Quick answer
Sales tax nexus is a connection that can require a business to register, collect and remit tax in a state. Physical presence and economic sales activity are separate ways to establish that connection. A tax-rate calculator cannot determine whether your business has nexus.
Nexus is the connection between a business and a state that gives the state authority to make you collect its sales tax. For decades that connection had to be physical — an office, a warehouse, staff, inventory. In 2018 the Supreme Court changed the rule, and the compliance burden on anyone selling across state lines changed with it.
What Wayfair changed
In South Dakota v. Wayfair, the Court overturned the physical-presence requirement established in Quill v. North Dakota. States may now require out-of-state sellers to collect sales tax based on economic activity alone. Within about eighteen months, nearly every state with a sales tax had enacted economic nexus legislation.
The practical effect is that a business operating entirely from one state can accumulate collection obligations in dozens of others simply by selling well.
There is no single nationwide threshold
Check each destination state’s revenue department. The amount, measurement period, included sales and any transaction-count test must be read together. A threshold from another state is not a substitute.
Texas example: a rolling 12-month check
The Texas Comptroller describes a safe harbor for remote sellers with total Texas revenue below $500,000 in the previous 12 calendar months. Its calculation includes taxable and nontaxable sales, with additional inclusions described in the official guidance below. Physical presence is a separate consideration.
For an illustrative business with $42,000 of Texas revenue each month, twelve months total $504,000. Looking at only the current month would miss the issue. Use the authority’s definition of revenue and check registration and collection timing before acting.
Try it freeUS Sales Tax CalculatorState base rates plus your local district rate.Advertisement
Marketplace sales need a separate check
A marketplace collecting tax does not by itself tell you whether its sales count toward your threshold or whether you must register. Check the destination state’s marketplace rules, and separate marketplace sales from orders placed directly on your website.
Physical presence still counts, and it is broader than you think
Economic nexus was added to the old rules rather than replacing them. Physical presence still creates nexus, and it includes arrangements people do not think of as a presence at all: inventory held in a third-party fulfilment warehouse, a remote employee working from their home in another state, a contractor performing installation, or attending a trade show in some jurisdictions.
Inventory in a fulfilment network is the most common surprise. If a marketplace distributes your stock across warehouses in a dozen states, you may hold inventory — and therefore physical nexus — in states you have never dealt with directly.
What to do about it
Start by knowing your sales by state for the last twelve months. Most businesses have never looked at this, and it is the only way to see which thresholds you are near. Check the relevant state’s included sales, measurement period, registration rules and collection start date, then monitor the states you are approaching.
Rates themselves are the easier part: a state base rate plus county, city and special district rates, which is why two addresses in the same city can carry different totals. Automated tools handle that arithmetic well. What they cannot do is decide whether a product is taxable in a given state, which varies substantially — clothing, digital goods, software as a service and food are all treated inconsistently.
If you suspect you have crossed thresholds in past periods, most states operate voluntary disclosure programmes that limit the lookback period and typically waive penalties. Approaching a state before it approaches you is materially cheaper.
Recommended tool
Cloud accounting for small business
Track income, expenses and sales tax in one place, with GST/HST and US state tax reporting built in. Most small teams are set up in an afternoon.
Compare accounting softwareRecommendation coming soon.
Frequently asked questions
- What is economic nexus?
- A sales tax obligation triggered by economic activity in a state — usually a revenue or transaction threshold — with no physical presence required. It follows the 2018 South Dakota v. Wayfair decision.
- Is there one US economic nexus threshold?
- No. Use the destination state’s official rules for the amount, measurement period, included sales and any transaction-count test.
- Do marketplace sales count towards my threshold?
- The answer depends on the destination state. Check its official marketplace rules separately from whether the platform collects tax.
- What if I should have been collecting and was not?
- Most states run voluntary disclosure programmes that shorten the lookback period and generally waive penalties for businesses that come forward before being audited.
General information only — not tax, legal, accounting or financial advice. Rates change and individual circumstances vary. Confirm figures with the CRA, the IRS, your state or provincial authority, or a licensed professional before acting on them.
Calculators for this
Sources & methodology
FTT Finance-To-Thrive is an independent publisher of free finance calculators. The links below explain the rules and assumptions relevant to this page. Calculators use simplified models; for example, state and provincial income-tax estimates may omit brackets, credits, or local rules. See the formula and limitations on each calculator. We are not accountants, tax preparers, mortgage brokers or financial advisors, and nothing on this page is advice. Rates change and individual circumstances vary — confirm figures against the primary source before you file, sign or commit money. Read more about how we work and our funding & disclosure.
Page content last updated 2026-09-13
Primary sources
- Texas Comptroller — Remote seller requirements (Texas example)
- Supreme Court — South Dakota v. Wayfair (2018) opinion
- Federation of Tax Administrators — State tax rates
Source links are provided separately from the original content dates. They do not imply that an authority endorses this site or that every figure has been independently reviewed.
Advertisement