Sales Tax Nexus Guide

What Is Sales Tax Nexus?

Nexus is a Latin word meaning connection or link. In sales tax, it describes the relationship between a business and a state that requires the business to collect and remit sales tax on taxable sales made to customers in that state.

Historically, nexus required a physical presence — an office, warehouse, employees, or inventory inside a state. That changed with the Supreme Court's 2018 decision in South Dakota v. Wayfair, Inc., which upheld South Dakota's economic nexus law and allowed states to impose sales tax obligations based on sales volume alone, regardless of physical presence.

Today, businesses can have nexus in two ways: physical nexus, which still applies, and economic nexus, which is now the dominant trigger for most remote sellers.

Physical Nexus: What Creates It

Physical nexus is established when your business has a tangible presence in a state. Common physical nexus triggers include:

Office or Place of Business: Any fixed location — an office, retail store, showroom, or service location — creates nexus in that state.

Employees or Contractors: Having employees, sales representatives, or contractors working in a state creates nexus, even if they work remotely and your main office is elsewhere.

Warehouse or Inventory: Storing inventory in a state — including in third-party fulfillment centers like Amazon FBA warehouses — creates nexus. This is one of the most common nexus surprises for e-commerce sellers, who often have inventory in a dozen states without realizing it.

Trade Shows and Temporary Presence: Many states treat participation in trade shows as creating nexus, particularly if sales are made at the event.

Drop Shipping: In some states, using a drop shipper located in that state can create nexus for the retailer, even without any other presence.

Economic Nexus: The Post-Wayfair Standard

Since Wayfair, all 45 states with a sales tax have enacted economic nexus laws. The standard threshold in most states is $100,000 in sales or 200 transactions in the prior or current calendar year. Exceed either threshold and you have nexus — collection and registration obligations follow immediately.

A handful of states use different thresholds:

New York: $500,000 in sales and 100 transactions. Texas: $500,000 in sales (no transaction count). Alabama and Mississippi: $250,000 in sales. California: $500,000 in sales.

Several states have also eliminated the 200-transaction threshold, including Kansas, Massachusetts, and Pennsylvania, relying solely on the dollar threshold. The trend is toward simplification at $100,000 with no transaction count.

Economic nexus is measured differently by different states — some use the previous calendar year, some use a rolling 12-month period, and some use the current calendar year. Knowing which measurement period applies affects when your obligation begins.

Marketplace Facilitators

If you sell through platforms like Amazon, Etsy, eBay, or Walmart Marketplace, the marketplace facilitator laws in most states shift the collection responsibility to the platform — not to you. Amazon, for example, collects and remits sales tax on your behalf in all 45 sales tax states.

However, marketplace facilitator laws do not eliminate your nexus. If you have independent sales outside the marketplace, you are still responsible for those sales. And if your total sales — including marketplace sales — exceed a state's economic nexus threshold, some states still require you to register even though the marketplace is collecting.

The rules vary by state. Do not assume marketplace facilitation resolves all your obligations without reviewing the specifics.

How to Assess Your Nexus Exposure

A nexus study is a systematic review of your business activities in every state to determine where you have collection obligations. The study analyzes:

Physical locations — offices, warehouses, employees, contractors, equipment. Inventory locations — including third-party warehouses and FBA fulfillment centers. Sales volume by state — compared against each state's economic nexus thresholds. Service delivery — whether services are performed in or benefit customers in specific states. Drop shipping arrangements — and the nexus implications for each party in the chain.

For businesses with multi-state sales, a nexus study is not a one-time exercise. As your business grows into new channels or geographies, your nexus footprint changes. We recommend reviewing nexus annually and any time you open a new location, hire employees in a new state, or begin selling through a new channel.

What to Do If You Already Have Exposure

If your nexus analysis reveals that you have been collecting obligations in states where you have not registered and filed, you have options — and the sooner you act, the better.

Voluntary Disclosure Agreement (VDA): Most states offer a VDA program that allows businesses to come forward before being discovered. In exchange for voluntary disclosure, states typically limit the lookback period to 3 to 4 years, waive or reduce penalties, and provide a structured path to compliance. A VDA is almost always the right move for businesses with meaningful historical exposure.

Registration and prospective compliance: If your historical exposure is minimal, simply registering and beginning to collect going forward may be sufficient — particularly in states where the economic nexus threshold was only recently crossed.

Do nothing: This is rarely the right answer. States are increasingly sophisticated at identifying unregistered sellers through third-party data, marketplace reporting, and interstate information sharing. If the state finds you first, the lookback is unlimited and penalties apply in full.

Sales Tax Helper can assess your exposure, identify which states are highest priority, and negotiate VDAs on your behalf to limit historical liability and get you compliant.