Several different activities can create tax nexus in a state, and any one of them is enough on its own. The traditional trigger is physical presence: employees, property, or inventory located in the state. Since the Supreme Court’s 2018 Wayfair decision, economic activity alone will do it too, once your sales into the state cross a dollar or transaction threshold. Relationships with in-state affiliates or referral partners can create nexus even when you have no direct footprint, and for income tax purposes, most activities beyond soliciting orders for physical goods will expose you as well.
Physical Presence in the State
The oldest way to establish nexus is by having a physical footprint. Employees working in the state count, whether they are sales reps, service technicians, delivery drivers, or consultants. Owning or leasing an office, warehouse, retail location, or showroom counts. So does storing inventory, even if you never set foot in the state yourself.
The inventory rule catches a lot of online sellers off guard. Businesses using third-party fulfillment centers, including Amazon’s FBA program, often create nexus in every state where their goods are stored without realizing it. Regular visits by employees or contractors for installations, repairs, trade shows, or customer meetings can also cross the line, depending on how often they happen and what gets done during the visit.
Economic Nexus After Wayfair
In South Dakota v. Wayfair, Inc., the Supreme Court held that a seller’s economic and virtual contacts with a state can establish sufficient nexus on their own, overturning the older rule that had required physical presence.1Supreme Court of the United States. South Dakota v. Wayfair, Inc. (Slip Opinion) Every state that imposes a sales tax has since adopted an economic nexus rule. Five states (Alaska, Delaware, Montana, New Hampshire, and Oregon) have no general state sales tax, though income tax nexus can still apply in most of them.
Thresholds Vary by State
The South Dakota law at issue in Wayfair set thresholds of $100,000 in sales or 200 separate transactions into the state per year, and many states adopted something similar.1Supreme Court of the United States. South Dakota v. Wayfair, Inc. (Slip Opinion) But the numbers differ meaningfully. California’s threshold is $500,000 in sales with no transaction count. As of mid-2025, roughly 15 states have eliminated the 200-transaction prong, while about 16 still use it. A small seller with a large number of low-dollar orders into a state can trip a transaction-based threshold even when total revenue is modest.
Measurement Periods and How Fast You Have to Act
States also disagree on what period they measure. Most look at the current or preceding calendar year, so you cross the line if sales exceeded the threshold in either.2Streamlined Sales Tax. Remote Seller State Guidance Some use a rolling 12-month window or set quarterly checkpoints.
The deadline for registering after you cross a threshold varies just as much. Some states expect you to register and collect on the very next transaction. Others give you 30, 60, or 90 days. A few don’t require registration until January 1 of the following year. Each state’s specific timing has to be checked individually.
Affiliate and Click-Through Nexus
Relationships with in-state businesses or individuals can create nexus even when your own company has nothing physical in the state. Affiliate nexus arises when you have an agreement with an in-state entity, such as a related company or contractor, that helps promote your products, provide customer support, or facilitate your sales. When those activities go beyond passive advertising, the state may treat the affiliate’s presence as yours.
Click-through nexus is a narrower version. It applies when you pay commissions to in-state website owners for referring customers through links, and those referrals generate sales above a set threshold. New York pioneered this in 2008 with a $10,000 cumulative-sales threshold over four quarters. Other states followed with similar laws at different thresholds. If you run an affiliate marketing program with in-state bloggers, influencers, or comparison sites earning commissions, this is worth checking state by state.
Sales Through Marketplace Facilitators
If you sell through platforms like Amazon, Etsy, eBay, or Walmart Marketplace, the platform is likely handling sales tax collection for those sales in most states. More than 45 states plus the District of Columbia have marketplace facilitator laws that shift collection and remittance from individual sellers to the platform.
Several states say you don’t need to register or file returns if all your sales flow through a facilitator that’s already collecting on your behalf. Others still require registration but let you request non-reporting status or report the facilitated sales as a deduction. The rules genuinely differ from state to state, and some states will send delinquency notices if you have an open account and stop filing, even when a facilitator is handling everything.3Streamlined Sales Tax. Marketplace Sellers
Two limits are worth understanding. Marketplace facilitator laws only cover sales made through the platform, so anything you sell through your own website or at in-person events is still on you. And if you have physical presence in a state, such as inventory stored there through a fulfillment program, you generally need to register there regardless of what the marketplace handles.
Income Tax Nexus and P.L. 86-272
Sales tax gets most of the attention, but state income tax nexus is a separate question with its own rules. A federal law from 1959, Public Law 86-272, bars states from imposing a net income tax on your business if your only in-state activity is soliciting orders for tangible personal property, with those orders approved and shipped from outside the state.4Office of the Law Revision Counsel. 15 U.S. Code 381 – Imposition of Net Income Tax The protection is narrow. It covers sales reps taking orders for physical goods, and not much more.
Anything past pure solicitation breaks the shield. Employees who provide post-sale technical support, install products, collect on accounts, or run training seminars will move you outside the protection. Businesses selling services or digital products get no protection at all, because the law covers only tangible personal property.4Office of the Law Revision Counsel. 15 U.S. Code 381 – Imposition of Net Income Tax
Website Activities That Erode the Protection
The Multistate Tax Commission has issued guidance identifying website activities that, in participating states’ view, defeat P.L. 86-272 protection. These include offering post-sale customer support through online chat, accepting credit card applications on your website, placing cookies that gather data used for product development or inventory decisions, and remotely servicing or upgrading products through internet-transmitted code.5Multistate Tax Commission. Statement of Information Concerning Practices of Multistate Tax Commission and Supporting States Under Public Law 86-272 Even recruiting non-sales employees through your site can be enough. Because most modern e-commerce operations do at least one of these things, the practical reach of P.L. 86-272 has narrowed. Not every state follows the MTC’s interpretation, but the direction is clear.
What Nexus Obligates You to Do
Once you have nexus in a state, the first step is registering with that state’s tax authority for a sales tax permit. Most states offer free online registration and issue permit numbers within minutes; some charge a nominal fee or a refundable security deposit.
From that point forward, you must collect the correct rate of sales tax on every taxable sale into the state. Rates vary by state, county, and city, and what counts as taxable differs from one state to the next: groceries, clothing, software, and digital goods are all treated differently depending on where the buyer is. You file returns on whatever schedule the state assigns (monthly, quarterly, or annually, usually based on volume) and remit the collected tax by the deadline.
Nexus can also trigger state income tax, franchise tax, gross receipts tax, or business privilege tax obligations that run independently of sales tax. If your in-state activity goes beyond what P.L. 86-272 protects, you may need to file a state income tax return and pay tax on income apportioned to the state.
Non-compliance is expensive. Penalties on late or unfiled returns typically start around 5% of the tax due and grow from there, with interest accruing on top. And because sales tax is a trust fund tax collected from customers, corporate officers, members, managers, and partners who controlled tax payments can be held personally liable if the business fails to remit, even after the business closes.
Fixing Past Exposure With a Voluntary Disclosure Agreement
If you’ve realized your business should have been collecting tax in states where it wasn’t, a voluntary disclosure agreement lets you come forward before the state finds you. You agree to register, file returns, and pay back taxes with interest; the state waives penalties and caps how far back you have to go. Most states limit the lookback to three or four years of prior returns, though some go up to five.6Multistate Tax Commission. Lookback Periods for States Participating in National Nexus Program Without a VDA, a state can audit you back to the date nexus was first established.
To qualify, you generally can’t have been contacted by the state, can’t have filed returns or have outstanding liabilities there, and can’t be under audit. The Multistate Tax Commission runs a program that lets you negotiate VDAs with multiple states through one coordinated process at no charge.7Multistate Tax Commission. Multistate Voluntary Disclosure Program If you have exposure in several states, that’s the usual starting point.