Sales Tax Nexus Explained: Physical Nexus vs. Economic Nexus

What is physical nexus?

Physical nexus can arise when a business has an in-state presence or conducts activities that a state treats as sufficient connection. Examples may include an office, employee, sales representative, inventory, warehouse, or certain installation or service activities. The exact rule depends on the state and the facts.

Third-party fulfillment does not automatically settle the question. Inventory stored in a marketplace or fulfillment network may create a physical-presence issue even if the seller does not own the warehouse. Sellers should review inventory locations and the legal and operational roles of their contractors.

What is economic nexus?

Economic nexus generally uses a state-defined sales threshold and, in some states, a transaction-count test. Following the U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair, states adopted rules that can require remote sellers to collect tax even when they have no physical presence there.

Thresholds are not uniform. Some states use a dollar amount alone; some have used transaction counts; and a small number require both tests to be met. The measurement period, treatment of exempt sales, and marketplace sales can also differ.

Nexus is not the same as taxability

Nexus answers whether a seller has a connection that can trigger tax duties. Taxability asks whether a particular product, service, or transaction is taxable under that state’s law. A seller may have nexus but make mostly exempt sales; alternatively, a taxable product may be sold into a state where the seller has not yet established nexus. These questions must be analyzed separately.

After nexus is established, confirm the registration requirement and effective date, configure tax collection, identify the filing frequency, and file returns even in zero-activity periods when required. Do not collect tax before confirming the appropriate registration and state requirements.

Marketplace sales and multiple channels

Marketplace facilitator laws often require the marketplace to collect and remit tax on facilitated transactions. That does not automatically eliminate every obligation for the seller. Marketplace sales may still matter for threshold calculations in some states, and direct website or wholesale sales can create separate collection and filing responsibilities.

Keep reports by channel and state. Reconcile gross sales, returns, discounts, tax collected by the marketplace, and your own direct sales so that you can explain how you calculated threshold activity.

A simple nexus review workflow

• List every state where you have people, inventory, property, contractors, events, or installation activity.
• Pull state-by-state sales and transaction reports for the applicable measurement periods.
• Check each state’s current official remote-seller guidance and marketplace rules.
• Document the date a threshold or physical-presence trigger was met.
• Register where required, configure collection, and calendar returns and payments.
• Reassess after a new marketplace, warehouse, employee, acquisition, or major sales increase.

Bottom line

A nexus review should be state-specific and refreshed as your business grows. A threshold chart is a useful starting point, not a substitute for reviewing the measurement period, marketplace treatment, and your actual activities. Apex Sales Tax supports e-commerce sellers with nexus reviews, registrations, returns, and historical compliance projects.

Sources and further reading

• Wolters Kluwer / CT Corporation, Economic nexus simplified: State sales tax guide (compiled August 1, 2026)
• U.S. Supreme Court, South Dakota v. Wayfair, Inc.

Need help with US sales-tax compliance?

Apex Sales Tax helps e-commerce sellers assess nexus, register in states, manage returns, and evaluate historical exposure and VDA options.