A business that once collected sales tax in a single home state can find itself, almost without noticing, legally required to collect and remit tax in a dozen others. This shift happened because of a change in how "nexus" — the legal connection that requires a business to collect a state's sales tax — gets established, and it catches a lot of growing businesses off guard.
What Nexus Actually Means
Nexus is the connection between a business and a state significant enough that the state can require the business to collect and remit its sales tax. Historically, nexus was almost entirely physical: an office, a warehouse, an employee, or inventory stored in a state. If you had no physical presence there, you generally didn't have to collect that state's sales tax.
The Shift to Economic Nexus
A 2018 Supreme Court decision (South Dakota v. Wayfair) changed this fundamentally, allowing states to establish "economic nexus" based purely on sales activity, with no physical presence required at all. Most states have since adopted economic nexus thresholds, commonly structured around a combination of:
- A revenue threshold — commonly around $100,000 in sales into that state within a year, though the exact figure varies by state.
- A transaction count threshold — some states also (or instead) trigger nexus after a certain number of separate transactions, such as 200 transactions in a year.
Cross either threshold in a given state, and you may be required to register, collect, and remit sales tax there — even without a single employee, office, or physical item ever located in that state.
Why This Catches Growing Businesses Off Guard
A business selling primarily online, through marketplaces, or shipping products nationwide can accumulate economic nexus in multiple states without ever making a deliberate decision to "expand" there — growth in online sales volume alone can trigger it. Many owners don't realize an obligation exists until well after it's already been triggered, at which point back taxes, penalties, and interest may be owed for the period the business should have been collecting and wasn't.
What to Actually Track
- Sales by state, updated regularly enough to catch a state approaching its threshold before you cross it, not months afterward.
- Each state's specific thresholds, since they vary — some use revenue only, some use transaction count only, and some use both.
- Marketplace facilitator rules. If you sell through platforms like Amazon or Etsy, the marketplace itself may already be collecting and remitting tax on your behalf in many states, which changes what you personally need to track.
Managing Multi-State Compliance
- Sales tax automation software (Avalara, TaxJar, and similar) can track nexus thresholds across states and automate registration, collection, and filing — a genuinely worthwhile investment once you're selling into more than a handful of states.
- Registering only where required. Registering in a state before you've triggered nexus there creates unnecessary filing obligations; registering after you've triggered it but before you realize it creates a compliance gap. Both are worth avoiding.
- Working with a sales tax professional once your multi-state footprint grows complex enough that manual tracking becomes unreliable.
The Bottom Line
Economic nexus means sales tax obligations can now follow a business's growth into new states automatically, without any deliberate expansion decision triggering them. Tracking sales by state as a routine part of financial monitoring, rather than an afterthought, is the difference between staying ahead of these obligations and discovering them the hard way.
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