Nexus is the single most important concept in US sales tax law for businesses — and the most misunderstood. It determines whether you are legally required to collect and remit sales tax in a given state. Get it wrong and you either file unnecessarily in states where you have no obligation, or — far more dangerously — you miss states where you are required to collect. Before we dive in, make sure you understand what sales tax is at a fundamental level, and keep in mind that once nexus is confirmed, you will need to know how to file a sales tax return correctly in each applicable state.
What Is Nexus?
Nexus is the legal connection between your business and a state that triggers the obligation to act as that state’s tax collector. If you have nexus in a state, you must collect sales tax from buyers in that state and remit it on a regular schedule. If you have no nexus, you have no obligation — though buyers technically owe use tax themselves, which is rarely enforced on individuals. Understanding where your nexus exists is the first step before tackling questions like how to calculate the correct rate to charge each customer.
Physical Nexus
The traditional form of nexus is physical presence: a retail store, office, warehouse, employees, sales representatives, or even inventory stored in a third-party fulfillment center like Amazon FBA. If you use Amazon FBA, your inventory is physically located in Amazon’s warehouses across many states — each of those states likely qualifies as physical nexus for your business. This is why many e-commerce sellers unknowingly have multi-state nexus and do not realize it until they are audited.
Economic Nexus: The Wayfair Ruling
The 2018 Supreme Court decision in South Dakota v. Wayfair fundamentally changed the landscape. The Court ruled that states can require businesses to collect sales tax based on economic activity alone — no physical presence required. This opened the door for all states to impose economic nexus rules. By 2026, every state with a sales tax has an economic nexus law. The most common threshold is $100,000 in annual sales OR 200 transactions in the state. Some large states have higher thresholds — California requires $500,000 in sales, and New York also uses $500,000. Texas is also at $500,000, while Florida uses $100,000.
Marketplace Facilitator Nexus
If you sell through Amazon, Etsy, eBay, Walmart Marketplace, or similar platforms, those platforms are generally required to collect and remit sales tax on your behalf under marketplace facilitator laws. However, this does not eliminate all your nexus obligations — your direct sales (off-marketplace), and the physical nexus created by Amazon FBA warehouses, may still require you to be registered and filing independently. This is a complex area where mistakes are extremely common.
Other Types of Nexus
Affiliate nexus occurs when in-state affiliates refer customers to your business for a commission. Click-through nexus is similar — in-state links that generate sales can create nexus in some states. These forms of nexus are less common and vary by state, but they can catch digital businesses off guard. For any type of nexus, the consequence is the same: you must register, collect the correct combined rate (use our calculation guide for any location), and file regular returns.
Voluntary Disclosure Agreements (VDAs)
If you have identified that you have unfiled nexus obligations from prior years, a Voluntary Disclosure Agreement allows you to come into compliance proactively with reduced or waived penalties. Most states participate in the Multistate Tax Commission’s VDA program. Coming forward voluntarily is always better than being discovered in an audit — and it can dramatically reduce your back-tax liability. After completing a VDA, make sure you also understand the sales tax deduction implications for your business, and review the five states with no sales tax in case they affect your distribution or nexus strategy.