What is Nexus?

Sales tax nexus is the connection between your business and a state that creates an obligation to collect and remit sales tax there. Every state defines nexus slightly differently, but most rely on the same two categories: a physical presence in the state, or an economic connection large enough to cross the state’s threshold.

You only charge sales tax in states where you have nexus. This page explains what triggers each type and points you at the state-by-state thresholds you’ll want to check before you start collecting.

Physical nexus

Physical nexus exists when your business has a tangible tie to a state. Any of the following typically creates it:

• An office, store, or other location in the state (a home office counts).
• An employee, salesperson, or contractor working in the state.
• A warehouse or storage facility in the state.
• Inventory stored in the state, including stock held by a fulfillment partner like Amazon FBA.
• A third-party affiliate promoting or selling on your behalf in the state.
• Temporary physical business in the state, such as a trade show booth or craft fair table.

Physical nexus is the older of the two doctrines and is usually the easier one to assess: if a person, a building, or goods are in a state on your behalf, you most likely have nexus there.

Economic nexus

Economic nexus laws require online sellers to collect sales tax in a state once their sales into that state cross a set threshold, even without any physical presence. The doctrine follows from the 2018 South Dakota v. Wayfair Supreme Court ruling, and every state with a sales tax has since adopted some form of it.

A typical rule reads: if a seller makes more than $X in sales into the state, or completes more than X transactions with buyers in the state, they must collect and remit sales tax on those sales.

Thresholds vary by state:

• Some states use a sales-dollar threshold only (commonly $100,000).
• Some use a transaction-count threshold only.
• Many use either one — nexus triggers when the first threshold is crossed.
• A few require both to be met before nexus applies.

Because each state’s law is different, the practical first step when entering a new state is to pull up that state’s current rule and check where you stand.

Check the rules state by state

TaxCloud publishes a running state-by-state reference covering the current physical and economic nexus rules in every US state. It’s the quickest way to answer “do I have nexus in X?” for a specific jurisdiction.

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