Economic nexus determines when an online business must register, collect, and remit sales tax in a state based on its sales activity there.
You can establish economic nexus even without a physical location, employees, or inventory in a state. Each state sets its own economic nexus threshold and rules for determining which sales count.
For ecommerce businesses selling across multiple states, tracking these rules is essential. Crossing a state’s economic nexus threshold can create sales tax registration and collection obligations.What is Economic Nexus?
Economic nexus is a sales tax connection created when a business reaches a state’s required level of economic activity. States generally measure economic activity using sales revenue, transaction volume, or both. The specific threshold varies by state.Economic nexus became widely adopted after the U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc. The decision allowed states to require certain out-of-state sellers to collect sales tax based on their economic activity in the state, even without a physical presence.
Today, most states with a sales tax have economic nexus rules for remote sellers.
Economic Nexus vs. Physical Nexus
Economic nexus is based primarily on economic activity in a state. Physical nexus is based on a business’s physical connection to the state.Physical nexus can arise from activities such as:- Maintaining an office, store, or warehouse
- Storing inventory in the state
- Having employees or representatives in the state
- Using certain third-party fulfillment arrangements
- Conducting other activities that create a physical presence
A business can establish sales tax nexus through physical presence, economic activity, or both.
How Does Economic Nexus Work?
States set their own economic nexus thresholds. A threshold may be based on:- A dollar amount of sales
- A number of transactions
- A combination of sales and transactions
What Sales Count Toward Economic Nexus?
States do not all use the same definition of sales when measuring economic nexus.Depending on the state, the calculation may include:- Gross sales
- Taxable sales
- Retail sales
- Gross receipts
- Sales of tangible personal property
- Certain marketplace sales
- Other specified receipts
Economic Nexus Measurement Period
States also use different measurement periods.Common approaches include:- Previous calendar year
- Current or previous calendar year
- Previous 12 months
- A rolling 12-month period
- Four preceding sales tax quarters
- A state-specific period
Economic Nexus Thresholds by State in 2026
The following table provides a state-by-state overview of economic nexus rules for 2026.Because states can change their thresholds and calculation rules, businesses should verify the applicable state guidance before registering or making collection decisions.
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How To Know If Your Business Has Economic Nexus
To determine whether your business has economic nexus, review your sales activity in each state where you have customers.Use this process:- Identify your sales by state: Break down your sales based on the destination state.
- Review the state’s measurement period: Determine whether the state looks at the previous calendar year, current year, previous 12 months, or another period.
- Check the applicable threshold: Compare your qualifying sales and transaction volume with the state’s threshold.
- Review marketplace sales: Determine whether marketplace sales must be included in the state’s economic nexus calculation.
- Determine your obligations: If you meet the applicable threshold, review the state’s requirements for registration, collection, filing, and remittance.
Do Marketplace Sales Count Toward Economic Nexus?
Marketplace sales can count toward economic nexus even when the marketplace facilitator collects and remits the sales tax.However, states treat marketplace sales differently.Some states include marketplace sales when determining whether a seller has exceeded its economic nexus threshold. Other states exclude certain marketplace sales or treat them differently.This creates an important distinction:Marketplace collection responsibility and economic nexus are not always the same thing.A marketplace may collect and remit sales tax on a transaction while the seller’s marketplace sales still contribute to its economic nexus calculation.For this reason, marketplace sellers should track marketplace sales separately from direct website sales and review the rules for each state.Do I Need to Collect Sales Tax If I Sell Online in Different States?
Not automatically.Selling to customers in another state does not by itself mean you must collect that state’s sales tax. You generally need a sales tax obligation in that state when your business has a taxable product or service and has established sales tax nexus there.Sales tax nexus can arise through physical presence or economic activity.For remote ecommerce sellers, economic nexus is often the key consideration. If your qualifying sales or transactions exceed a state’s threshold, you may need to register, collect sales tax, and file returns under that state’s rules.However, marketplace facilitator laws can shift the responsibility for collecting and remitting tax on marketplace transactions to the platform.That does not necessarily eliminate the need to evaluate your nexus.Economic Nexus for Shopify Stores
Shopify stores can create economic nexus when their sales into a state exceed that state’s threshold.A Shopify merchant selling nationwide should monitor sales by state rather than assuming that Shopify’s tax settings determine whether the business has nexus.A typical monitoring process includes:- Tracking sales by destination state.
- Identifying states where sales are approaching the nexus threshold.
- Reviewing what each state includes in its calculation.
- Checking whether marketplace sales are included.
- Registering when required.
- Configuring sales tax collection after registration.
- File and remit collected tax according to the state’s schedule.
Economic Nexus for Marketplace Sellers
Marketplace sellers can establish economic nexus based on their sales activity even when the marketplace handles sales tax collection.For example, a seller may generate enough marketplace sales to exceed a state’s economic nexus threshold. The marketplace may then collect and remit tax on those transactions, but the seller may still need to determine whether registration or other reporting requirements apply.If the seller also operates its own Shopify store, it must consider both sales channels when monitoring nexus.Economic Nexus for Different Business Models
Economic nexus also affects businesses selling SaaS, software, digital products, and other services.However, reaching an economic nexus threshold does not automatically mean that every sale is taxable.States differ in how they tax software, SaaS, digital products, and services.A business should therefore evaluate two separate questions:- Has the business established nexus in the state?
- Are its products or services taxable in that state?
What Happens After You Establish Economic Nexus?
Crossing an economic nexus threshold can create several compliance obligations.Depending on the state, you may need to:- Register for a sales tax permit.
- Begin collecting sales tax from customers.
- Configure your ecommerce platform.
- File sales tax returns.
- Remit collected tax.
- Maintain sales tax records.
- Continue monitoring your nexus in future periods.
What to Do If You Fall Below the Threshold?
Some states have removed their transaction-count thresholds. This means a business that previously established nexus based only on transaction volume may no longer meet the state’s current threshold.However, falling below a threshold does not automatically cancel an existing registration or filing obligation.If you believe you no longer have nexus, check the state’s rules for closing or maintaining the account before stopping collection or filing.Common Economic Nexus Mistakes
Assuming every state uses a $100,000 threshold
Many states use $100,000, but some use higher thresholds. California, New York, and Texas, for example, use $500,000 sales thresholds under their current rules. Alabama and Mississippi use $250,000 thresholds.Using the same measurement period for every state
States use different measurement periods. A business can therefore cross a threshold in one state while remaining below the threshold in another.Ignoring marketplace sales
Marketplace sales may count toward economic nexus even when the marketplace collects the tax.Assuming marketplace collection eliminates nexus
Collection responsibility and nexus are separate questions.Waiting until the end of the year to check nexus
Some states use current-year sales or rolling periods. Waiting until year-end can cause a business to miss an obligation.Treating nexus and taxability as the same thing
Establishing nexus does not automatically mean every product or service is taxable.Frequently Asked Questions
1. How do economic nexus laws apply to me if I run a seasonal business?+
Seasonal businesses are not exempt from these laws. Accurately calculate your sales and transactions during your operating months to comply with the respective state’s thresholds and criteria.
2. How does economic nexus relate to other forms, like click-through or affiliate nexus?+
Economic nexus focuses on sales and transaction thresholds, while click-through and affiliate nexus focus on relationships with affiliates in a state. Therefore, depending on your business model, you might need to comply with one or more nexus regulations.
3. What actions should I take if I realize my business has unknowingly established an economic nexus in a state?+
Suppose you find out you’ve unknowingly established an economic nexus. In that case, consult a tax expert promptly to understand the steps needed for compliance and to correct any past discrepancies.
Navigate Your State’s Economic Nexus With TaxHero
Monitoring economic nexus becomes more difficult as your business expands into more states and sales channels. TaxHero helps ecommerce businesses identify where they may have sales tax nexus and manage their sales tax compliance. A nexus analysis can help you understand where your business may have crossed a state’s economic nexus threshold and where further review may be needed.Schedule a call with our CEO to learn how the platform can help manage multi-state sales tax compliance.