Sales Tax Nexus: Insights for Growing Businesses
By Gail Cole
Lead Writer and Content Developer at Avalara
Expanding into new states can drive growth, but it can also create new tax responsibilities for businesses.
Whether and where you have a sales tax obligation depends on sales tax nexus, so understanding nexus is essential for growing businesses and their accounting or tax advisors. Since sales tax nexus is a moving target, developing a strategy to monitor nexus developments across the states is important. The laws vary by state and are subject to change.
What Is Sales Tax Nexus and How Does It Work?
Sales tax nexus is a connection between a business and a tax authority that creates a sales tax obligation for the business.
A state can’t require you to collect and remit sales and use tax if you don’t have sales tax nexus with that state. But if you do have nexus and make taxable sales, you’re generally required to:
- Register with the state (i.e., obtain a sales tax permit).
- Collect sales tax from customers on taxable sales.
- Validate exempt transactions.
- File returns and remit sales and use tax.
- Comply with all other applicable sales and use tax requirements.
The first step is determining where you have nexus. This can be tricky because no two states have exactly the same nexus laws.
How Do You Establish Sales Tax Nexus?
There are several ways for a business to establish sales tax nexus:
- Physical presence (physical nexus)
- Sales activity or revenue (economic nexus)
- Referrals from in-state entities (click-through nexus)
- Ties to in-state affiliates (affiliate nexus)
Every state enforces physical nexus and economic nexus, and many states also have affiliate and/or click-through nexus laws. Yet each state’s nexus laws are unique. A specific activity or amount of activity that would create sales tax nexus with, say, Illinois, may not establish nexus with California.
Physical Nexus
Having physical ties to a taxing jurisdiction is one of the most common ways for a business to establish nexus. Nevertheless, many businesses overlook physical nexus because they don’t realize the various ways it can be created.
Common physical nexus triggers include:
- Having contractors or employees in a state, including temporary visits into the state or remote staff who live in the state.
- Making deliveries in a state using your own vehicles or staff.
- Owning or leasing real or tangible property in a state, including inventory in a marketplace fulfillment center or customer consigned inventory.
- Participating in business events or trade shows.
Bear in mind that in many states, including Washington, physical presence is a nexus standard that requires “only more than the slightest presence.” This means that physical nexus is established on day one of the presence and the level of sales does not impact whether nexus is established.
Economic Nexus
The Supreme Court of the United States authorized states to base nexus on economic activity with its decision in South Dakota v. Wayfair, Inc. (June 21, 2018). Prior to the Wayfair decision, states could only impose a sales tax obligation on businesses with some sort of physical connection to the state.
Economic nexus laws by state may vary even more than physical nexus laws. For one thing, every state provides an exception for remote businesses with sales in the state that are under a certain threshold. There are six different categories of economic nexus thresholds:
- $100,000 in sales in the state
- $100,000 in sales or 200 separate transactions in the state
- $100,000 in sales and 200 transactions
- $250,000 in sales
- $500,000 in sales
- $500,000 in sales and 100 transactions
The sales included in these thresholds also vary. Some states count only taxable sales of tangible personal property, while others include services and/or intangible property. Some states count exempt sales of goods or services, and some specifically include or exclude sales for resale. And some states require sellers to include sales made through a marketplace even when the marketplace is responsible for the collection and remittance of the tax.
At least 10 states require remote sellers to register and start collecting sales tax as soon as they cross an economic nexus threshold, so tracking sales activity in states where you don’t yet have nexus is crucial.
Like all sales tax laws, economic nexus thresholds are subject to change. Many states have eliminated their 200-transaction threshold, and states periodically revise other aspects of their original laws.
Affiliate and Click-Through Nexus
States leaned into affiliate and click-through nexus in the years before the Wayfair decision, and even today, these laws are on the books and enforced in many states.
Affiliate nexus is based on a remote seller’s relationship with in-state entities, such as employees, representatives, or subsidiaries. Click-through nexus laws base a sales tax obligation on online referrals originating from within the state. These laws often include a threshold, such as a certain volume of sales from the referrals, which is typically significantly less than the economic nexus threshold.
How Marketplace Facilitator Laws Shape Sales Tax Obligations
For millions of businesses, marketplace facilitator laws are every bit as important as sales tax nexus laws — and they can be equally complex to navigate. Businesses need to understand how nexus laws impact marketplace laws, and vice versa.
Marketplace laws require marketplace facilitators like Amazon, Etsy, and Walmart, to collect and remit sales tax on behalf of their third-party sellers. However, these laws don’t necessarily eliminate all sales and use tax obligations for all marketplace sellers. Marketplace sellers typically need to register in states where they have a physical presence, which can include marketplace inventory — and they may be required to file returns, even if they only sell through registered marketplaces.
Furthermore, marketplace laws are subject to change. Many states are adjusting their laws to clarify exactly what qualifies as a marketplace transaction, or who (the facilitator or the seller) is responsible for assorted compliance tasks. The Nevada Tax Commission is on the job now, with a recent proposal aimed at clarifying, expanding, and updating the state’s rules related to compliance for marketplace transactions. Since both marketplaces and retailers can be affected by a policy change, it’s critical to monitor states’ discussions and developments.
Courts are shaping obligations for marketplace facilitators and sellers as well. The California Office of Tax Appeals recently found two different out-of-state marketplace sellers liable for California franchise tax or income tax because they had marketplace inventory and sales activity in the state. And in March 2026, the South Carolina Supreme Court ruled that Amazon owes the state $12.5 million in sales tax, interest, and penalties on third-party sales made during the first three months of 2016 — three years before South Carolina’s marketplace facilitator law took effect. effect.
Nexus requirements are complex and constantly evolving, and if you’re unsure where your business stands with nexus, you’re not alone.
Our upcoming webinar, Sales Tax Nexus: Insights for Businesses on the Rise, will help you:
- Understand economic nexus thresholds by state.
- Identify nexus triggers you may overlook.
- Navigate marketplace facilitator rules.
- Stay informed on recent legislative and court changes.
The webinar features Diane Yetter, President and Founder, YETTER Tax and Sales Tax Institute, and Scott Peterson, Vice President of Government Relations for Avalara. Together, they’ll provide practical guidance appropriate for anyone new to sales tax compliance or seeking a refresher.
Date: June 25, 2026
Time: 1:00 p.m.–2:30 p.m. EST