Updated – Originally published January 24, 2025
Growing your business across state lines opens the door to new markets, new people, and real growth opportunities. It also introduces new responsibilities, especially when it comes to sales tax. One of the most important concepts to understand as you expand is sales tax nexus.
Sales tax nexus determines when your business is required to collect and remit sales tax in a state. While the term may sound technical, the idea is simple. When your business reaches a certain level of connection with a state, that state can require you to follow its sales tax rules.
Getting nexus wrong can be expensive. States are enforcing compliance more aggressively, and penalties add up quickly. The good news is that once you understand the requirements, thresholds, and compliance steps, managing nexus becomes far more manageable.
What Is Sales Tax Nexus?
Sales tax nexus is the legal connection between a business and a state that creates a sales tax obligation. When nexus exists, your business must register, collect sales tax from buyers, file returns, and remit tax to that state.
Sales tax nexus applies to both physical presence and economic activity. You can create nexus by having people or property in a state, or simply by reaching certain sales thresholds.
What is the definition of sales tax nexus?
The definition of sales tax nexus is a standard used by states to determine whether a business has enough activity within the state to justify imposing sales tax responsibilities. This activity can include employees, inventory, offices, or sales volume.
What does sales tax nexus mean for your business?
For your business, nexus determines where you must stay compliant. If you miss a nexus obligation, states can assess back taxes, penalties, and interest. Understanding where you have nexus allows you to protect your business, plan for growth, and operate with confidence.
How States Define Sales Tax Nexus
Understanding how states define sales tax nexus is essential because each state sets its own rules. While the general framework is consistent, thresholds, enforcement practices, and timelines vary.
States typically recognize physical and economic nexus. Together, these rules apply to both sales and use tax nexus, meaning your obligation may extend beyond traditional point-of-sale transactions.
Physical Nexus Explained
Physical nexus exists when your business has a tangible presence in a state. If you are asking what is a nexus for sales tax, physical presence is often the most direct answer.
Common triggers for physical nexus
Physical nexus can be triggered by more activity than many businesses expect. Even limited or temporary presence can create an obligation.
Examples of physical presence that create nexus
Common examples include:
- Operating a store, office, or warehouse
- Storing inventory in a third-party fulfillment center
- Having employees or independent contractors working in the state
- Attending trade shows or events where sales occur
- Using company-owned vehicles to deliver products
Because physical nexus can be triggered easily, it is important to monitor where your people, inventory, and operations are located.
Economic Nexus and Online Sales
Economic nexus focuses on sales activity rather than physical presence. This is especially relevant for e-commerce and remote sellers.
What is economic nexus for sales tax?
Economic nexus for sales tax is created when your business exceeds a state’s sales revenue or transaction threshold. Once exceeded, the state can require registration and tax collection even if you have no physical presence.
How the Wayfair decision changed everything
The 2018 Supreme Court decision in South Dakota v. Wayfair allowed states to enforce sales tax obligations based solely on economic activity. This expanded nexus rules nationwide and significantly impacted online sellers.
Common sales and transaction thresholds
Most states use a revenue threshold of $100,000 in annual sales. Some states also include transaction counts, while others rely solely on revenue.
Examples include:
- Maryland: $100,000 in gross revenue or 200 transactions
- Pennsylvania: $100,000 in gross sales
- Utah: $100,000 in sales or 200 transactions
Businesses selling online must track sales by state to avoid triggering economic nexus without realizing it.
Sales Tax Nexus vs Economic Nexus
Understanding the difference between physical and economic nexus helps clarify compliance obligations. This is what is sales tax nexus vs economic nexus in practical terms.
| Category | Physical Nexus | Economic Nexus |
| Trigger type | Physical presence | Sales activity |
| Examples | Employees, inventory, offices | Revenue or transaction volume |
| Common thresholds | Any presence | $100,000 in sales or 200 transactions |
Both types can apply at the same time, and either one can create an immediate obligation.
Managing Your Sales Tax Obligations
Once you understand where you have nexus, the next step is managing compliance on an ongoing basis.
How to track your nexus exposure
Businesses should track:
- Employee and contractor locations
- Inventory storage locations
- Trade show and event participation
- Sales revenue and transaction counts by state
States do not notify you when nexus is triggered. The responsibility to monitor and act always falls on the business.
Tools for managing multi-state compliance
Many businesses use tools such as Shopify, Avalara, Vertex, or Sovos to help manage tax rates and filings. Automation can reduce errors, but it is not a set-it-and-forget-it solution. Human oversight is still required.
What is a sales tax nexus calculator?
A sales tax nexus calculator is a tool that helps estimate where your business may have triggered nexus based on sales and activity data. These tools are helpful starting points but should be paired with expert review.
State-Specific Sales Tax Nexus Thresholds
Economic nexus thresholds vary by state. Here’s a breakdown of sales tax nexus requirements for major U.S. states.
- California: $500,000 in annual sales
- Florida: $100,000 in annual sales
- Illinois: $100,000 in sales or 200 transactions
- New York: $500,000 in sales and 100 transactions
- Texas: $500,000 in annual sales
- Washington: $100,000 in annual sales
Optional state highlights:
- California Sales Tax Nexus
- Florida Sales Tax Nexus
- New York Sales Tax Nexus
- Maryland Sales Tax Nexus
- Utah Sales Tax Nexus
Thresholds can change, so regular review is critical.
Your Sales Tax Nexus Compliance Plan
Once nexus is triggered, timely action matters.
How to register for sales tax once nexus is triggered
You must register for a sales tax permit before collecting tax. Collecting without a permit is illegal in most states and can create additional penalties.
Avoiding common nexus compliance mistakes
Common mistakes include:
- Missing nexus triggers
- Collecting tax without registering
- Using incorrect tax rates
- Misunderstanding product taxability
- Filing late or incomplete returns
How The Sales Tax People can help
At The Sales Tax People, we start with nexus. Our real accountants and consultants help you identify where you have exposure, register correctly, and build a reliable compliance process that grows with your business.Ready to simplify your sales taxes?
Partner with The Sales Tax People and schedule a free “What’s Next” consultation to protect your business and gain peace of mind, schedule a free consultation to ensure your business stays compliant and avoids costly penalties.
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