Economic nexus thresholds determine when a business is required to register, collect, and remit sales tax in a state based solely on economic activity.
These thresholds are not uniform. Each state sets its own rules, which creates confusion, hidden risk, and missed compliance obligations for growing businesses.
Understanding how economic nexus thresholds work is essential for managing sales tax exposure.
Use this sales tax nexus guide to stay compliant
What Is an Economic Nexus Threshold
An economic nexus threshold is a limit that, once crossed, creates a sales tax obligation even if the business has no physical presence in the state.
Thresholds are typically based on:
- Total revenue into the state
- Number of transactions into the state
- A combination of both
Once the threshold is exceeded, nexus is considered established.
Why Thresholds Vary by State
There is no national standard for economic nexus thresholds.
Each state independently defines:
- Revenue limits
- Transaction counts
- Measurement periods
- Enforcement dates
This variation is the primary reason businesses struggle to track nexus accurately.
Common Types of Economic Nexus Thresholds
Revenue Based Thresholds
Many states use a revenue only threshold.
Examples include:
- $100,000 in annual sales
- $500,000 in annual sales
Revenue thresholds are easier to calculate but still require accurate state level sales tracking.
Transaction Based Thresholds
Some states use transaction counts, either alone or alongside revenue.
Examples include:
- 200 transactions per year
- 100 transactions per year
Transaction thresholds often catch low dollar, high volume businesses off guard.
Combined Thresholds
Some states require either:
- Revenue threshold OR transaction threshold
This means crossing either limit creates nexus.
Businesses may unknowingly cross transaction thresholds long before revenue thresholds.
Measurement Periods Matter
Thresholds are usually measured over a defined period, such as:
- Current calendar year
- Previous calendar year
- Rolling 12 month period
A business may cross a threshold late in the year and still be considered to have nexus for the following year.
When Nexus Officially Starts
Economic nexus does not always begin on the day a threshold is crossed.
States may define:
- A delayed effective date
- A future registration requirement
- A next period collection obligation
This timing affects exposure calculations and filing strategy.
Why Businesses Miss Economic Nexus
Economic nexus is commonly missed because:
- Sales data is spread across systems
- Marketplaces distort transaction counts
- Subscription revenue grows gradually
- Accounting reports are not state specific
Many businesses assume they are below thresholds until analysis proves otherwise.
Understand your sales tax exposure before it becomes a risk
SaaS and Digital Businesses Face Unique Risk
SaaS and digital product companies are especially vulnerable because:
- Transactions scale quickly
- Revenue per transaction may be low
- Taxability varies by state
- Economic nexus accumulates quietly
Thresholds are often crossed without triggering internal alarms.
Marketplaces Do Not Eliminate Nexus
Even when marketplaces collect tax:
- Sellers may still have economic nexus
- Registration may still be required
- Reporting obligations may still exist
- Use tax exposure may remain
Marketplace rules differ by state and do not remove all responsibility.
Crossing a Threshold Does Not Mean Immediate Filing
Crossing an economic nexus threshold does not automatically require immediate filing.
Proper evaluation includes:
- Confirming trigger dates
- Reviewing taxability
- Assessing exposure
- Determining filing timing
Compliance decisions should be intentional, not reactive.
How Economic Nexus Should Be Evaluated
Accurate evaluation requires:
- State level revenue analysis
- Transaction count analysis
- Threshold comparison by state
- Timeline mapping
Manual tracking almost always fails at scale.
Know what to do next before filing sales tax
Why Thresholds Create Compounding Risk
Once economic nexus exists:
- Exposure can grow monthly
- Penalties may accrue
- Interest may apply
- Cleanup becomes more complex over time
Early visibility dramatically reduces long term risk.
Final Thought
Economic nexus thresholds are not theoretical limits. They are enforceable rules that affect real businesses every day.
Most sales tax exposure today is created not by physical presence, but by quietly crossing state specific economic thresholds.
Understanding where and when those thresholds apply is the foundation of responsible sales tax compliance.
