Sales tax nexus: What it is, why it matters, and state obligations

According to the QuickBooks Entrepreneurship in 2025 report, 71% of businesses operate online to some extent, making it easier than ever to reach customers across the country. But this expanded reach comes with a catch: You might owe sales tax in states where you don't even have a physical store.

This unexpected tax obligation is due to something called "sales tax nexus."

Essentially, if you pass a certain threshold of sales or transactions in a state, you trigger a connection—or nexus— that requires you to collect and remit sales tax there. Failing to understand these rules could leave your business on the hook for hefty back taxes and penalties. So, before you expand your online business across state lines, read this guide to learn the ins and outs of nexus.

How sales tax nexus works

You may have sales tax nexus even if you aren’t located in a state. If you sell products online, you may still have nexus. The 2018 US Supreme Court ruling in South Dakota v. Wayfair Inc. allows states to require out-of-state sellers to collect and pay sales tax.

Here’s a general overview of how state tax nexus process unfolds:

1. You start selling or operating in a state. 
2. Your business activities meet the physical or economic nexus threshold.
3. You register as a seller and get a sales tax license for the state. 
4. You begin collecting sales tax.
5. You send the sales tax to the appropriate state authority. 

Let's say you sell handmade jewelry online from your home in Colorado, for example. If your sales to customers in Texas exceed $500,000 in a year, you have economic nexus in Texas and must register, collect, and remit sales tax to the Texas Comptroller of Public Accounts.

Or imagine you sell vintage clothing online and at pop-up shops across the country. If you make 200 or more separate sales transactions to California customers in a year, you have economic nexus in California—even if your total revenue from those sales is less than $500,000. You would need to register with the California Department of Tax and Fee Administration (CDTFA).

Types of sales tax nexus

There are generally two different types of sales tax nexus: physical nexus and economic nexus. If you have one or both, you are required to collect sales tax.

Physical nexus

A physical nexus is one where you have a physical connection with the state. This can be things like: 

• Warehouses
• Offices
• Brick-and-mortar stores
• Employees 

However, it is important to note that physical nexus is not only based on business property. It can also pertain to sales activities via traveling personnel or even trade show attendance. 

Economic nexus

You have economic nexus in a state if you meet a threshold, such as revenue or transactions. You can have economic nexus regardless of physical presence because it applies to both in-person and online sales. 

To establish economic nexus, there must be sufficient business activity to warrant taxation. The economic nexus threshold can be either: 

• The total dollar amount you sell
• Total number of transactions 

In some states, you need to meet both thresholds to trigger economic nexus. If you’re using accounting software, it should automatically calculate your sales tax and help you determine whether you have sales tax nexus.

Affiliate nexus

Affiliate nexus is all about relationships. It's the connection created when you work with another business or individual in a different state to promote your products or services. This "affiliate" acts as a sort of brand ambassador or partner, and their efforts to drive sales in their state can create a sales tax obligation for your business.

Even though you don't have a physical presence in that state, your affiliate's activities essentially extend your reach there. They're like a virtual salesperson or representative, and their success in generating sales can trigger nexus for you.

The key factor is the agreement you have with the affiliate. This agreement usually involves some form of compensation for the affiliate, such as commissions or a flat fee, based on the sales they generate. This incentivizes them to promote your business in their state, which in turn can create nexus for you.

Click-through nexus

Click-through nexus focuses on online advertising and referrals. It's the connection formed when you pay someone in another state to place links to your website on their online platform. These links act as a bridge, bringing customers from that state to your online store.

You're essentially renting space on someone else's online property (a website, blog, etc.) to advertise your business. When people in that state click on those links and make purchases, it establishes a significant enough connection for you to be required to collect sales tax there.

The crucial element here is the payment you make to the other party for placing those links. This payment can be in the form of a flat fee, a pay-per-click arrangement, or some other form of compensation. This incentivizes them to drive traffic to your site, which can then lead to click-through nexus.

How to tell if you have sales tax nexus in a state

To figure out whether you have a sales tax nexus, you must consider each state individually and evaluate its nexus rules. 

See if your state charges a sales tax

While states can require businesses to pay sales taxes, not all do. Determining if you have sales tax nexus in a certain state is easy if that’s the case. For example, there are five states without sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.

If you’re in a state that does charge sales tax, you’ll want to research the economic nexus thresholds for the states you ship products to.

Look up the economic nexus by state

All states have economic sales tax nexus. However, the metrics, such as sales or number of transactions, and thresholds vary by state. The current economic nexus threshold by the state as of 2025 is:

Why you need to understand sales tax nexus 

As the business owner, you are responsible for meeting your sales tax obligations. This includes knowing whether sales tax nexus applies to your business in any state you operate in. Here’s why it’s important: 

• You are responsible for collecting sales tax from your customers. If you fail to do so, your business is the one left holding the bill for state taxes.
• You need to register to collect sales tax. If you fail to register for a sales tax license in a state where you have nexus, you may be responsible for paying back taxes plus interest.
• You’re responsible for complying with tax laws. For example, businesses cannot advertise that they don’t collect sales tax merely because they do not have nexus in the state. 

If you are in doubt, it is a smart idea to get individual advice from an expert tax advisor or professional when determining both your sales tax business obligations and the taxability of your everyday business transactions.

How to comply with nexus sales tax laws

Nexus obligations can be confusing with different state requirements. However, you must understand what sales taxes you're responsible for, and once you're aware that the state's nexus threshold has been met—whether that’s in sales volume by dollars or transactions—you will need to:

1. Register with the state’s tax authority: Your accountant can help you determine where you need to register.
2. Research the state’s sales tax rate: Ensure you’re using the right tax rate in your sales tax calculation, and if you have physical nexus, check your local jurisdiction’s rate.
3. Start collecting sales tax: Keep in mind that there are circumstances where sales tax does not apply to certain products or buyers.
4. File your sales taxes by the due date: Each state may have a different due date, so check the filing deadline. Note that your business may be required to file a sales tax return for periods you didn’t collect sales taxes.

Find peace of mind come tax time

If you run a business that sells goods, your sales tax nexus obligations are something that you need to know. However, many business owners may have nexus in a state without knowing it. 

Accounting software, like QuickBooks, can automatically calculate sales tax for you, so you’ll never have to wonder whether you’re collecting the right state taxes. 

Such tools keep track of the ever-changing sales tax laws so you don’t have to. That way, you can focus on what’s important in managing and growing your business.