Multi-State Sales Tax Strategy
For most of the history of sales tax, the rule was simple: if your company had boots on the ground in a state (an office, employees, inventory) you collected tax there. If you didn’t, you didn’t. Then the Supreme Court’s 2018 Wayfair decision changed it. Today you can be required to collect and remit sales tax in a state where you have no physical presence at all, just customers and enough sales to cross a threshold.
“Nexus” is the word for the connection between your business and a state that obligates you to collect and remit its sales tax. The complication is that there are now two ways to create it (physical or economic presence), they behave differently, and growing companies tend to trip the second one without noticing. Sorting out where you actually stand, across every state you touch, is what this work is about.
Related Ways We Help
- Determining whether what you sell is taxable in those states - Learn More
- Fixing back taxes that built up before you realized - Learn More
- Answering A notice or audit that raised the question - Learn More
- Determining Whether your software is set up to correctly handle the process - Learn More
What Nexus Really Means
Monika and Bill explain nexus, the connection to a state that creates a filing obligation, and why companies so often trigger it without realizing. This is the idea at the center of almost every multi-state sales tax question.
Nexus, in Plain Terms
Physical nexus is the old, intuitive kind. An office, employees, or inventory in a state creates it, but so do a few things companies routinely overlook. A salesperson who travels into a state for meetings can create physical nexus. So can an independent contractor doing installation or white-glove service there on your behalf. So can equipment you lease to a customer that simply sits in the state, since that’s your property on the ground. Any of these can put you on the hook in a state where you have no office, no employees, and no property.
Economic nexus is the newer kind, and it needs no physical presence whatsoever. After Wayfair, most states set a threshold, commonly $100,000 in sales or 200 separate transactions over a twelve-month period. Cross it, and you have nexus from sales alone. Two things are worth knowing: many states are now dropping the 200-transaction count, on the logic that two hundred one-dollar sales shouldn’t carry the same weight as $100,000 of real business, and states differ on what even counts toward the threshold: gross sales, retail only, whether exempt and resale sales are included. So the threshold is a starting point to check state by state, not a single national rule.
Nexus Sneaks Up on Growing Companies
Almost no company hits a single moment where multi-state obligations suddenly appear. It happens quietly, one ordinary business decision at a time. You hire a great salesperson who happens to live in another state. Your website quietly crosses $100,000 of sales into a state you weren’t watching. You place inventory in a fulfillment center to speed up shipping. You add a product line, or bring on contractors in a new region. Each one is a normal growth move, and any of them can create nexus.
It’s also not static. Nexus is dynamic. You can have it in a state one year and fall below the line the next, which is exactly why it isn’t a set-and-forget question. It’s something to keep an eye on as the business keeps changing.
Nexus is Only Half the Question
Knowing where you have nexus is only the first layer. The second is whether what you sell is actually taxable in each of those states, which varies more than most people expect, SaaS and digital products especially. The third is registering and filing correctly going forward. And the fourth is dealing with whatever exposure quietly built up before you realized any of this applied to you.
Strategy is connecting those four layers in the right order, so you fix the real problem instead of reflexively registering everywhere, which can create as many obligations as it resolves. The goal isn’t to file in the most states. It’s to be right in the states that matter. Bottom line: order matters, and we often lay the groundwork for our clients, in the right order.
If the taxability layer is where your question really sits (especially for SaaS or digital products) our interactive map shows how each state currently treats it, once you know where you have nexus.
We Start With a Nexus & Taxability Review
For most clients, this is the first thing we do together. We dig into how the business actually operates (where your people are, where your inventory sits, where your customers are located, what you sell) and we map where you have nexus, since when, what’s taxable in each state, where you need to register, and what retroactive exposure exists. The result is a roadmap, not a guess.
From there, the path is usually clear: remediate the back years where needed, often through a voluntary disclosure, and get clean, monitored compliance going forward. And because software can see your sales thresholds but not where your employees traveled or where your equipment sits, the physical-nexus side of this is the part that genuinely needs human eyes.
Success Story
Exposure That Built Up Quietly
A consumer products company selling across the country believed its sales tax was handled, returns were going out automatically through a leading platform. The trouble wasn’t the software; it was the nexus assumptions behind it. Incorrect economic nexus assumptions across more than twenty states had quietly built up over years, and because tax was never collected from those customers, the liability couldn’t be passed through. It had become the company’s own expense. We ran a full nexus and taxability review, structured remediation through voluntary disclosures, and brought the exposure down by more than $600,000.
Common Questions About Nexus
Nexus is the connection between your business and a state that requires you to collect and remit its sales tax. You can create it two ways: physical presence (people or property in the state) or economic activity (enough sales into the state, even with no presence there).
Physical nexus comes from having people or property in a state — employees, inventory, a traveling salesperson, a contractor, or leased equipment. Economic nexus comes from sales volume alone, with no physical presence required, and it’s the kind that surprises most growing companies after the Wayfair decision.
The common standard is $100,000 in sales or 200 transactions over a twelve-month period, but it isn’t universal. Many states are eliminating the transaction count, and states differ on which sales count toward the threshold. The thresholds are the right place to start, but each state needs to be checked against its current rule. (Note that 3 large states (California, New York, and Texas) each have a sales threshold of $500,000.)
A nexus study — we call it a nexus and taxability review — maps where your business has nexus, since when, what’s taxable in each state, and what back exposure exists. It’s usually the first project we do for a company, because it turns an open-ended worry into a clear roadmap for everything that follows.
Let’s Map Where You Actually Stand
Most companies come to us with a hunch that they’ve tripped a threshold somewhere, but no clear picture of where or how much. That’s the right moment to start. A first conversation, and then a focused nexus and taxability review, usually turns the whole thing from a vague worry into something specific and manageable.
