Economic nexus is a connection between a seller and a state that is created by the seller’s sales into that state, not by an office, employee, or warehouse there. If a business crosses a state’s sales threshold, that state can require it to register, collect sales tax, and send it in, even if the business has never set foot in the state.
The idea comes from a 2018 Supreme Court decision, and it is why many online and multi-state sellers now have sales tax duties in states where they have no physical presence.
Where does the rule come from?
In South Dakota v. Wayfair, Inc. (decided June 21, 2018), the U.S. Supreme Court overruled its earlier precedent that required a seller to have a physical presence in a state before the state could require it to collect sales tax. The Court held that physical presence is not necessary to create a substantial nexus with a state.
The South Dakota law the Court reviewed applied to sellers that, on an annual basis, deliver more than $100,000 of goods or services into the state, or engage in 200 or more separate transactions for delivery into the state. The Court found the substantial nexus requirement satisfied for the large national sellers involved in that case.
What does that mean for a small seller today?
The decision opened the door. It did not set one national rule. Each state decides for itself:
- The threshold: the sales amount, and in some states a transaction count, that triggers the duty.
- What counts toward it: for example, whether marketplace sales or exempt sales are included.
- How the period is measured: a calendar year, a rolling twelve months, or the prior year.
- When you must register and start collecting.
These rules differ and change, so the state’s own revenue department is the source to rely on, not a general chart.
A simple way to check your exposure
- List where you sell. Total your sales into each state for the last twelve months.
- Look up each state’s current rule on its revenue department site: the threshold, how it is measured, and the registration date.
- Note the states close to a threshold, so you can register before you cross it, not after.
- Register and collect where required, and keep a record of what you checked and when.
- Review it on a schedule, such as quarterly, because sales and rules both change.
Common mistakes
- Treating the physical-presence rule as still in force.
- Checking only the home state and missing out-of-state thresholds.
- Assuming one state’s threshold applies to every state.
- Missing the date the duty began, which can leave back tax to sort out.
How this fits with state-specific rules
Some states add their own complexity. In Colorado, for example, local sales tax can be collected by the state or by the city itself, which changes where you file. See Colorado local sales tax: state-collected vs. home-rule cities. For thresholds in 20 states with links to each state’s page, and a checker, see sales tax nexus by state. For how RazaPro supports multi-state filing, see sales tax support, or book a free consultation.
This article is general information, not legal or tax advice. Confirm each state’s rules with its revenue department.
Last checked against the court record: October 1, 2026.