Sales tax nexus determines when a business is required to collect and remit sales tax in a state. Two primary types of nexus apply to most businesses today: physical nexus and economic nexus.<\/p>\n\n\n\n
Understanding the difference between these two concepts is essential for businesses selling products or services across state lines. Many companies assume that nexus applies only when they have a physical location in a state. However, modern tax rules now allow states to impose sales tax obligations based on economic activity alone.<\/p>\n\n\n\n
If you are new to the concept of nexus, start with the Economic Nexus Overview<\/strong><\/a>.<\/p>\n\n\n\n Physical nexus refers to a business having a tangible presence within a state. Historically, states could only require sales tax collection if a business maintained a physical connection within that jurisdiction.<\/p>\n\n\n\n Common examples of physical nexus include<\/strong><\/p>\n\n\n\n If a business has any of these physical connections in a state, it generally must register for a sales tax permit and collect sales tax on taxable transactions within that state. Businesses often discover physical nexus through inventory storage, remote employees, or third party logistics providers.<\/p>\n\n\n\n For example, companies storing inventory in fulfillment centers may unknowingly create nexus. A detailed explanation is available in the guide: 3PL Warehouses and Sales Tax Nexus<\/strong><\/a><\/p>\n\n\n\n Economic nexus applies when a business reaches certain levels of sales activity within a state. Unlike physical nexus, economic nexus does not require a physical presence.<\/p>\n\n\n\n States typically determine economic nexus using thresholds such as<\/strong><\/p>\n\n\n\n Most states use revenue thresholds around $100,000 annually, although some states use higher limits. If a business exceeds these thresholds, it must usually register for sales tax and begin collecting tax from customers in that state.<\/p>\n\n\n\n To review the specific thresholds across all states, visit Economic Nexus by State<\/strong><\/a>.<\/p>\n\n\n\n You can also estimate whether your business has crossed any thresholds using the Economic Nexus Calculator<\/strong><\/a>.<\/p>\n\n\n\n Economic nexus laws became widespread after the Supreme Court decision in South Dakota v Wayfair in 2018. Before this ruling, states could require tax collection only if a business had physical presence in the state. The Wayfair decision allowed states to require tax collection based on economic activity instead. Following the decision, nearly every state implemented economic nexus laws.<\/p>\n\n\n\n More details about the impact of the Wayfair ruling are explained in Sales Tax Nexus After the Wayfair Decision<\/strong><\/a>.<\/p>\n\n\n\n Businesses often create physical nexus in ways they do not expect. Examples include<\/p>\n\n\n\n Remote employees have become a particularly common source of nexus for growing businesses.<\/p>\n\n\n\n You can learn more about this scenario in Remote Employees and Sales Tax Nexus<\/a><\/strong>.<\/p>\n\n\n\n Economic nexus typically arises when businesses expand sales into new states.<\/p>\n\n\n\n Common scenarios include<\/strong><\/p>\n\n\n\n Businesses selling through Amazon may also face additional nexus triggers due to inventory stored in fulfillment centers.<\/p>\n\n\n\n\n\n\n\n Businesses must monitor both physical and economic nexus to remain compliant with sales tax laws.<\/p>\n\n\n\n A company may trigger physical nexus in one state and economic nexus in another. As businesses grow and expand into new markets, tracking these obligations becomes increasingly complex.<\/p>\n\n\n\n Identifying nexus early helps businesses avoid unexpected liabilities, penalties, and state audits.<\/p>\n\n\n\n Businesses can also evaluate potential exposure using the Sales Tax Exposure Calculator<\/strong><\/a>.<\/p>\n\n\n\n If you are evaluating sales tax obligations for your business, you can start with the Economic Nexus guide<\/strong><\/a> and the Sales Tax Nexus overview<\/strong><\/a>.<\/p>\n\n\n\n To review current thresholds across the country, see the Economic Nexus by State<\/strong><\/a> reference or explore additional guidance in the Sales Tax Nexus Hub<\/strong><\/a>.<\/p>\n\n\n\n Businesses analyzing potential liability can review the Sales Tax Exposure Analysis<\/strong><\/a> or estimate potential exposure using the Sales Tax Exposure Calculator<\/strong><\/a>.<\/p>\n\n\n\n If you track activity across multiple states, tools like the Economic Nexus Tracker<\/strong><\/a> and the Rolling 12-Month Nexus Tracker<\/strong><\/a> can help monitor thresholds.<\/p>\n\n\n\n You can also estimate whether your sales exceed state thresholds using the Nexus Threshold Calculator<\/strong><\/a>.<\/p>\n\n\n\n For a structured compliance overview, businesses may also review the Sales Tax Risk Report<\/strong><\/a>.<\/p>\n\n\n\nWhat Is Physical Nexus<\/h2>\n\n\n\n
\n
What Is Economic Nexus<\/h2>\n\n\n\n
\n
The Wayfair Decision That Changed Nexus Rules<\/h2>\n\n\n\n
Examples of Physical Nexus<\/h2>\n\n\n\n
\n
Examples of Economic Nexus<\/h2>\n\n\n\n
\n
Why Understanding Nexus Types Matters<\/h2>\n\n\n\n
Related Sales Tax Resources<\/h2>\n\n\n\n