Tax compliance
State Tax Nexus Guide [2026]
You sell online from California, ship to customers in New York, have inventory in an Amazon warehouse in Texas, and hired a remote employee in Florida. Who do you owe taxes to? State tax nexus rules determine which states can force your business to collect sales tax and file income tax returns. Get this wrong and you owe back taxes plus penalties.
What Is Nexus?
Nexus is a business connection to a state that gives the state legal authority to tax you. The legal landscape has shifted dramatically over the past decade.
- Pre-2018: Physical presence was required for a state to force sales tax collection. The Supreme Court ruled in Quill Corp v. North Dakota (1992) that a business must have physical presence in a state to be required to collect sales tax.
- Post-2018: South Dakota v. Wayfair(2018) overturned Quill, allowing states to impose sales tax collection obligations based on economic activity alone — no physical presence needed.
- Today: Most states maintain both physical AND economic nexus standards. If you trigger either, you must register and collect sales tax in that state.
Types of Nexus
Nexus isn't a single trigger — it comes in several forms. A business can have multiple types of nexus in the same state simultaneously.
| Nexus Type | What Triggers It | Key Detail |
|---|---|---|
| Physical Presence | Office, store, warehouse, inventory (including FBA), employees, contractors, regular in-person meetings | Any physical presence triggers nexus in that state. FBA inventory counts even though Amazon controls warehouse locations. |
| Economic Nexus | Exceed $100K in sales OR 200 transactions in the state in the current or prior calendar year | Most states use these exact thresholds. Some states set higher: CA requires $500K, NY requires $500K AND 100 transactions. |
| Click-Through Nexus | Paying commissions to in-state affiliates who refer customers via links on their website | Triggered by affiliate programs. Most states require $10K or more in referral sales. |
| Marketplace Facilitator | Amazon, Etsy, eBay, and similar platforms are REQUIRED to collect and remit sales tax on your behalf in most states | If you only sell through these platforms, you may not need to file separately for sales tax. But you may still have income tax nexus. |
| Income Tax Nexus | Having property or payroll in the state, or exceeding factor-based thresholds (property + payroll + sales factors) | Different from sales tax nexus. Some states (CA, NY) apply economic nexus to income tax. Even if a marketplace collects your sales tax, you may owe income tax. |
Economic Nexus Thresholds by State
Key state thresholds for economic nexus. Most of the 44 states (plus DC) with sales tax use the $100K or 200 transaction threshold. Below are states with notable variations.
| State | Threshold | Register At |
|---|---|---|
| California | $500K sales (no transaction count) | cdtfa.ca.gov |
| New York | $500K sales AND 100 transactions | tax.ny.gov |
| Texas | $500K sales (no transaction count) | comptroller.texas.gov |
| Florida | $100K sales (effective 2024+) | floridarevenue.com |
| Illinois | $100K OR 200 transactions | tax.illinois.gov |
| Pennsylvania | $100K sales | revenue.pa.gov |
| Ohio | $100K OR 200 transactions | tax.ohio.gov |
| Missouri | Exception: No economic nexus for sales tax. Physical presence still required. | |
What Happens If You Have Nexus and Don't Register
Unregistered nexus is the most common and expensive compliance mistake for online sellers. The consequences compound quickly.
- The state can audit you going back 3–7 years (lookback period varies by state). States share data with each other and with the IRS.
- You owe uncollected sales tax + interest + penalties. Penalties range from 5% to 25% of uncollected tax depending on the state and duration of non-compliance.
- Voluntary Disclosure Agreement (VDA):Most states offer a path to come forward voluntarily — pay back taxes (usually 3–4 years) and they waive penalties. You MUST complete the VDA BEFORE the state contacts you. Once the state initiates contact, VDA eligibility is lost.
- Personal liability: Sales tax is a trust fund tax. Officers and owners can be personally liable for unremitted sales tax. The corporate veil does not protect you.
How to Manage Multi-State Compliance
- Step 1: Determine where you have nexus.Review physical presence (locations, employees, FBA inventory) and economic thresholds (sales by state) annually. Don't forget that Amazon FBA moves inventory between warehouses — you may have inventory in 20+ states without realizing it.
- Step 2: Register in each nexus state.Most states have online registration portals. Expect 2–6 weeks per state for processing. Some states charge registration fees ($10–$100).
- Step 3: Use sales tax automation software.TaxJar, Avalara, and Vertex calculate, collect, and file in multiple states. Manual multi-state filing is nearly impossible — different rates, rules, product taxability, and filing frequencies per state.
- Step 4: File required returns. Filing frequency depends on volume: some states require monthly, some quarterly, some annually. Missing a filing deadline triggers penalties even if no tax is due.
- Step 5: Track economic thresholds monthly.Set alerts for when you approach $80K or 150 transactions in a new state. Don't wait until year-end to discover you crossed a threshold in March.
Tools to Help You Stay Compliant
Use our calculators to estimate sales tax exposure and assess your e-commerce financial health before expanding into new states.
Frequently Asked Questions
If I only sell on Amazon or Etsy, do I need to worry about nexus?
For sales tax: usually no — Amazon and Etsy collect and remit as marketplace facilitators in most states. But check your state — some marketplace facilitator laws have exceptions. For income tax: YES — marketplace facilitator rules don't cover income tax. If you have economic nexus for income tax, you must file even if Amazon collects your sales tax.
How do I know which states I have nexus in right now?
Run a report covering four areas: (1) List all states where you have physical presence — offices, employees, contractors, regular meetings. (2) Run last year's sales by state — any state exceeding $100K or 200 orders? (3) Check Amazon FBA inventory locations — Amazon moves inventory between warehouses, and you may have inventory in 20+ states. (4) Check where your remote employees and contractors live — even one remote worker can trigger nexus.
What if I already have nexus but never registered — what's the safest path?
A Voluntary Disclosure Agreement (VDA) is your safest path. Hire a state tax CPA — don't try to negotiate a multi-state VDA yourself. The VDA process: CPA contacts the state anonymously to initiate → state offers terms (lookback period, interest) → you accept and register → file back returns and pay → penalties are waived. Critical rule: NEVER register before the VDA is complete — registering first voids VDA eligibility in most states.
Do I need to collect sales tax on services, not just products?
It depends on the state. Most states tax tangible products but vary significantly on services. SaaS (software-as-a-service) is now taxed in 20+ states and counting. Professional services like consulting and accounting are generally NOT taxed, with exceptions in Hawaii, New Mexico, and South Dakota. This is the most complex part of sales tax compliance — tax automation software handles product and service taxability rules per state.
How does nexus work for dropshipping?
You (the retailer) have nexus wherever you're located. Your supplier may have nexus in their state. Two common scenarios: (1) If you have nexus in the customer's state, you collect sales tax from the customer. (2) If your supplier has nexus in the customer's state but you don't, the supplier may charge you sales tax on the wholesale transaction — which you must factor into pricing. Dropshipping nexus is complex and fact-specific — consult a CPA specializing in e-commerce if you do significant dropshipping volume.