but the common pattern is a percentage of tax owed for late filing, a flat fee per missed return, and interest that runs from the original due date. Some states offer a discounted interest rate if you pay before a formal assessment.
Then there’s personal liability, which is the real reason not to delay. Most states treat collected sales tax as trust fund money. It belongs to the state from the moment you take it from the customer; you’re only holding it. If the business fails to remit, the state can pierce the corporate veil and hold officers, directors, or anyone who controlled the finances personally responsible. That liability survives business closure and bankruptcy, and personal assets, including bank accounts and real property, can be pursued.
Voluntary Disclosure Agreements
If you find out you should have been collecting in a state but weren’t, a voluntary disclosure agreement is usually the best path forward. Through the Multistate Tax Commission’s National Nexus Program, you can approach a state before it finds you. States typically waive penalties in exchange, and cap the look-back period, most commonly at 36 months, with some states going to 48 months. You still pay back taxes plus interest, but the relief is significant compared with being caught in an audit that could reach the full period of non-compliance. One exception matters: if you collected sales tax from customers and never remitted it, most states will not waive penalties on that money, and the look-back period may extend to cover the entire period you were collecting.6Multistate Tax Commission. Lookback Periods for States Participating in National Nexus Program