Key takeaways
- Nexus isn't just physical — States can require sales tax collection based on sales volume or transaction count, even without physical presence.
- Multiple nexus types exist — Understand physical, economic, click-through, and marketplace nexus to assess exposure.
- Regular reviews are essential — Monitor business activity, sales thresholds, and changing state laws to stay compliant.
In short: Sales tax nexus exposure is the set of U.S. states where your business must collect sales tax. You can have nexus through physical presence, economic activity such as sales volume or transaction count, affiliates, or marketplaces. To find your exposure, review your business activities and sales data against each state’s rules, then register where needed.
Sales tax nexus is a key concept for businesses, as more states tighten tax rules to capture revenue from online sales. Do you sell goods or services across state lines? You may need to collect and remit sales tax in several states, based on each state’s nexus rules. This can apply even if you have no physical presence there. You can also read Manage Sales Tax Nexus for Shopify Marketplaces.
Knowing your sales tax nexus exposure is key to staying compliant and avoiding penalties. This guide explains what sales tax nexus is, the types of nexus, and how to tell if your business is exposed.
What is sales tax nexus?
Sales tax nexus is the connection between a business and a state that requires the business to collect sales tax on sales to customers in that state. In the past, nexus was based on physical presence, such as an office, warehouse, or employees in a state. Read more in our guide: When Do Businesses Charge Out-of-State Sales Tax?.
However, the definition of nexus has changed with the digital economy. Sales tax nexus can now also come from sales volume and transaction thresholds, even without physical presence. This is thanks to the 2018 Supreme Court ruling in South Dakota v. Wayfair, Inc.
What are the types of sales tax nexus?
The main types of sales tax nexus are physical, economic, click-through, and marketplace nexus. Understanding each type is the first step to finding your exposure.
Physical nexus
Physical nexus is the traditional form of nexus. A business has physical nexus in a state if it has:
- A physical office, store, or warehouse
- Employees, contractors, or sales representatives in the state
- Inventory stored in the state (including through third-party fulfillment centers like Amazon FBA)
If any of these apply to your business, you likely need to collect sales tax in that state.
Economic nexus
Economic nexus lets states require businesses to collect sales tax based on their economic activity in the state, even with no physical presence there. The Wayfair ruling introduced economic nexus. These sales tax nexus rules vary by state and typically set thresholds for sales volume or transaction count. We cover this in more detail in Sales Tax Nexus Management for Shopify and Marketplace Sellers.
- Sales volume (e.g., $100,000 in annual sales)
- Number of transactions (e.g., 200 separate transactions in a year)
If your business goes over these thresholds in a state, you may need to collect and remit sales tax there, even without a physical presence.
Click-through nexus
Click-through nexus applies when out-of-state sellers partner with in-state websites or affiliates that refer customers. Some states have "click-through" nexus laws. In short, if you make sales through affiliates in a state, you may need to collect sales tax there.
Marketplace nexus
Marketplace nexus rules come from marketplace facilitator laws, which apply if you sell through online marketplaces like Amazon, Etsy, or eBay. These laws require the marketplace, rather than individual sellers, to collect and remit sales tax on sales made through its platform. Every state with a statewide sales tax now has these laws. However, sellers should still know their duties, as some states may still require sellers to register and report sales tax.
How do you determine your sales tax nexus exposure?
You determine your sales tax nexus exposure by reviewing your activities, sales data, and partnerships in each state, then registering where you have nexus. Now that you know the types of nexus, follow these steps.
1. Review your business activities
Start by checking where your business has a physical presence. Do you have offices, employees, or inventory in other states? Do you send contractors or sales reps to other states to do business? If so, you likely have physical nexus in those states.
2. Analyze your sales data
For states where you have no physical presence, check your sales and transaction volume. Review your gross revenue and number of transactions in each state over the past year. Compare this data against each state’s sales tax nexus rules, including economic nexus thresholds. Most states publish their thresholds, so a quick search can help you find the rules for any state.
3. Evaluate your affiliate and marketplace relationships
If you have affiliates or partners in other states, you may have click-through nexus. If you sell through a marketplace, check whether the marketplace collects sales tax for you in the states where you have sales. Review each state's laws, as they vary.
4. Monitor changes in state laws
Sales tax laws keep changing, as states often update their economic nexus rules and thresholds. Stay informed about new laws in the states where you do business. Subscribing to sales tax news or using a sales tax compliance tool can help you track changing rules.
5. Register in relevant states
Once you know the states where you have nexus, you’ll need to register for a sales tax permit in each one. If you fail to register and collect sales tax, you can face penalties, interest, and back taxes. The process varies by state, but most states allow online registration through their Department of Revenue websites.
What tools can help you manage nexus exposure?
Sales tax automation software, nexus calculators, and professional advice can all help you manage nexus exposure. Keeping up with sales tax nexus can be hard, especially for growing businesses. These tools and resources can help:
- Sales tax automation software: Tools like LumaTax can automate sales tax calculation, collection, and remittance across many states. This saves you time and improves accuracy.
- Sales tax nexus calculators: Some platforms offer free calculators to help you see if you’ve passed economic nexus thresholds in specific states.
- Professional guidance: Is your business growing fast, or are you unsure about your nexus exposure? A tax professional can give you clarity and help you comply.
Conclusion
Finding your sales tax nexus exposure is an essential task for any business that sells across state lines, especially after Wayfair. Learn the types of nexus, review your business activities and sales data, and stay informed about state laws. This protects your business from costly compliance mistakes. You may handle sales tax yourself or use automation tools. Either way, being proactive about nexus will save you time, money, and headaches later.
Do you need help with your sales tax compliance? Book a free call with one of our sales tax experts to find bespoke solutions for your business, optimize your tax costs, and reach millions of new potential customers.
How Taxually handles this
Taxually’s LumaTax runs a nexus analysis on your sales, helps you register in the states where you must collect, and prepares and files multi-state sales tax returns, including Canadian GST/HST. LumaTax is currently available to enterprises and accounting firms. For the full workflow, read how to automate US sales tax filing in every state.
Related guides
Frequently asked questions
What is sales tax nexus?
Sales tax nexus is a business’s connection to a state that requires it to collect sales tax on in-state sales, often due to physical or economic presence.
Can my business have nexus without a physical location in a state?
Yes, economic nexus laws allow states to require sales tax collection based on sales volume or transaction count, even without physical presence.
What are the main types of sales tax nexus?
Physical, economic, click-through (affiliates), and marketplace nexus are the primary types, each with unique requirements.
How can I determine if I meet a state’s economic nexus thresholds?
Compare your sales data with each state’s economic thresholds, typically found on their Department of Revenue websites.
Do I need to collect sales tax if I sell on an online marketplace?
Usually not for sales made through the marketplace. Every state with a statewide sales tax has a marketplace facilitator law, so the platform collects tax for sellers. Some states may still require you to register and report.
What are the risks of not complying with nexus laws?
Non-compliance can lead to penalties, interest, and back taxes, so registering and collecting in relevant states is crucial.
