Tax Nexus
A connection between a business and a state that creates a tax obligation.
Tax nexus is the minimum connection between a business and a state that triggers tax obligations. Physical nexus arises from having offices, employees, or inventory in a state. Economic nexus (post-Wayfair) arises from exceeding sales thresholds—typically $100,000 in sales or 200 transactions. Nexus determines where you must collect sales tax and file income tax returns.
Example
An online retailer based in Oregon ships $150,000 in products to California customers, creating economic nexus and requiring the retailer to collect and remit California sales tax.
Why It Matters for Your Business
Ignoring nexus obligations in states where you sell can lead to back taxes, penalties, and interest going back years, so monitoring thresholds is essential for growing businesses.
Practical Tips
- •Track sales by state monthly to identify when you're approaching economic nexus thresholds.
- •Use automated tax compliance software to manage multi-state registrations and filings.
Related Terms
More Taxes Terms
Adjusted Gross Income
Gross income minus specific deductions like retirement contributions.
Tax Audit
An examination of tax returns by the IRS to verify accuracy.
Capital Gains
Profit from selling an asset for more than its purchase price.
Capital Loss
Loss from selling an asset for less than its purchase price.
Tax Deduction
An expense that reduces taxable income.
Related Financial Guides & Resources
Automate Your Finances with AI
FiscalInsights uses AI to automate bookkeeping, track expenses, and forecast cash flow — so you can focus on your business.
Start Free Trial