Sales tax nexus is the legal connection between a seller and a US state that gives the state authority to require the seller to register, collect, and remit sales tax. Before 2018, that connection had to be physical — an office, employee, or warehouse. After the Supreme Court’s South Dakota v. Wayfair decision, a state can also impose collection duties based purely on economic activity, like crossing a sales-dollar or transaction-count threshold. Today, every seller shipping into the US needs to evaluate nexus across six distinct categories — physical, economic, marketplace, click-through, affiliate, and inventory — under 46 different state regimes.
This guide walks through each nexus type with the actual statutory citations, shows where the 2025 thresholds sit (including the states that broke from the South Dakota template), and gives you a practical self-audit framework. Where the rules are contested or vary by state, we cite primary sources so you can verify directly.
Sales Tax Nexus, Defined
The plain-English definition
Nexus is the threshold of activity that subjects a seller to a state’s taxing jurisdiction. Once you have nexus in a state, you must (1) register with the state’s tax authority, (2) collect sales tax on taxable sales sourced to that state, (3) file periodic returns, and (4) remit the tax collected.
You can have nexus in one state and not in the neighboring one. You can have nexus today and lose it next year. And — critically — you can have nexus without owing any tax, if your sales are exclusively non-taxable products to non-taxable customers.
Why nexus exists: the constitutional basis
Nexus exists because the US Constitution restricts what states can tax. Two clauses do the work:
- The Commerce Clause (Article I, Section 8) — prevents states from unduly burdening interstate commerce.
- The Due Process Clause (Fourteenth Amendment) — requires a “minimum connection” between a state and the entity it taxes.
For decades, the US Supreme Court interpreted these clauses to require physical presence before a state could compel a remote seller to collect its sales tax. That changed in 2018 (more on that below).
Nexus vs. tax liability vs. registration obligation
These three concepts get conflated, but they’re distinct:
| Concept | What it means |
|---|---|
| Nexus | The legal trigger — you have a connection to the state sufficient for taxation |
| Registration obligation | Once you have nexus, you must register with the state’s tax authority |
| Collection obligation | You must collect tax on taxable sales sourced to that state |
| Tax liability | The actual tax dollars you owe (or that customers owe you to remit) |
A SaaS seller can have nexus in a state where SaaS isn’t taxable, still be required to register, file zero returns, but owe no tax. A wholesaler with $5M of resale-only sales into a state has nexus but typically zero collection obligation (resale exemptions cover the sales). The order is: nexus first → registration → collection → liability.
The History: From Quill to Wayfair
The pre-Wayfair physical presence rule
For 26 years, the rule was simple: no physical presence, no obligation to collect. Quill Corp. v. North Dakota, 504 U.S. 298 (1992) held that a state could not compel an out-of-state mail-order seller to collect sales tax unless the seller had physical presence in the state. Quill itself built on National Bellas Hess v. Illinois, 386 U.S. 753 (1967), which had reached the same conclusion 25 years earlier.
The result: a Delaware-based catalog seller could ship millions of dollars into California with no obligation to collect California sales tax. The buyer technically owed use tax, but compliance was near zero.
Wayfair’s holding and the death of Quill
On June 21, 2018, the Supreme Court decided South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), and overruled Quill. The Court held that physical presence was no longer required — a state could impose sales tax collection duties on remote sellers based on economic activity alone, provided the threshold wasn’t unduly burdensome.
The South Dakota statute upheld in Wayfair used a safe-harbor threshold of $100,000 in sales OR 200 separate transactions in the state in the current or prior calendar year. That template — “$100K or 200 transactions” — became the starting point for nearly every state’s economic nexus law.
How states responded after June 21, 2018
Within 18 months, almost every sales-tax state had passed an economic nexus law. By 2020, all 45 sales-tax states plus the District of Columbia had enacted some version of economic nexus. Most started with the South Dakota thresholds, but states have since diverged significantly — and that divergence is where compliance pain lives today.
The Six Types of Sales Tax Nexus
Modern nexus analysis isn’t just “physical or economic.” There are six distinct categories, and a seller can trigger any one of them independently.
1. Physical nexus
The original nexus type. Triggered by:
- An office, store, or warehouse in the state
- Employees or contractors working in the state
- Inventory stored in the state (including consigned or third-party fulfillment)
- Owned or leased real property
- Traveling salespeople or representatives soliciting orders
- Attending trade shows (with state-specific day-count rules)
Most state physical-presence statutes pre-date Wayfair and remain in force. California’s “engaged in business in this state” definition under Revenue and Taxation Code §6203(c)(1) explicitly includes “maintaining, occupying, or using, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place, or other place of business.”
Trade show carve-outs: Many states recognize a de minimis exception for short trade-show appearances. California offers a limited trade-show carve-out, but day-count thresholds, prior-year revenue limits, and treatment of on-site sales turn on the specific fact pattern. If you exhibit at CA trade shows, contact us for a current review.
2. Economic nexus
Post-Wayfair, every sales-tax state imposes nexus on out-of-state sellers based purely on sales volume or transaction count. We cover thresholds in detail in the next section.
3. Marketplace nexus
Marketplace facilitator (MF) laws shift the collection duty from the third-party seller to the platform — Amazon, Etsy, Walmart, eBay. The MF collects and remits on facilitated sales, treating those sales as if they were the platform’s own.
But — and this is where sellers get tripped up — marketplace nexus does not eliminate the seller’s own registration obligation in many states. Several states require the seller to register and file even when 100% of their state sales are MF-collected, particularly when the seller has any independent nexus (like inventory).
4. Click-through nexus
Pioneered by New York in 2008, click-through nexus is triggered when in-state residents earn commissions for referring customers to an out-of-state seller (think: an in-state blogger with affiliate links). Most states’ click-through statutes have been functionally superseded by economic nexus, but a handful remain on the books.
5. Affiliate nexus
If a related entity (parent, subsidiary, sister company) has physical presence in a state and performs activities that benefit the seller — using a similar trade name, soliciting customers, processing returns — the seller may inherit that entity’s physical presence as “affiliate nexus.”
6. Inventory nexus (FBA)
The most contested category for e-commerce sellers. Storing inventory in a state through a third-party fulfillment provider — most commonly Amazon FBA — creates physical presence under most states’ definitions of nexus.
The states’ positions vary:
- California’s CDTFA Marketplace Facilitator Act Tax Guide recognizes that maintaining inventory in California is a form of physical presence; however, a marketplace seller whose California sales are made exclusively through a registered marketplace facilitator that collects and remits California tax is generally not required to register separately with CDTFA.
- New York’s position is that NY-located marketplace sellers (those with physical presence in NY) must register for a Certificate of Authority even if all sales are marketplace-facilitated; out-of-state marketplace-only sellers may rely on the Certificate of Collection issued by a registered marketplace provider.
- Illinois is the notable outlier: per IDOR’s FAQ for Marketplace Facilitators, Marketplace Sellers, and Remote Retailers, if inventory is used strictly to fulfill orders made over the marketplace, the inventory does not create physical presence nexus for the marketplace seller.
The Illinois carve-out is unusual. In most states, FBA inventory plus marketplace-only sales = mandatory registration.
Economic Nexus Thresholds: State-by-State (2026)
The South Dakota template was $100,000 OR 200 transactions, but few states still match it exactly today. Here’s how the thresholds have evolved.
The $100k / 200-transaction baseline
When Wayfair was decided, most states copied South Dakota’s safe harbor. The original South Dakota statute (SDCL §10-64) used $100,000 in sales OR 200 separate transactions. That baseline still appears in many states, but with two major divergences over the past five years.
States that dropped the transaction count
The 200-transaction prong was widely criticized for sweeping in low-revenue, high-volume sellers (think $50 average orders × 200 = nexus on $10,000 of sales). A growing list of states have eliminated the transaction count and now use a sales-dollar threshold only:
- California
- Colorado
- Iowa
- Illinois (eliminated transaction prong as of 2026, per recent legislation — verify current status)
- Louisiana
- Maine
- Massachusetts
- New Jersey
- North Dakota
- South Dakota (dropped its own transaction prong in 2023)
- Washington
- Wisconsin
Outlier thresholds
Several states deviate from the $100K baseline entirely:
| State | Threshold | Test | Citation |
|---|---|---|---|
| California | $500,000 in total combined sales of tangible personal property delivered into California, with no transaction-count threshold | Single prong | California’s Revenue & Taxation Code addresses retailer-engaged-in-business standards, and the applicable subsection depends on your activity profile. If you need a citation tied to your facts, contact us. |
| New York | $500,000 in cumulative receipts AND 100 transactions | Conjunctive (both required) | New York Tax Law defines vendor and nexus standards in detail, with the operative provision depending on your activity in the state. If you need an analysis under the correct NY provision, contact us. |
| Texas | $500,000 in Texas-sourced gross revenue | Single prong | 34 Tex. Admin. Code §3.286 |
| North Dakota | $100,000 in sales in the previous or current calendar year | Single prong | NDCC §57-39.2-04 |
| Pennsylvania | $100,000 in Pennsylvania annual gross sales (effective July 1, 2019) | Single prong | 72 P.S. §7201 et seq. |
New York’s conjunctive test is particularly important: a seller can clear $1M into New York and still not have economic nexus if they had fewer than 100 transactions. (FBA-style sellers will hit 100 transactions easily; B2B distributors selling to a handful of large accounts may not.)
What “sales” means: gross vs. taxable vs. retail
Even where two states share a $100,000 threshold, they may measure it differently:
- Gross sales — every dollar shipped into the state, including resale, exempt, and non-taxable items
- Retail sales — excludes wholesale/resale transactions
- Taxable sales — only sales that would be subject to tax in the state
A B2B seller with $80,000 of taxable sales and $40,000 of resale shipments to a state could be over the threshold in one state and under in another, depending on which measurement applies. Always check the specific state’s economic-nexus FAQ before drawing conclusions.
Measurement period
Equally important: which 12 months count?
- Prior calendar year (most common)
- Current OR prior calendar year (the South Dakota model)
- Rolling prior 12 months (less common)
- Prior 4 quarterly periods (New York’s approach under NY Tax Law §1101(b)(8)(iv), which uses the preceding four quarterly periods)
For a deeper dive, see our dedicated economic nexus thresholds by state reference.
How to Tell If You Have Nexus: A Self-Audit Framework
Most sellers I work with discover nexus exposure they didn’t know about. The audit framework below catches it before the state does.
Step 1: Map your physical footprint
Build a list of every state where you have any of the following:
- Employees (W-2 or 1099 contractors performing work in the state)
- Offices, retail locations, warehouses, fulfillment centers
- Inventory — including FBA, 3PL, consignment, drop-ship from in-state suppliers
- Trade-show appearances in the past 24 months (note dates and revenue)
- Owned or leased equipment, vehicles, or real property
Each of these is a candidate for physical nexus. Inventory and employees are the most overlooked categories — particularly FBA inventory, which Amazon can shift between fulfillment centers without explicit seller approval.
Step 2: Pull your sales data by ship-to state
You need 24 months of revenue and transaction-count data, broken down by ship-to state and by sales channel. Most ERP and e-commerce platforms can produce this:
- Shopify: Reports → Sales by state
- Amazon Seller Central: Sales Tax Reports
- Stripe: Revenue Recognition reports
- NetSuite/QuickBooks: state-level transaction reports
You want two metrics per state per channel per year: gross revenue and transaction count.
Step 3: Check marketplace vs. direct channels separately
Many states exclude marketplace-facilitated sales from a seller’s own economic-nexus threshold (because the MF is already collecting). Others include them. The treatment is state-specific:
- States that exclude MF sales from your threshold: most states (you only count direct-channel sales)
- States that include MF sales: a smaller group — including California for some purposes, Illinois (in some scenarios)
Always verify the current state DOR position. The general rule of thumb: keep direct-channel and MF-channel data separate so you can calculate either way.
Step 4: Apply each state’s threshold and measurement period
For each state, check:
- The current dollar threshold
- Whether there’s a transaction-count prong, and if so, whether it’s AND or OR
- The measurement period (prior year, current+prior, rolling 12)
- The “sales” definition (gross vs. taxable vs. retail)
If you cross — register. If you’re within 80% of crossing — set up monitoring and a registration runway. If you’re under 50% — review next quarter.
Document the analysis. State DOR auditors frequently ask: “When did you first analyze nexus in our state?” A dated workpaper showing your methodology is a powerful defense.
What Happens After You Cross a Nexus Threshold
Registration deadlines by state
Most states require registration within 30 to 60 days of crossing the economic nexus threshold. A few are stricter (some require registration before the next sale; some give you to the start of the next reporting period). Check the specific state’s economic-nexus FAQ for the deadline.
New York requires sellers to register at least 20 days before beginning operations subject to sales tax.
Penalties for late registration
If you crossed the threshold months or years before registering, you’re exposed to back tax + interest + penalties. Penalty exposure is significant:
- California imposes a 10% late-payment penalty and a separate 10% late-filing penalty under R&TC §6591.
- New York’s late-filing penalty is 10% of the tax due for the first month plus 1% for each additional month, with a minimum penalty of $50.
- Illinois late-filing penalties and interest can be substantial, and the applicable rate and computation depend on the return, the period outstanding, and current statute. If you have unfiled IL sales tax returns, contact us before registering.
Voluntary Disclosure Agreements (VDAs)
If you’re already past due, the answer is rarely “register today and pay everything.” A Voluntary Disclosure Agreement (VDA) lets you come forward, limit your lookback period (typically to 3-4 years), and waive penalties — provided the state hasn’t already contacted you.
California’s CDTFA Out-of-State Voluntary Disclosure Program offers a standard 3-year lookback and penalty waiver to qualifying out-of-state sellers; eligibility requires that the seller has not been previously contacted by CDTFA.
VDAs are usually negotiated through a tax practitioner under nominee — meaning the state doesn’t know the seller’s identity until terms are agreed. This is the standard remediation path for sellers with multi-state historical exposure. See our VDA guide for full mechanics.
Trailing nexus: when does the obligation end?
Most sellers think nexus is binary — you have it or you don’t. But once you trigger nexus and stop the activity that created it, trailing nexus keeps the obligation alive. The general rule: continued collection is required for the remainder of the current year plus the entire following year. Some states are longer.
If you stop selling into a state, close your warehouse, and remove inventory in March 2025, you typically still need to file through December 2026. The trailing period exists so states can audit and so customers who return goods aren’t stuck with miscollected tax. See our trailing nexus explainer for state-by-state detail.
Nexus for SaaS, Digital Goods, and Services
Why product taxability changes the nexus analysis
Nexus doesn’t depend on whether your product is taxable. You can have nexus in a state that doesn’t tax your product. But the practical impact of nexus depends heavily on taxability.
Two scenarios:
- You sell taxable products and have nexus → register, collect, file, remit
- You sell non-taxable products and have nexus → register (in many states), file zero returns, no tax owed
The wrinkle: some states require registration if you cross the economic threshold even with all-non-taxable sales. Others don’t. Always check.
States that tax SaaS
Roughly 20+ states tax SaaS as of 2025. Tax treatment varies dramatically — some tax SaaS the same as canned software, some apply different rates, some only tax B2C SaaS, some only B2B.
- New York treats SaaS as taxable: prewritten software is taxable regardless of delivery method, including remote access (per NYDTF advisory opinions, including TSB-A-24(8)S, July 2024).
- California generally does not tax SaaS — under CDTFA Regulation 1502, pre-written software delivered electronically (no tangible transfer) and SaaS / cloud-hosted software (no transfer to the customer) are not taxable as tangible personal property.
- Illinois does not tax cloud-based SaaS where the software is accessed remotely and never downloaded; however, downloads of canned/prewritten software ARE taxable, and custom software is generally exempt under specific criteria.
- Pennsylvania’s treatment of SaaS and related configuration, installation, and customization services turns on recent PA DOR guidance and the specific service mix. If you sell SaaS into PA, contact us for a current taxability review.
- North Dakota’s SaaS taxability can diverge from the general “services are non-taxable” assumption many sellers rely on, and treatment varies by state and recent guidance. If you sell SaaS into ND or other states, contact us for a multi-state taxability review.
The takeaway: SaaS sellers need a state-by-state product taxability matrix before they evaluate nexus economic exposure. See our SaaS sales tax by state reference.
Digital goods nexus traps
Digital goods (e-books, music downloads, streaming media) have their own taxability matrix, distinct from SaaS. Sourcing rules also differ — some states source digital goods to the customer’s billing address, others to the IP address, others to the credit card billing address.
The compliance lift for digital goods: you need to know not just whether you have nexus in a state, but whether the specific digital good is taxable, what the sourcing rule is, and what tax rate applies (some states tax digital goods at a reduced rate).
Common Nexus Mistakes We See
In practitioner reviews, the same four mistakes show up repeatedly. They compound at audit.
1. Counting marketplace sales twice
A seller counts $300,000 of Amazon sales toward their California economic nexus threshold, panics, registers — only to discover that Amazon was already collecting and remitting on those sales as marketplace facilitator. The seller should have separated direct-channel from MF-channel revenue from the start.
The reverse mistake is worse: a seller assumes their $200,000 of Amazon sales are “Amazon’s problem,” ignores them entirely, and then discovers FBA inventory has created physical nexus that requires direct registration anyway.
2. Ignoring inventory in 3PL warehouses
Sellers using ShipBob, ShipMonk, or other 3PLs frequently don’t track which states their inventory sits in. The 3PL may rebalance inventory across multiple fulfillment centers based on shipping efficiency. Without active monitoring, sellers learn about inventory in a new state only when a state DOR notice arrives.
The fix: pull your 3PL’s inventory location report quarterly, and treat any new state as a nexus event.
3. Missing trailing nexus
A seller closes a warehouse, files a final return, surrenders the permit. Eighteen months later they get a non-filer notice. Trailing nexus extended their obligation through the end of the following calendar year, and they missed three returns.
The fix: when you stop activity in a state, calendar the trailing-nexus period and continue filing zero returns through it.
4. Assuming non-taxable products mean no registration
A SaaS seller crosses California’s $500,000 threshold, knows California doesn’t tax SaaS, and assumes no registration is needed. In some states this analysis would be correct; in others it isn’t. The economic-nexus threshold typically triggers a registration obligation regardless of product taxability — at minimum to file zero returns.
The conservative fix: when you cross an economic threshold, register and file zero returns. The cost is small; the audit exposure of not registering can be large.
Frequently Asked Questions
What is sales tax nexus in simple terms?
Nexus is the legal connection between your business and a US state that requires you to register and collect sales tax there. Triggered by physical presence (employees, inventory, offices) or economic activity (sales volume above a threshold).
Does having nexus mean I always owe sales tax?
No. Nexus means you must register and file. You only owe tax on taxable sales sourced to that state. A seller of fully exempt products may have nexus but file zero returns.
What’s the difference between physical and economic nexus?
Physical nexus requires a tangible connection — employees, inventory, offices. Economic nexus requires only sales volume above a state’s threshold ($100K-$500K depending on state).
Does Amazon FBA inventory create nexus?
Yes in most states — California, New York, Pennsylvania, Washington, and many others treat FBA inventory as physical presence requiring registration. Illinois has a narrow carve-out: if inventory is used strictly to fulfill marketplace orders, it does not create physical presence nexus for the marketplace seller.
What is the $100,000 nexus rule?
The original Wayfair safe harbor: $100,000 in sales OR 200 transactions in a state triggers economic nexus. Today it’s a starting point; many states have higher thresholds or have eliminated the transaction count.
Do marketplace sales count toward my economic nexus threshold?
Most states exclude MF-collected sales from the seller’s threshold calculation. A few include them. Check each state’s economic-nexus FAQ.
How long do I have to register after crossing a nexus threshold?
Most states: 30-60 days. Some require registration before your next sale into the state. New York requires registration at least 20 days before beginning operations.
What is trailing nexus and when does it end?
Trailing nexus is the continued collection obligation after you stop the activity that created nexus. Typically: remainder of current year plus full following year.
Does attending a trade show create nexus?
Yes in many states, but with de minimis exceptions. California’s carve-out is up to 15 days in 12 months with prior-year income under $100,000 — but sales made at the show are still subject to tax.
Do I have nexus if I sell SaaS or digital products?
Yes — economic nexus applies regardless of product type. Whether you owe tax depends on product taxability in each state. About 20+ states tax SaaS; treatment varies.
Last verified: 2026-05-09
This article is for informational purposes only and does not constitute tax advice. Consult a licensed tax professional before acting on any of this content.
