Sales tax nexus is one of the most common (and confusing) sales tax topics businesses face as they grow. As soon as you sell into more than one state, multi-state sales tax obligations can come into play, often without much warning. Nexus matters because it determines where your business is legally required to register, collect, and remit sales tax. Getting it wrong can lead to penalties, interest, and unwanted attention from states. The good news? Sales tax nexus is manageable once you understand how it works and where to start. With a clear process and the right guidance, you can move forward with confidence instead of guesswork.
What Is Sales Tax Nexus?
Sales tax nexus is the connection between your business and a state that creates a sales tax obligation. When nexus exists, the state can require you to comply with its sales tax rules.
States enforce sales tax nexus to ensure businesses collecting revenue within their borders contribute appropriately. Once nexus is established, sales tax nexus requirements typically include registration, collecting tax on taxable sales, filing returns, and remitting payment. Nexus is the foundation of sales tax compliance—everything else builds from there.
The Two Main Types of Sales Tax Nexus
Physical Nexus
Physical nexus is created by having a tangible presence in a state. Common examples include:
- Offices or retail locations
- Employees or contractors working in the state
- Warehouses or distribution centers
- Inventory stored in the state (including third-party logistics providers)
- Attending trade shows or temporary events
Even a small physical footprint can establish physical nexus.
Economic Nexus
Economic nexus is based on sales activity rather than physical presence. Most states adopted economic nexus laws after the South Dakota v. Wayfair Supreme Court decision.
Economic nexus is triggered when you exceed a state’s nexus thresholds, which may include:
- A specific dollar amount of sales
- A certain number of transactions
- Or both
These thresholds vary by state and must be monitored carefully.
How to Determine If Your Business Has Nexus
Step 1 – Identify Where You Have Physical Presence
Start by listing every state where your business has:
- Offices or locations
- Employees or remote workers
- Inventory, including inventory stored with 3PLs or fulfillment partners
Physical presence alone can establish nexus.
Step 2 – Review Sales by State
Next, analyze your sales activity by state:
- Total revenue by state
- Number of transactions by state
- Whether thresholds are based on annual or trailing 12-month periods
This data is essential for accurate nexus determination.
Step 3 – Compare Activity to State Nexus Thresholds
Compare your sales data to each state’s nexus thresholds. Keep in mind:
- Thresholds vary by state
- Rules change over time
- Some states have no transaction threshold at all
Staying current is critical.
Step 4 – Consider Special Nexus Triggers
Some activities create nexus even if thresholds aren’t met, such as:
- Selling through marketplaces
- Affiliate or referral relationships
- Click-through nexus agreements
These rules can be easy to miss without a thorough review.
What Happens After Nexus Is Established
Once nexus is established, sales tax obligations typically include:
- Registering for sales and use tax permits
- Collecting the correct tax on taxable transactions
- Filing sales tax returns on required schedules
- Remitting collected tax to the state
- Ongoing monitoring as your business grows
This is where consistent sales tax compliance becomes essential.
Common Sales Tax Nexus Mistakes to Avoid
Businesses often run into trouble by:
- Assuming software automatically determines nexus
- Ignoring where inventory is stored
- Overlooking historical exposure
- Waiting until a state audit forces action
Most issues grow more costly the longer they go unaddressed.
How Businesses Can Manage Nexus Going Forward
Managing multi-state sales tax nexus requires an ongoing approach:
- Conduct regular nexus reviews
- Use automation tools for tracking sales activity
- Pair technology with expert oversight
- Maintain documentation to support nexus determination
A proactive process helps reduce risk and uncertainty.
When to Get Help With Sales Tax Nexus
It’s time to seek help when:
- Your business is growing rapidly
- You’re expanding into new states
- You suspect prior non-compliance
- You receive notices from a state
An advisory conversation early can prevent bigger problems later.
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