What is Sales Tax Nexus?

In the United States, “nexus” describes the connection a business has with a tax jurisdiction that requires it to register, collect, and remit sales and use tax. Nexus can exist at multiple levels, including state, county, city, or other local jurisdictions. A business can establish nexus through either physical presence or economic activity.

Physical Nexus: Physical nexus occurs when your business maintains a physical presence in a jurisdiction. Examples include:

• An office, store, or other brick-and-mortar location (home offices may qualify)

• Employees, salespeople, or independent contractors

• Ownership or use of a warehouse or storage facility

• Inventory stored in a third-party logistics warehouse

• Temporary business activities such as pop-up shops or trade shows

• Relationships with third-party affiliate, also known as click through nexus 

Economic Nexus: Economic nexus occurs when a business exceeds specific sales or transaction thresholds in a state, even without a physical presence. Key points:

• Thresholds are based on (gross or taxable) sales (dollar amount) and/or number of transactions

• Sales thresholds typically range from $100,000 to $500,000 per year, though thresholds vary by state

• Transaction thresholds are generally around 200 transactions, but some states do not have a transactional requirement

• Important: Thresholds can change over time, so it’s essential to verify current state requirements

• Certain states do not have a transactional threshold

Most U.S. states set the economic nexus threshold at $100,000 in gross sales per year. States not listed in the chart below follow this standard. The chart highlights the states with different thresholds, whether in dollar amount, combination of sales and transactions, or other unique rules.

Economic nexus thresholds differ by jurisdiction. If your business has nexus in a state, you are required to register for sales tax, begin collecting sales tax and comply with that state’s reporting obligations. For guidance on registration, check our Knowledge Base, which provides detailed, up-to-date instructions. Taxually is also available to assist with registration and compliance.

FAQ

When does my nexus start date begin?

For all intents and purposes, a state considers you to have nexus as soon as you engage in any activity that establishes nexus—either through a physical presence or by surpassing the economic nexus threshold.

If you are in the process of registering for sales tax, you likely already know which activity created nexus. You should determine the date that activity began, because this is the date you are required to register for sales tax and start collecting and remitting it.

What if I no longer have sales tax nexus in a state?

Once you no longer qualify for sales tax nexus in a state, you should notify the state as soon as possible and they will instruct you on the next steps. Some states have pretty simple procedures like notifying them on your last return.! 

Please keep in mind that, even if you move your business from one state to another, there is a possibility that you will have continued nexus in the state you moved from. This concept is known as trailing nexus.