Sales Tax Nexus in 2026: Economic Nexus Rules & Multi-State Requirements

 

If your business sells into more than one state, sales tax probably deserves a closer look.

Since the decision in South Dakota v. Wayfair, Inc. by the U.S. Supreme Court, states no longer require a physical office or warehouse to establish a sales tax obligation. In many cases, revenue alone is sufficient.

From Physical Presence to Economic Nexus

Historically, businesses were only required to collect sales tax in states where they had a physical presence — such as an office, warehouse, or employees.

 

That position changed following the 2018 U.S. Supreme Court decision in South Dakota v. Wayfair, Inc., which allowed states to impose sales tax obligations based solely on economic activity.

 

This framework is commonly referred to as economic nexus.

 

For e-commerce businesses, SaaS providers, marketplace sellers, and service-based companies with out-of-state customers, this has materially changed how multi-state compliance needs to be approached.

 

The practical challenge is no longer whether nexus can exist.
It is whether the business has already exceeded a state threshold without identifying the exposure.

What Is Sales Tax Nexus?

Sales tax nexus refers to the level of connection between a business and a state that triggers a legal obligation to register, collect, and remit sales tax.

Once nexus is established, businesses are generally required to:

• Register for a sales tax permit
• Collect tax on taxable transactions
• File periodic returns (monthly, quarterly, or annually)
• Remit the tax collected

This is not an elective position. Once the applicable threshold is met, the compliance obligation follows.

Types of Sales Tax Nexus: Physical and Economic

There are two primary ways in which nexus is typically created.

Physical Nexus

Physical nexus arises when a business has a tangible presence within a state. This may include:

• Employees working remotely from the state
• Independent contractors performing services
• Inventory stored in warehouses or fulfilment centres
• Office space, including shared or temporary locations
• Third parties acting on behalf of the business

In practice, many businesses create physical nexus unintentionally — particularly where inventory is distributed across multiple states through fulfilment networks.

Economic Nexus

Economic nexus has expanded significantly following Wayfair and is now the primary trigger for most remote sellers.

Under these rules, businesses are required to register once sales into a state exceed a specified revenue or transaction threshold within a defined measurement period.

While thresholds vary by jurisdiction, the underlying principle is consistent: once economic activity exceeds the prescribed limit, registration is expected — even in the absence of any physical presence.

State-Wise Economic Nexus Thresholds (2026 Snapshot)

• California: $500,000 in annual sales (revenue-only threshold)
• Texas: $500,000 in annual sales (revenue-only threshold)
• New York: $500,000 in sales and 100 transactions
• Florida: $100,000 in annual sales
• Illinois: $100,000 in sales or 200 transactions
• Most states: $100,000 in annual sales, with a clear shift toward revenue-only thresholds

Key Considerations

• Profitability is not relevant for nexus determination
• Customer location is the determining factor
• Marketplace collection does not always eliminate filing obligations
• Thresholds must be reviewed on a state-by-state basis

For growing businesses, this is typically where exposure begins to develop.

How Nexus Rules Look in 2026

By 2026, virtually every U.S. state that imposes sales tax has implemented an economic nexus framework. While thresholds differ, several consistent trends have emerged:

• Shift toward revenue-only thresholds: Most states now apply a $100,000 annual sales threshold
• Higher thresholds in larger states: Jurisdictions such as California and Texas continue to apply higher limits (e.g., $500,000)
• Reduced reliance on transaction counts: The traditional “200-transaction” test is being phased out in favour of revenue-based criteria

It is also important to note that states differ in how thresholds are measured — whether based on the current year, prior year, or a rolling 12-month period. These variations can impact the timing of registration and should be reviewed carefully.

How Businesses Commonly Trigger Nexus

In practice, nexus is most often triggered during periods of expansion rather than at the initial stage of operations.

Common scenarios include:

• Expansion of e-commerce sales across multiple states
• SaaS businesses onboarding customers in new jurisdictions
• Inventory being held in multiple fulfilment centres
• Hiring remote employees in different states
• Increased marketing activity leading to concentrated state-level revenue

Because thresholds apply independently in each state, businesses may trigger nexus in multiple jurisdictions within the same period.

Major Exceptions for 2026

Although economic nexus rules are widely applicable, certain exceptions continue to apply:

• Marketplace facilitator sales: In many cases, marketplaces collect and remit tax on behalf of sellers; however, separate filing or registration requirements may still apply
• Wholesale transactions: Sales for resale are generally exempt where valid resale documentation is maintained
• Non-taxable supplies: Certain services or product categories may not be taxable depending on state law
• Occasional sales: Some jurisdictions provide relief where transactions are infrequent or not part of regular business activity
• Industry-specific exclusions: Certain sectors may be subject to specific exemptions or alternative rules

What Happens If You Do Not Register?

Where nexus exists but no registration has been completed, states may impose:

• Liability for uncollected sales tax
• Interest on outstanding amounts
• Civil penalties
• Retroactive filing obligations

Sales tax enforcement has become increasingly data-driven, with states relying on marketplace data, third-party reporting, and analytics to identify non-compliant businesses.

In many cases, exposure accumulates over time and only becomes apparent when a detailed review is undertaken.

Sales Tax vs Use Tax: Additional Risk Consideration

In addition to sales tax, businesses should be aware of use tax implications when evaluating nexus exposure.

Use tax applies in situations where sales tax is not collected at the time of a transaction. In such cases, the responsibility to report and pay tax technically falls on the customer in the state where the goods or services are used.

However, once a business establishes sales tax nexus in a state, the obligation shifts to the seller. If sales tax is not collected despite nexus being triggered, state authorities may hold the seller liable for the uncollected tax.

Businesses are expected to proactively identify nexus thresholds and ensure timely registration and tax collection.

How to Review Your Sales Tax Exposure

A structured review typically involves:

• Mapping revenue by customer location
• Tracking transaction volumes by state
• Identifying employee and contractor presence
• Confirming inventory storage locations
• Assessing taxability of products and services by jurisdiction

For businesses operating across multiple states, this should be treated as an ongoing compliance process rather than a one-time exercise. In many cases, this also ties into broader US tax return considerations to ensure that expansion remains aligned with tax efficiency and reporting requirements.

 

Frequently Asked Questions

What Is the Economic Nexus Threshold in 2026?

Economic nexus thresholds vary by state and may be based on revenue, transaction volume, or a combination of both. Most states are now aligned around a $100,000 revenue threshold, with certain larger states maintaining higher limits. Each state’s rules should be reviewed individually.

 

Do I Need to Collect Sales Tax in Other States If I Sell Online?

Potentially. If your activity exceeds a state’s economic nexus threshold, you may be required to register and collect sales tax in that jurisdiction, even without a physical presence.

 

Does Hiring a Remote Employee Create Nexus?

Yes, in many cases. A remote employee can create physical nexus, which may trigger both sales tax and payroll-related obligations.

 

If a Marketplace Collects Tax for Me, Am I Fully Covered?

Not necessarily. While marketplace facilitator rules may shift the responsibility for tax collection, separate compliance obligations — including registration or reporting — may still apply depending on the nature of your sales.

 

At AKM Global, we assist businesses in managing multi-state sales tax compliance, including nexus assessments, registration requirements, and ongoing filing obligations. Our team works closely with organisations to evaluate exposure, streamline compliance processes, and ensure that business expansion across states does not result in unintended tax risks. For more information, please feel free to write to us at info@akmglobal.in.