Sales Tax Nexus Rules: State By State

Nexus is a connection between your business and a US state which means you’re obligated to collect and remit sales tax there. Each state sets its own rules and thresholds for sales tax nexus, so it’s important to check the laws in each state where you operate, even if you don’t have any stores there. 

Since the landmark 2018 Supreme Court decision in South Dakota v. Wayfair, Inc., most states have adopted economic nexus rules. If you sell a certain amount to customers in the state, you need to collect sales tax. Physical nexus is still important though, as you may have tax obligations to a state even if you don’t reach the economic threshold.

This guide includes a detailed overview of both economic and physical nexus rules for each U.S. state. Whether you’re an eCommerce business owner or a finance manager for a big enterprise, this article will equip you with the knowledge needed to stay compliant across various state lines.

 

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Physical vs. Economic Nexus

Understanding the nuances of physical and economic nexus is crucial for businesses operating in multiple jurisdictions. You may be surprised by what triggers a sales tax obligation in certain states.

Physical Nexus

Physical nexus refers to a tangible connection a business has with a state. Historically, this was the primary basis for sales tax requirements. Key elements that establish physical nexus include:

  • Office or Place of Business: Having a permanent place of business such as an office or store within the state.
  • Employees: Having employees, agents, or representatives who work or perform services in the state. Even a temporary presence, such as attending trade shows or meetings, can sometimes establish nexus.
  • Warehouse. Storing goods in a warehouse (even a third-party location) will create a nexus in most states. 
  • Property: Owning or leasing property, including equipment and inventory, in the state.
  • Other Physical Activities: Regularly conducting business activities in the state, such as installations, repairs, or deliveries using the company’s vehicles.

Economic Nexus

Economic nexus focuses on the volume and value of sales rather than physical presence. States have adopted these thresholds to capture tax revenue from out-of-state businesses that engage in significant economic activities within their borders. Key elements that establish economic nexus include:

  • Sales Revenue Threshold: If a business exceeds a certain amount in sales to customers within a state over a specific period e.g., $100,000 per year.
  • Transaction Volume Threshold: If a business surpasses a specified number of separate transactions (usually 200 in a year) to customers in the state.

Important: you do not have sales tax obligations prior to triggering nexus. For example, in a state with a $100k annual threshold, you have no sales tax to pay on the first $100k of sales – but you’re obliged to start collecting after you have reached this amount of sales in a year. 

Implications for Businesses

You must monitor both physical activities and sales volumes in each state to determine your business’ tax collection obligations. It’s essential to keep detailed records and back them up so you can prove compliance. Many businesses use a nexus monitoring system to simplify the process and avoid penalties.

 

US Map: Economic Thresholds for Nexus in the State

It’s important to note the difference between ‘and’ and ‘or’ when checking nexus thresholds. For example, in Arkansas, you are obligated to pay tax if you reach $100,000 revenue or 200 transactions. You could sell 200 bracelets for a total of £$1,500 and still have nexus there. In Connecticut, though, you need to pass $100,000 and 200 transactions. So, you could sell 100 cars for a total of $2,000,000 and still not have nexus.

 

Physical and Economic Nexus by State

 

Alabama

  • Economic Nexus: $250,000 in sales (Previous calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus is established if an employee or independent contractor is in the state for more than one day.

Alaska

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous calendar year, local jurisdictions)
  • Physical Nexus: No state sales tax (local jurisdictions may have their own rules).

Arizona

  • Economic Nexus: $100,000 in sales (Previous or current calendar year)
  • Physical Nexus: Nexus is established if an employee is present for more than two days per year, or if the business owns or leases property in the state.

Arkansas

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can also be established by having sales representatives or agents in the state.

California

  • Economic Nexus: $500,000 in sales (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can also be established by having employees or representatives in the state for any length of time.

Colorado

  • Economic Nexus: $100,000 in sales (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus is also established if an employee or representative is in the state for more than one day.

Connecticut

  • Economic Nexus: $100,000 in sales and 200 transactions (12 months ending on September 30)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or agents in the state.

Delaware

  • Economic Nexus: No state sales tax
  • Physical Nexus: No state sales tax

District of Columbia

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or agents in the state.

Florida

  • Economic Nexus: $100,000 in sales (Previous calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can also be established by having employees or agents in the state.

Georgia

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can also be established by having employees, independent contractors, or agents in the state.

Hawaii

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or agents in the state.

Idaho

  • Economic Nexus: $100,000 in sales (Previous calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can also be established by having employees or agents in the state.

Illinois

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous 12 months)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can also be established by having employees, agents, or independent contractors in the state for more than one day.

Indiana

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees, agents, or independent contractors in the state.

Iowa

  • Economic Nexus: $100,000 in sales (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can also be established by having employees or agents in the state.

Kansas

  • Economic Nexus: $100,000 in sales (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees, agents, or independent contractors in the state.

Kentucky

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or agents in the state.

Louisiana

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can also be established by having employees or agents in the state.

Maine

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or agents in the state.

Maryland

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can also be established by having employees or agents in the state.

Massachusetts

  • Economic Nexus: $100,000 in sales and 100 transactions (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees, agents, or independent contractors in the state.

Michigan

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees, agents, or independent contractors in the state.

Minnesota

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous 12 months)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can also be established by having employees or agents in the state for more than four days per year.

Mississippi

  • Economic Nexus: $250,000 in sales (Previous 12 months)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or agents in the state.

Missouri

  • Economic Nexus: $100,000 in sales (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees, agents, or independent contractors in the state.

Montana

  • Economic Nexus: No state sales tax
  • Physical Nexus: No state sales tax

Nebraska

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can also be established by having employees or agents in the state.

Nevada

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can also be established by having employees or agents in the state.

New Hampshire

  • Economic Nexus: No state sales tax
  • Physical Nexus: No state sales tax

New Jersey

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can also be established by having employees, agents, or independent contractors in the state.

New Mexico

  • Economic Nexus: $100,000 in sales (Previous calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or agents in the state.

New York

  • Economic Nexus: $500,000 in sales and 100 transactions (Previous four sales tax quarters)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or representatives in the state.

North Carolina

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can also be established by having employees or agents in the state.

North Dakota

  • Economic Nexus: $100,000 in sales (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or agents in the state.

Ohio

  • Economic Nexus: $100,000 in sales (Previous calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or agents in the state.

Oklahoma

  • Economic Nexus: $100,000 in sales (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or agents in the state.

Oregon

  • Economic Nexus: No state sales tax
  • Physical Nexus: No state sales tax

Pennsylvania

  • Economic Nexus: $100,000 in sales (Previous 12 months)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or agents in the state.

Rhode Island

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can also be established by having employees or agents in the state.

South Carolina

  • Economic Nexus: $100,000 in sales (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or agents in the state.

South Dakota

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or agents in the state.

Tennessee

  • Economic Nexus: $100,000 in sales (Previous 12 months)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or agents in the state.

Texas

  • Economic Nexus: $500,000 in sales (Previous 12 months)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can also be established by having employees or representatives in the state for more than one day.

Utah

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or agents in the state.

Vermont

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous 12 months)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can also be established by having employees or agents in the state.

Virginia

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or agents in the state.

Washington

  • Economic Nexus: $100,000 in sales (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or agents in the state.

West Virginia

  • Economic Nexus: $100,000 in sales (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or agents in the state.

Wisconsin

  • Economic Nexus: $100,000 in sales (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or representatives in the state.

Wyoming

  • Economic Nexus: $100,000 in sales or 200 transactions (Previous or current calendar year)
  • Physical Nexus: Includes having an office, warehouse, or inventory. Nexus can be established by having employees or agents in the state.

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How to Monitor Nexus

To monitor nexus state-by-state, you need to track your business activities, maintain accurate records, and stay informed about state-specific nexus rules. Most businesses choose to work with a sales tax manager to avoid costly mistakes.

1. Track Your Physical Presence

  • Keep detailed records of where your employees travel, including the duration and purpose of their visits to different states. This includes travel for meetings, trade shows, installations, or repairs.
  • Maintain an inventory of all physical assets, such as offices, warehouses, and equipment, and their locations. Track the lease or ownership status of properties in different states.
  • Document any in-state activities such as deliveries, installations, or services performed by the business.

2. Monitor Sales and Transaction Volumes

  • Regularly track sales data by state. Ensure your sales tracking systems can generate reports that show total sales revenue for each state.
  • Monitor the number of transactions conducted with customers in each state. Keep detailed records of each sale, including the date, amount, and customer location.

3. Utilize Technology Solutions

4. Regularly Review State Nexus Rules

  • Nexus rules can change frequently. Regularly review updates from state tax authorities and professional organizations such as the American Institute of CPAs (AICPA) or the Sales Tax Institute.
  • Work with tax professionals who specialize in state tax compliance. They can provide insights and updates on nexus regulations.

5. Conduct Periodic Nexus Assessments

  • If you’re not using an automated system, perform regular internal audits to review your nexus status in each state. Assess both physical and economic nexus criteria.
  • Use state-specific nexus questionnaires to evaluate potential nexus-triggering activities. These questionnaires help identify any activities that may create nexus in new states.

6. Evaluate Business Changes

  • Before expanding operations into new states, evaluate the potential nexus implications. Consider the impact of hiring new employees, opening new locations, or increasing sales efforts in different states.
  • Assess the nexus impact of any mergers or acquisitions. The acquired company’s activities may affect your nexus status.

 

Automate US Sales Tax Compliance with Nexus Monitoring

Yonda can monitor your sales in each jurisdiction and notify you immediately when you have a tax obligation. We use a winning combination of cutting-edge software and expert sales tax managers to ensure you’re compliant.

We also offer automation of the entire sales tax process, from calculations and registrations to filings and remittance. The aim is to take the stress of tax compliance off your shoulders so you can focus on running your business!

Not sure which states you have tax obligations to? Book a free nexus assessment and our experts will respond within 24 hours. We’ll have a quick chat about how your business is set up and then tell you where you have physical or economic sales tax obligations. No strings attached.

 

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