Collection Requirements and Nexus

Sales tax nexus is a common reason some businesses collect sales tax in certain states but not in others. It’s a connection between a business and a state that can trigger an obligation to collect and remit sales tax there. Every state defines nexus slightly differently, but most rules fall into two categories: a physical presence in the state, or an economic connection large enough to cross the state’s threshold.

This page explains common nexus triggers and thresholds to double-check for each business and state before collecting sales tax.

Physical nexus

Physical nexus typically applies when a business has a tangible tie to a state. Common triggers include:

• 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 the business’s behalf in the state.
• Temporary in-state physical activity, 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 a business’s behalf, that’s commonly enough to establish nexus.

Economic nexus

Economic nexus laws can 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 may be required to 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 can trigger when the first threshold is crossed.
• A few require both to be met before nexus applies.

Because each state’s law is different, a practical first step when entering a new state is to pull up that state’s current rule and check whether the business meets the threshold.

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 a quick way to look up the specifics for a given jurisdiction.

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