The Ultimate Guide to US Economic Nexus

Does your business have  customers in the United States? Okay, listen up. Economic nexus laws demand the attention of every business, especially online sellers, SaaS companies, and any other kind of e-Commerce.

Sure, US sales tax is a tricky web, but you don’t need to get caught in it! We’re here to help you understand what economic nexus means, how it works, and which states use it.

What Does “Nexus” Mean?

The term “nexus” refers to a commercial connection in the state. A nexus is something you have. So, your business either has nexus in a state, or it doesn’t have nexus in a state. When you do have nexus, that means you’re obligated to collect tax on your sales there. Each state has their own variety of sales tax nexus.

Traditionally, nexus have been determined by “sufficient physical presence,” and there are multiple ways your business could satisfy the requirement of “sufficient physical presence.” It could be through a brick-and-mortar office, a single sales representative, a high-grossing affiliate business, or even using cookies on computers located in the area.

Nowadays there are several different kinds of nexus, including some that are not based on physical presence. This guide focuses solely on the economic nexus.

Want to learn more about the various types of nexus and how they underpin the US sales tax system? Check out our Quick Guide to US Sales Tax Nexus.

What is Economic Nexus?

An economic nexus is a sales tax nexus determined by economic activity, i.e. - the amount of sales you make in a particular state. Any kind of economic activity could trigger the nexus, once your total sales reach a certain amount.

You can acquire an economic nexus regardless of where your business, employees, or warehouses are located. If your sales in that state are substantial enough, then you are liable for sales tax there. End of discussion.

But what’s substantial enough? Generally, states with economic nexus have a threshold in place. The common annual thresholds are $100,000 in sales or 200 separate sales transactions, whichever your business reaches first. However, exact numbers can vary by state, so it’s best to check each state individually.

For further information on the development of these economic nexus policies, read our blog post on the recent US Supreme Court decision of Wayfair vs. South Dakota.

Which US States have Economic Nexus?

Still confused about what economic nexus is? Watch our explainer video here: