Introduction

Understanding where your business must collect and remit sales tax starts with differentiating two closely related concepts: physical presence and physical nexus.

Physical presence — where your business has an actual footprint

Physical nexus — the legal obligation that results when that presence meets a state’s threshold for tax enforcement

While these terms are related, they are not interchangeable. In fact, there are situations where a business has physical presence in a state but does not meet physical nexus requirements.

This guide outlines how these concepts interact and clarifies a common point of confusion: why some physical presence categories—specifically DELIVERY BY COMMON CARRIER—do not create physical nexus in any U.S. state.

What Is Physical Presence?

Physical presence refers to any tangible, real-world footprint your business has within a state’s borders. This is a description of where your business exists or operates physically.

Common Forms of Physical Presence

You have a physical presence in a state if you have:

• Employees or contractors working there

• Office, store, warehouse, or showroom space

• Inventory stored in the state (including at Amazon FBA or other 3PLs)

• Owned or leased equipment located in the state

• Temporary or traveling activities, such as attending trade shows or pop-up shops

• Installation, delivery, repair, or training services performed in the state

• In-person selling

• Delivery activity conducted through your own vehicles

Important Exception: DELIVERY BY COMMON CARRIER

Deliveries made through third-party carriers (UPS, FedEx, USPS, etc.) are considered DELIVERY BY COMMON CARRIER.

This category is tagged as a physical presence type in our system, but it does not create a physical nexus in any of the 50 U.S. states or DC.

This means:

• A business can have physical presence marked as DELIVERY BY COMMON CARRIER in a state

• But that presence does not meet the state’s nexus threshold

• Therefore, the state will not appear as physically “exposed” for nexus

This is working as intended.

What Is Physical Nexus?

Physical nexus is the legal obligation created when your physical presence is significant enough under state law to require you to collect and remit sales tax.

You can think of it this way: Physical presence describes your activity. Physical nexus describes your tax obligation.

Typical Activities That Create Physical Nexus

Most states treat the following activities as strong nexus triggers:

• Employees working in the state

• Owning or leasing property

• Storing inventory

• Operating or maintaining a physical business location

• In-state service work or sales activity

• Using contractors or agents to perform services

Activities That Do Not Create Physical Nexus in the U.S.:

• Presence category “DELIVERY BY COMMON CARRIER” (in all 50 states + DC)

• Short-term events with protected “demonstration-only” status

• Certain minimal, isolated, or de minimis activities

Note: Having a physical presence category “DELIVERY BY COMMON CARRIER” does meet physical nexus requirements in Mexico, but not in the U.S.

Why Physical Presence Does Not Always Equal Physical Nexus

Although physical presence is generally one of the strongest indicators of nexus, certain presence types are not recognized by states as creating sufficient connection.

EXAMPLE:

A business had physical presence in:

• PA

• NY

• CA

• FL

• NC

• NV

Only PA and NY were flagged as physical nexus met. Why?

• PA → WAREHOUSE_AND_INVENTORY_PRESENCE

• NY → PHYSICAL_BUSINESS_LOCATION

• CA, FL, NC, NV → DELIVERY_BY_COMMON_CARRIER → does not qualify as nexus

This scenario is common and expected.

Physical Presence Categories: How They Impact Nexus

States evaluate physical presence differently depending on the type of activity involved. The table below outlines each physical presence category in our system and how it generally affects physical nexus across the U.S.

High-level rule: Most categories create a physical nexus in all 50 U.S. states and DC.

Single universal exception: Delivery By Common Carrier does not trigger physical nexus in any U.S. jurisdiction.

Key Insights

• Delivery By Common Carrier is the only category that does not create physical nexus in the U.S., even though it is considered a form of physical presence for classification purposes.

• Inventory, employees, and physical locations remain the most definitive indicators of nexus.

• Catalogue distribution may appear minor, but several states treat repeated or intentional distribution as physical nexus due to in-state advertising activity.

Third-party or contractor sales activity is treated similarly to employee solicitation by most states and therefore meets nexus.