A business can owe sales tax in a state it has never physically entered. Since the Supreme Court’s South Dakota v. Wayfair decision, states have been able to require certain out-of-state businesses to collect and remit sales tax based on their economic activity in the state.
Physical Nexus vs. Economic Nexus
Physical nexus is the traditional trigger: an office, employees, or inventory in a state. Economic nexus is different. A business can establish it based on the amount or volume of sales it makes into a state, even without a physical presence there.
Every State Has Its Own Rules
Most states with sales tax have adopted economic nexus rules, but the thresholds and calculation methods vary. Some states use a sales threshold, some consider transaction volume, and others apply different rules or exceptions. That means a business should not assume that staying below a threshold in one state means it is below the threshold everywhere.
For businesses selling across state lines, sales tax exposure can build quietly. A business may continue making sales without realizing it has crossed a state’s economic nexus threshold. By the time the issue is identified, the business may need to address registration, tax collection, filings, penalties, and interest.
Why This Especially Affects E-Commerce and SaaS
Businesses selling directly to consumers across state lines, whether physical products, digital goods, or software subscriptions, accumulate exposure differently than a traditional single-location business. Revenue from customers in a dozen states can each be inching toward a different threshold simultaneously, and nexus in one state doesn’t reset or offset exposure building in another.
What Happens When Nexus Goes Unnoticed
The business continues selling without collecting required sales tax
Exposure accumulates while sales continue across state lines
Back taxes, penalties, and interest may surface through an audit, state notice, or due diligence review
Building a System to Track Exposure
Because thresholds vary by state, change periodically, and depend on rolling sales calculations, tracking exposure requires an ongoing process, not a one-time check. Growing businesses benefit from a structured review of state-by-state sales volume against current thresholds at regular intervals, not only when a new state notice prompts the question.