Definition:
Nexus refers to a legal connection or link between a business and a U.S. state, which gives that state the authority to require the business to collect and remit state sales tax or pay state income tax. There are two primary types:
- Physical Nexus: Established when a business has a physical presence in a state, such as an office, employee, warehouse, or inventory.
- Economic Nexus: Triggered when a business reaches a certain threshold of sales or transactions in a state—even if it has no physical presence there. This concept became especially significant after the 2018 South Dakota v. Wayfair Supreme Court decision.
Each state sets its own rules and thresholds for determining nexus, making compliance complex—especially for remote sellers, e-commerce businesses, and non-U.S. founders serving U.S. customers.
Why it matters:
If your business has nexus in a state, you are required to register for a sales tax permit in that state, collect tax from customers, and file periodic tax returns—even if your company is formed in another state or outside the U.S.
Who is it for?
U.S. and foreign business owners engaged in remote sales, e-commerce, or SaaS products should assess their nexus exposure to avoid penalties and stay compliant with state tax laws.
