What Is Sales Tax Nexus?

Sales tax nexus is the connection between a seller and a US state that gives the state the right to require the seller to register, collect and remit its sales tax. Without nexus, a state cannot require a seller to collect.

Physical nexus

Traditionally, nexus came from a physical presence in the state, such as an office, a store, a warehouse, stock held there or employees working there. A seller with physical presence in a state generally must collect that state's tax on taxable sales to its residents.

Economic nexus

Since a major US Supreme Court decision in 2018, states can require remote sellers to collect tax based on economic activity, even with no physical presence. Many states have set thresholds, such as a level of sales into the state or a number of transactions in a period. Once a seller passes a state's threshold, it must usually register and begin collecting. Thresholds and details differ by state and change over time, so check each state's department of revenue.

Marketplaces

In many states, marketplaces collect and remit tax on sales they facilitate. A seller may still have nexus and filing duties for its own store's sales or in other situations, so read each platform's tax terms.

How sellers track it

Record the state of each sale, compare totals with each state's threshold regularly, set aside tax you collect and calendar filing deadlines. Keep notes about where you hold stock or have people.

An example

A seller based in one state ships goods to customers in another. When the seller's sales into that state pass its threshold, the seller has economic nexus there and must register and collect.

Related terms

See sales tax, value added tax and payment processor. For a wider overview, read our guide to sales tax and VAT for online sellers.