What nexus means

Nexus is a legal term for the connection between a business and a state that gives the state the authority to require the business to collect and remit sales tax. Without nexus, a state cannot compel your business to collect its sales tax.

If you have nexus in a state, you must: register for a sales tax permit in that state, collect sales tax from customers in that state at the applicable rate, file sales tax returns on the required schedule, and remit the collected tax to the state.

Physical nexus

Physical nexus is the traditional form — having a physical presence in a state. Activities that create physical nexus include:

• Having an office, store, or warehouse in the state
• Having employees, contractors, or sales representatives working in the state
• Storing inventory in the state (including in a third-party fulfillment center)
• Attending trade shows or making in-person sales in the state
• Temporarily using equipment in the state

Physical nexus is straightforward — if your business has a physical footprint in a state, you have nexus there. This has been true for decades.

Economic nexus — the post-Wayfair landscape

In 2018, the U.S. Supreme Court decided South Dakota v. Wayfair, Inc., overturning the prior rule that required physical presence for a sales tax obligation. The Court held that states can require remote sellers to collect sales tax based on economic activity alone — without any physical presence.

Following Wayfair, nearly every state with a sales tax enacted economic nexus laws. The most common threshold: $100,000 in sales or 200 separate transactions in the state in the prior or current calendar year. Once you exceed either threshold, you have economic nexus in that state.

New York's economic nexus threshold

New York's economic nexus threshold is higher than most states: $500,000 in New York sales and more than 100 transactions in New York in the prior four sales tax quarters. Both conditions must be met — exceeding only one does not trigger the obligation.

Marketplace facilitator rules

If you sell through a marketplace like Amazon, Etsy, or eBay, the marketplace facilitator rules may affect your obligations. Most states — including New York — require marketplace facilitators to collect and remit sales tax on behalf of their third-party sellers.

This means: if you sell exclusively through Amazon FBA or Etsy, those platforms are collecting and remitting New York sales tax on your sales. You may not need to register separately for New York sales tax for those sales. However, if you also sell directly (through your own website or in person), you may still have a separate registration obligation for your direct sales.

What to do if you have nexus in multiple states

Multi-state sales tax compliance is one of the more complex areas for growing businesses. If you have nexus in multiple states, you need to:

• Register for a sales tax permit in each state where you have nexus
• Determine which of your products or services are taxable in each state (taxability rules vary)
• Collect the correct rate based on the destination of each sale
• File returns on the required schedule in each state (monthly, quarterly, or annually depending on volume)

Sales tax automation software (Avalara, TaxJar, Vertex) can handle rate calculation and filing for multi-state sellers. For businesses with significant multi-state exposure, a CPA familiar with sales tax can help assess your nexus footprint and get you into compliance.