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Understanding US Sales Tax Nexus Rules

Overview of sales tax nexus, its types, economic thresholds, and actions required when nexus is triggered
Updated 3 months ago

This article explains what sales tax nexus is, the different types of nexus that can be established, how economic nexus thresholds operate, and the steps to take when nexus is triggered.

What Is Nexus?

Nexus is the legal connection between your business and a state that requires you to collect and remit sales tax in that state. If you do not have nexus in a state, you generally have no obligation to collect sales tax from buyers in that state, even if you sell to customers there.

There are two primary types of nexus: physical nexus and economic nexus.

Physical Nexus

Physical nexus is created by a tangible presence in a state. Common activities that establish physical nexus include the following:

  • Having employees, independent contractors, or agents working in the state (including remote workers)

  • Maintaining an office, store, warehouse, or any other business location

  • Storing inventory in the state, including through third-party fulfillment centers such as Amazon FBA

  • Attending trade shows and actively taking orders or soliciting sales

  • Providing installation, repair, or other services in the state

  • Leasing equipment or property in the state

IMPORTANT: Remote Employees and Physical Nexus

Any employee working from home in a state creates physical nexus in that state for your business.

This applies universally across all US states. There is no minimum number of days or hours — any presence counts.

States such as New Jersey, South Carolina, Illinois, Michigan, and Hawaii make this especially explicit in their guidance.

Economic Nexus

Following the 2018 Supreme Court ruling in South Dakota v. Wayfair, Inc., states gained the ability to require out-of-state sellers to collect and remit sales tax based solely on their level of sales activity, even without any physical presence.

Most states now have economic nexus thresholds. The most common threshold is $100,000 in sales or 200 transactions in the previous or current calendar year. Once a threshold is met, registration and collection obligations begin.

State

Economic Nexus Threshold

Most US States

$100,000 in sales OR 200 transactions in prior or current year

New York

$500,000 in sales AND 100 transactions

Mississippi

$250,000 in sales (no transaction count threshold)

Alaska (local)

Varies by participating local jurisdiction

Kansas

No de minimis threshold — any sales can trigger nexus

When Does Tax Collection Begin After Meeting Economic Nexus?

Generally, tax collection begins on transactions after the threshold is met. The transaction that actually crosses the threshold is not taxed. However, the obligation to register and collect applies prospectively from that point forward.

For example, if your 200th transaction in a state occurs on June 15, you are not required to tax that transaction, but you are required to register and begin collecting on transactions from June 16 onward.

📌 Note: If you collected tax in a state before meeting the economic nexus threshold, you are still required to register and remit that collected tax, even if the threshold was never formally crossed. See: Collected Tax Nexus below.

Collected Tax Nexus

If your business collected sales tax from customers in a state, even without meeting the economic nexus threshold or having any physical presence, you have an obligation to register and remit that tax. This is sometimes called collected tax nexus.

This scenario commonly occurs when a business enables tax collection in a platform like Shopify before properly confirming their nexus status state by state.

Amazon FBA and Third-Party Logistics (3PL) Nexus

Storing inventory at an Amazon fulfillment center, a 3PL warehouse, or any third-party facility creates physical nexus in that state, even if you have no other presence there. This applies in all states except Alabama and Massachusetts, which have specific marketplace facilitator rules.

If you use Amazon FBA or a 3PL provider, you should register in every state where your inventory is stored. Kintsugi can help you determine which states are affected and manage the registration process.

Trailing Nexus

Even after you stop selling in a state or fall below the economic nexus threshold, some states require you to continue filing for a period of time. This is called trailing nexus. The duration varies by state. Some states require only one final return, while others require up to one full year of zero-dollar filings after nexus ends.

How Kintsugi Monitors Your Nexus

Kintsugi's nexus monitoring tools track your sales data across all US states and alert you when you are approaching or have crossed a threshold. When nexus is established, Kintsugi will recommend registration and can initiate the process on your behalf.

  • Nexus alerts are displayed on your Kintsugi dashboard

  • Kintsugi uses your actual transaction data to calculate exposure in each state

  • Both physical and economic nexus indicators are tracked

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