A sufficient connection between a business and a state that requires the business to collect and remit sales tax in that jurisdiction. Can be established through physical presence or economic activity.
Understanding Nexus
Nexus is the legal concept that establishes a sufficient connection between a business and a taxing jurisdiction (usually a state) that gives that jurisdiction the authority to require the business to collect and remit sales tax. Without nexus in a state, a business has no obligation to collect that state's sales tax.
Nexus can be established through physical presence (offices, employees, warehouses, inventory storage — including FBA warehouses) or through economic activity (exceeding a state's revenue or transaction count thresholds). After the 2018 Wayfair decision, economic nexus has become the more common trigger for ecommerce sellers.
Each state sets its own nexus rules and thresholds. Some states only look at revenue ($100K is the most common threshold), while others consider both revenue and transaction count. Sellers must monitor their nexus status in all states where they sell to ensure compliance.
Why It Matters for Ecommerce
Nexus determines where you must collect sales tax. For FBA sellers, inventory stored in Amazon warehouses across multiple states can create physical nexus in those states. While marketplace facilitator laws handle Amazon sales, you still need to collect sales tax on your own website sales in states where you have nexus. Ignoring nexus obligations can result in back taxes, penalties, and interest.
Practical Example
You're based in Texas and sell on Amazon FBA. Amazon stores your inventory in warehouses in CA, NJ, GA, and IL — creating physical nexus in 5 states. Amazon handles sales tax collection on Amazon orders (marketplace facilitator). But if you also sell on Shopify, you must collect sales tax yourself on Shopify orders shipped to TX, CA, NJ, GA, and IL.
Related Terms
Sales Tax Nexus
The specific threshold (physical or economic) that triggers a business's obligation to collect sales tax in a given state. Varies by state and can include office locations, employees, or inventory storage.
EcommerceEconomic Nexus
A sales tax obligation triggered when a seller exceeds a state's revenue or transaction count threshold (e.g., $100K in sales or 200 transactions), even without physical presence in that state.
AccountingSales Tax
A consumption tax imposed by state or local governments on the sale of goods and services, collected by the seller at the point of sale and remitted to the taxing authority.
Put This Knowledge Into Practice
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