Understand how the concept of “nexus” affects your tax obligations—and which states require registration even without physical presence.
As you expand your operations to the U.S. or begin selling remotely to American consumers, one question often comes up:
“Do I need to register in every state where I make sales?”
The answer lies in the concept of nexus, a key principle in the U.S. tax system that determines when a business must collect and remit sales tax in a particular state.
With over 11,000 different taxing jurisdictions in the U.S., understanding what triggers tax nexus is essential for maintaining compliance and avoiding penalties—especially if your business sells online or provides services across multiple states.
In this article, you’ll learn:
• What sales tax nexus is
• The difference between physical and economic nexus
• When your company needs to register in other states
• How to manage multistate tax compliance in the U.S.
What Is Nexus in the U.S. Tax System?
Nexus refers to the minimum connection a business must have with a state for that state to require sales tax collection. In other words, it’s what triggers your tax liability in a given jurisdiction.
There are two main types of nexus:
1. Physical Nexus
This applies when your company has a physical presence in a state, such as:
• An office or branch
• A warehouse or inventory
• Employees residing in the state
• Sales representatives
• Participation in trade shows or business events
2. Economic Nexus
Established even without physical presence, based on sales volume or transaction count. It was introduced after the 2018 Supreme Court decision in South Dakota v. Wayfair, Inc.
Example: Your business is based in Florida but sells over $100,000 or processes 200 transactions annually in California. That triggers economic nexus, requiring sales tax collection in California.
📌 Important: While “nexus” is commonly discussed in the context of sales tax, it also applies to state-level income tax. In other words, a company may be subject to State Income Tax even without a physical presence in the state, depending on specific business activities, such as:
- Generating revenue from clients in the state;
- Providing remote services to residents;
- Employing staff or contractors working in that state.
Each state has its own criteria for determining income tax nexus, so it’s essential to evaluate your company’s exposure not only to sales tax, but also to state income tax obligations.
Do I Need to Register in Multiple States?
It depends. State tax registration requirements are directly tied to whether your business has nexus. Most states have their own thresholds and rules.
Situations that typically require immediate registration:
• Storing goods in fulfillment centers (e.g., Amazon FBA)
• Shipping from inventory located in a specific state
• Exceeding economic nexus thresholds
• Employing or contracting workers in other states
📌 Important: Selling online doesn’t exempt your business. Even fully digital companies with no U.S. physical presence may establish nexus—and must collect and remit sales tax.
What Are the Economic Nexus Thresholds by State?
Each state sets its own limits. Here are a few examples:
| State | Sales Threshold | Transaction Threshold | Source (2024) |
|---|---|---|---|
| California | $500,000 | None | 2024 |
| Texas | $500,000 | None | 2024 |
| Florida | $100,000 | None | 2024 |
| New York | $500,000 | 100 transactions | 2024 |
| South Dakota | $100,000 | 200 transactions | 2024 |
✅ These amounts are updated annually. Always consult official sources or a tax advisor to assess your situation.
How to Manage Multistate Sales Tax Complexity
As your business grows, managing sales tax obligations across states can become challenging. Here are some best practices:
Tools and solutions:
• Sales tax automation software (e.g., Avalara, TaxJar, Vertex)
• Track sales by state to predict when nexus is triggered
• Integrate e-commerce platforms to calculate taxes automatically
Governance and compliance:
• Review marketplace terms—some collect sales tax on your behalf
• Keep documentation organized for state audits
• Work with a U.S.-based accounting and tax advisory firm
⚠️ What Happens If You Don’t Register Properly?
Ignoring nexus and failing to collect sales tax can lead to serious consequences:
❌ Retroactive penalties and fines
❌ Interest on unpaid taxes
❌ Reputational damage and sales restrictions
❌ State-level tax audits
Many states offer Voluntary Disclosure Programs for companies that come forward and correct past noncompliance—a smart move if you discover retroactive obligations.
✅ Nexus Checklist: Does Your Company Need to Register Elsewhere?
Before continuing to sell without proper registration, ask yourself:
- Do you store inventory in multiple states (e.g., Amazon FBA)?
- Have you exceeded $100K in sales or 200 transactions in any state?
- Do you have employees or contractors operating outside your home state?
- Do you sell taxable products or services (including SaaS or digital goods)?
- Have you reviewed state-specific nexus rules?
If you answered “yes” to any of the above—it’s time to take action.
Expand With Confidence: Drummond Advisors Can Help
At Drummond Advisors, we offer full support to international companies operating or selling in the U.S. Our team specializes in nexus analysis, state tax registration, sales tax calculation, and multistate compliance—ensuring your business grows safely and strategically.
Contact our experts via chat or at info@drummondadvisors.com to find out how we can help your company stay compliant in every U.S. jurisdiction.
Also read:
Common Mistakes International Companies Make When Expanding to the U.S.—And How to Avoid Them
Sources:
https://www.claconnect.com/en/resources/articles/2020/state-tax-considerations-for-global-companies
https://www.salestaxinstitute.com/resources/economic-nexus-state-guide
https://www.journalofaccountancy.com/issues/2021/jun/economic-nexus-sales-and-use-tax.html
https://www.ncsl.org/state-legislatures-news/details/category/fiscal/states-adapt-tax-laws-as-online-sales-surge
Written by Marcos Ferreira, Content Analyst at Drummond Advisors