Published on: Aug 06, 2026 by Molly Taylor - CPA, MT
Updated on: August 6, 2026
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As businesses expand into new markets, hire remote employees, or increase online sales, their state tax responsibilities may change. Even without opening a physical office, a company may create nexus and become responsible for registering, filing returns, collecting taxes, or paying taxes in another state.
Because every state applies its own rules, understanding nexus can quickly become complicated.
We spoke with Molly Taylor, CPA, MT, Senior Manager at SVA Certified Public Accountants, about common nexus triggers, the risks of missed obligations, and how businesses can manage multistate tax responsibilities.
Molly specializes in individual and corporate taxation, with an emphasis on federal and multistate tax issues. She also assists clients with tax planning, state notices, tax research, and financial record keeping.
State nexus is the threshold that determines whether a state can assert its taxing authority over a business. When a company has nexus, it may need to register with the state, file returns, collect taxes from customers, or pay state taxes.
The specific responsibility depends on the type of tax involved, the company’s activities, and the rules of the state.
Physical nexus results from having a physical or tangible presence in a state. This includes employees, an office, inventory, equipment, or other property.
Economic nexus is based on the level of business activity within a state, even when the company has no physical location there. States may look at total sales, the number of transactions, or both.
Economic nexus thresholds vary widely. A sales amount that creates an obligation in one state may be below the filing threshold in another.
Nexus can affect several different tax categories, including income taxes, franchise, gross receipts or business activity taxes, and sales and use taxes.
A company can have nexus in a state for one type of tax but not another. For example, a business could have a sales tax filing obligation in a state without having an income tax requirement. Each category needs to be evaluated separately.
Quite frequently, yes. An employee working in another state usually creates a physical presence for the employer and may lead to income tax, franchise tax, sales tax, and mandatory payroll withholding.
There may be limited exceptions. Public Law 86-272 can protect certain out-of-state businesses from state income taxes when their in-state activities are limited to soliciting orders for tangible personal property and those orders are approved and fulfilled from outside the state.
The protection of P.L. 86-272 is narrow and only applies to income taxes. It cannot be used for protection against sales tax or other types of state obligations.
Yes. Online sales can create economic nexus once a business exceeds a state’s sales or transaction threshold.
This means a company can develop nexus without having employees, offices, or property in the state. Ecommerce businesses should track sales by state because increased activity may create new filing requirements over time.
A variety of business activities may create nexus, including:
Businesses using third-party fulfillment providers should pay attention to where their inventory is stored. Inventory held in another state may create physical nexus, even if the company didn't select the specific warehouse.
A nexus review is a good starting point. The business should examine its activities in each state, including:
| People | Where are employees, contractors, and sales representatives located? |
| Property | Where does the company own, lease, use, or store offices, inventory, and equipment? |
| Activities | Where does the business attend trade shows, deliver products, or perform services? |
| Sales | How much revenue and how many transactions does the business have in each state? |
The company can then compare those activities with each state’s nexus rules. State department of revenue websites often provide guidance, but a tax professional can help research thresholds and interpret how the rules apply.
The business must first confirm that it has sales tax nexus and determine whether the products or services it sells are taxable in that state.
If both conditions apply, the company needs to register for a sales or use tax permit before collecting tax. It must then charge the appropriate rate, file returns, and remit the tax according to the state’s schedule.
Most often, the business is held responsible for the uncollected tax, even if it never charged the customer. Also, states usually impose penalties and interest for failing to register, file, collect, or remit the tax.
If a required return was never filed, many states have no statute of limitations. This can allow the state to review multiple prior years and assess unpaid taxes, penalties, and interest, going all the way back to the first year the company had nexus and was required to file.
A business that discovers a past obligation may be able to use a state’s voluntary disclosure program. This can allow the business to register and pay back taxes without facing significant penalties. States are often more willing to work with companies that come forward before receiving a notice or audit request.
A CPA can help identify where nexus may exist, research state-specific rules, calculate prior exposure, assist with state filings or voluntary disclosures, and respond to state notices or audits.
A tax professional can also help establish a process for monitoring employees, property, sales, and other activities as the business grows.
Regular nexus reviews are helpful when a company hires someone in a new state, opens a location, stores inventory elsewhere, or experiences significant sales growth. Keeping documentation of nexus decisions can also help support the company’s position if a state raises questions later.
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Molly is a Senior Manager with SVA and specializes in individual and corporate taxation with an emphasis on federal and multistate tax issues. In addition to tax preparation services, she works closely with clients throughout the year advising on tax planning opportunities and strategies.
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