Where Do You Owe Tax? Understanding Nexus in a Post-Wayfair World

In today’s digital economy, the question of where a business owes tax is more complex than ever. From e-commerce retailers and remote service providers to multi-state corporations and online marketplaces, nearly every business must grapple with nexus — the legal standard that determines a company’s tax obligations to a given state.

The 2018 Supreme Court decision in South Dakota v. Wayfair, Inc. changed the game, allowing states to require businesses with no physical presence to collect and remit sales tax. Since then, states have rapidly expanded the definition of nexus, leading to a patchwork of rules that trip up even well-meaning business owners. This article breaks down the major types of nexus and the activities that create them.

What Is Nexus?

Nexus is the minimum connection a business must have with a state before the state can impose tax obligations — whether sales tax, income tax, or franchise tax. While the details vary by tax type and jurisdiction, one thing is clear: if your business meets a nexus threshold, you may have a legal obligation to register, collect, file, and remit tax in that state.

Physical Nexus

Physical nexus is the traditional standard: if your business has a tangible presence in a state, that’s enough for the state to impose tax obligations. Common triggers include:

• An office or storefront

• Employees working in the state (even remotely)

• Inventory stored in-state (including third-party warehouses like Amazon FBA)

• Attendance at trade shows

• Company vehicles used for delivery or service

Physical presence is still relevant today — especially for income and franchise taxes, which in many states still rely on physical presence as a core standard.

Economic Nexus (The Wayfair Standard)

In Wayfair, the Supreme Court upheld South Dakota’s law requiring out-of-state sellers to collect sales tax once they met economic thresholds — typically:

• $100,000 in annual sales or

• 200 separate transactions delivered into the state.

Post-Wayfair, nearly every state with a sales tax has adopted a version of economic nexus. Some states have eliminated the transaction count and rely solely on revenue thresholds, while others vary in amount.

What this means: you don’t need a physical presence to owe sales tax. Simply selling into the state can trigger nexus once you cross the economic line.

Economic nexus also has implications for income and franchise tax, with some states arguing that large volumes of sales alone justify taxing your business profits.

Click-Through Nexus

Click-through nexus laws establish tax obligations when an out-of-state seller has a marketing relationship with an in-state entity — typically an affiliate website that sends customers through referral links.

For example, if a Kentucky blogger earns commissions by sending traffic to a New York-based retailer’s site, the retailer may trigger nexus in Kentucky under click-through rules — particularly if referral sales exceed a state-specified threshold.

While these laws pre-date Wayfair and have become less prominent in the sales tax world, they remain active in many states’ statutes.

Affiliate Nexus

Affiliate nexus arises when an in-state business is affiliated with or controlled by an out-of-state entity, or when two entities work together to establish market presence in the state.

Examples include:

• A parent company owning a subsidiary with property or employees in the state

• Related companies sharing branding or customer support

• Third-party fulfillment services acting as de facto branches

States often use affiliate nexus rules to reach into complex corporate structures, arguing that related-party activity creates a sufficient presence for taxation.

Marketplace Facilitator Rules

While not a type of nexus per se, marketplace facilitator laws shift tax collection obligations from individual sellers to platforms like Amazon, Etsy, and eBay.

If you sell through one of these platforms, the marketplace is responsible for collecting and remitting sales tax on your behalf — but you may still need to register in states where you sell through your own website, use independent fulfillment centers, or provide services.

Don’t assume you’re covered just because Amazon collects tax. You might still have nexus in other ways.

Staying Compliant in a Post-Wayfair World

Nexus can creep up unexpectedly — especially in remote work environments or online business models. Here are some best practices:

• Monitor sales volume and transaction counts in every state.

• Track employee locations, especially with remote or hybrid workers.

• Review affiliate or marketing relationships that may trigger click-through or affiliate nexus.

• Evaluate fulfillment partners and inventory locations.

• Consider sales tax software or a nexus study to identify exposure.

• If you discover past exposure, some states offer voluntary disclosure agreements (VDAs) to reduce penalties for late compliance.

Conclusion

Nexus is no longer just about where you hang your shingle — it’s about where your customers are, how your business operates, and whether your activities cross a threshold set by each state.

As states evolve, staying on top of nexus rules is essential to managing multi-state tax compliance and avoiding surprise liabilities.

This article is part of our Behind The Return series on multistate tax issues. Up next: “Crossing the Line: When You Must Register in Another State.”