What Is Sales Tax Nexus?
Short answer
Sales tax nexus is the connection between a business and a state that's strong enough to require the business to register, collect, and remit sales tax there — established either by a physical presence in the state or by crossing an economic activity threshold, such as a set amount of sales revenue or transactions.
Last reviewed June 1, 2026
Why nexus matters
A company only has to collect and remit sales tax in states where it has nexus. Get it wrong in either direction and there’s a cost: fail to register where you have nexus and you can owe back taxes, penalties, and interest out of pocket (sales tax is generally not deductible after the fact the way an income tax underpayment might be cushioned); register somewhere you don’t need to and you’re filing unnecessary returns.
The two ways nexus gets created
- Physical nexus. Having an office, employees, inventory (including inventory held in a third-party fulfillment warehouse), or contractors physically present in a state.
- Economic nexus. Since the Supreme Court’s 2018 South Dakota v. Wayfair decision, states can require out-of-state sellers to collect sales tax once they cross a revenue or transaction-count threshold in that state — even with zero physical presence. Thresholds vary by state.
See economic vs. physical nexus for a closer look at how the two interact.
How companies typically discover a nexus problem
Growing companies usually don’t set out to ignore sales tax — nexus creeps up on them. Common triggers include: crossing a state’s economic nexus revenue threshold without noticing, hiring a remote employee or contractor in a new state, using a fulfillment network that stores inventory in warehouses across many states, or acquiring a company with its own uncollected exposure. A nexus review run periodically — not just once at formation — is what catches this before a state audit does.
What to do if you find exposure
If a nexus review turns up states where you should have been registered and collecting, a voluntary disclosure agreement (VDA) is often the best path forward: most states will limit the lookback period and reduce or waive penalties in exchange for you coming forward before they find you.
How VPTax helps
Nexus reviews, registration, ongoing compliance across roughly 10,000 US taxing jurisdictions, and VDA negotiation are all part of VPTax’s Sales & Indirect Tax service.