Economic nexus simplified: State sales tax guide

Frequently asked questions for economic nexus

What is economic nexus?

Economic nexus is a type of sales tax nexus that requires a business to collect and remit sales tax in a state, even without a physical presence there. Traditionally, states would only require retailers with a physical presence in that state to collect sales tax.

Economic nexus is typically triggered when a business's sales activities in a state reach certain thresholds, which are usually a specific dollar amount and/or a number of transactions. Once a business meets the economic threshold set by the state, it must collect sales tax from customers and remit it to the state.

Keep in mind that these thresholds vary by state

Following the Wayfair ruling by the Supreme Court, states have begun to enforce economic nexus rules more broadly on sellers, such as internet retailers, by creating new registration and collection tools for all registered sellers.

What is a remote seller?

A remote seller is generally defined as a seller who does not have a physical presence in a state, sells taxable products or services for delivery into that state, and meets the state's criteria or economic threshold for a remote seller.

Depending on the state, a remote seller may need to register with a state’s department of revenue, collect and remit sales tax, and obtain a business license.

Is a marketplace facilitator considered to be a remote seller?

A marketplace facilitator is a company or legal entity that runs a website or service that allows customers to purchase items or services from various sellers.

Marketplace facilitator laws differ by state in how they are applied and defined. States may have distinct regulations for marketplace facilitators and remote sellers.

What is click-through nexus?

Click-through nexus laws say that an out-of-state seller without a physical presence in a state can be considered to have sales/use tax nexus if they have a local affiliate and meet certain other requirements. This happens when a person or business in the state refers or directs customers to the out-of-state online seller's business for a commission or other payment. In simpler terms, if a local business guides a customer through links or a website to buy from an out-of-state online business, it creates a click-through nexus.