Economic nexus laws have reshaped sales tax compliance for businesses operating in multiple states. If your business exceeds a state’s sales or transaction thresholds, you’re required to collect and remit sales tax – even without a physical presence there. These thresholds vary by state, with many set at $100,000 in sales or 200 transactions annually, while others, like California and Texas, use higher limits of $500,000. Staying compliant involves tracking where your business has nexus, understanding state-specific tax rules, and managing accurate records.
Key takeaways:
- Economic Nexus Basics: Triggered by sales activity, not physical presence.
- Thresholds: Vary widely; most states use $100,000 in sales or 200 transactions.
- Recent Changes: Many states are dropping the 200-transaction rule to ease compliance.
- Compliance Tips: Use automated tools to track thresholds, classify products correctly, and maintain detailed records.
Failing to comply can lead to audits, fines, and back taxes. This article outlines practical steps for navigating these rules, from registration to leveraging technology for tax management.
State Economic Nexus Rules and Requirements
State-specific economic nexus laws vary widely, shaping how and when businesses establish nexus. For companies operating in multiple states, grasping these rules is critical since each state sets its own thresholds and requirements. These variations can significantly influence compliance obligations and tax strategies.
Standard Economic Nexus Thresholds by State
The $100,000 sales threshold is the most common benchmark across states, with many favoring sales-only thresholds. As of July 1, 2025, 24 states have adopted a $100,000 sales-only threshold, simplifying compliance for businesses.
States generally follow one of three models for thresholds:
- Sales-only thresholds: Used by 24 states, such as Alabama with a $250,000 threshold.
- Sales OR transaction thresholds: Adopted by 16 states, Puerto Rico, and Washington D.C., typically set at $100,000 or 200 transactions.
- Dual criteria thresholds: Rare but seen in states like Connecticut and New York, which require meeting both sales and transaction criteria (e.g., Connecticut: $100,000 AND 200 transactions; New York: $500,000 AND 100 transactions).
Some states have higher sales thresholds, offering relief for smaller businesses. For instance, California and Texas set their thresholds at $500,000, while Alabama and Mississippi require $250,000 in sales.
The types of sales included in these calculations also differ. Industry data shows that 42 states count exempt sales toward economic nexus, meaning even non-taxable transactions contribute to the threshold. Additionally, 32 states include marketplace facilitator sales, which can quickly push businesses over the limit.
| State | Economic Nexus Threshold | Sales Type Included | Marketplace Sales Included |
|---|---|---|---|
| Alabama | $250,000 in sales | Retail sales | Excluded for individual sellers |
| California | $500,000 in sales | Gross sales of tangible personal property | Included |
| Connecticut | $100,000 AND 200 transactions | Retail sales | Included |
| Illinois | $100,000 or 200 transactions* | Retail sales | Excluded for individual sellers |
| New York | $500,000 AND 100 transactions | Gross receipts from tangible personal property | Included |
| Texas | $500,000 in sales | Gross sales | Included |
*Illinois will remove the 200-transaction threshold effective January 1, 2026.
Recent Changes to Economic Nexus Laws
Economic nexus laws have seen simplifications recently as states address the compliance challenges faced by small businesses. Diane Yetter, President of the Sales Tax Institute, highlights one of the key burdens:
"A third of our clients with sales under $50,000 in a state in the last year were required to register solely by exceeding the 200-transaction threshold."
In response, 15 states have eliminated their 200-transaction thresholds as of July 1, 2025, with more changes expected. Recent eliminations include Alaska (effective January 1, 2025), Utah (effective July 1, 2025), and several states between 2023 and 2024, such as Indiana, North Carolina, Wyoming, South Dakota, and Louisiana. Illinois is set to follow, removing its 200-transaction threshold on January 1, 2026. After this change, only 16 states, Puerto Rico, and Washington D.C. will continue using dual thresholds.
Chad Paulson, Manager of SST Government Affairs at Avalara, explains the reasoning behind these updates:
"There’s a big initiative among the SST states to remove and update the transaction threshold. It’s a burden for small sellers who do very low-dollar transactions to collect and remit in all these states where they don’t exceed the dollar threshold."
Beyond threshold adjustments, states are also expanding tax laws to include digital services. For example, Maryland will begin taxing IT services – such as data processing, web hosting, and software publishing – at a reduced rate of 3% starting July 1, 2025. This trend reflects a growing focus on taxing digital goods and cloud-based services as states adapt to the evolving digital economy.
These changes present both opportunities and challenges. Businesses that previously triggered nexus through transaction thresholds might find relief, but deregistering requires caution due to potential trailing nexus laws. Meanwhile, companies selling digital services should prepare for increased scrutiny as states broaden their definitions of taxable goods and services.
The push for greater uniformity continues, as sales tax experts call for fewer complexities. Diane Yetter underscores the need for consistency:
"The biggest burden on small businesses and remote sellers is lack of uniformity and consistency between all the states. States should make every effort to reduce unnecessary complexity and variations of law that create avoidable burdens on sellers."
Navigating these state-specific rules is essential for managing your tax obligations effectively. Up next, we’ll dive into practical strategies for multi-state compliance.
Tax Planning Methods for Multi-State Compliance
Managing taxes for a business operating across multiple states can feel overwhelming, but a methodical approach can make a world of difference. Staying on top of nexus requirements, understanding state-specific tax rules, and keeping thorough records are key steps toward compliance. Let’s explore how to tackle each of these areas effectively.
Finding Where Your Business Has Nexus
The first step in multi-state tax compliance is pinpointing where your business has nexus. This means tracking your sales and transactions in every state where you operate. To do this, you’ll need to monitor a few critical data points for each state: total sales revenue, the number of transactions, the types of sales included in nexus calculations, and the measurement periods used.
Here’s where things get tricky: states don’t all play by the same rules. Some only count retail sales, others include all gross sales, and many now factor in marketplace facilitator sales. Even the measurement periods vary – some states look at the previous calendar year, others at the current year, and some use a rolling 12-month window.
Automated tools are a game-changer here. They can handle the heavy lifting by tracking thresholds for multiple states and sending alerts when you’re nearing nexus triggers. Plus, with many states dropping their 200-transaction thresholds, businesses often only need to monitor sales dollar amounts, which simplifies the process. Still, regular updates are essential since nexus laws and thresholds can shift frequently.
Once you’ve identified where nexus applies, the next challenge is understanding how each state taxes the specific products or services you offer.
Learning State Tax Rules for Your Products
Tax rules can vary widely depending on what you sell. Whether you’re dealing with digital goods, SaaS, or physical products, each state has its own approach, and these differences can significantly impact your tax obligations.
For SaaS and digital products, the playing field is especially uneven. A single SaaS product might be fully taxable in one state, partially taxable in another, and completely exempt elsewhere. Classification adds another layer of complexity – software can be categorized as tangible property, intangible property, or a service, depending on the state. This classification determines how it’s taxed. For example, cloud-based software could be treated as a service in one state, tangible property in another, or an intangible asset in a third, each with unique tax rates and rules.
For physical products, the rules are often more straightforward but still vary. For instance, manufacturing equipment might be tax-exempt in one state but fully taxable in another. Similarly, research and development purchases may qualify for exemptions, but the required documentation can differ between states.
Given these complexities, consulting with tax professionals is often essential. They can help ensure your products are classified correctly for each jurisdiction. As Robert Willeford Jr., Principal and State and Local Tax Practice Leader at Anders, puts it:
"Navigating the complexities around state nexus is essential to avoid over or under-collecting taxes."
Accurate product classification and a solid understanding of state rules also lay the groundwork for effective record-keeping.
Keeping Complete Tax Records
Good record-keeping isn’t just about staying compliant – it’s also your best defense during an audit. A centralized system that captures detailed transaction data, tax rates, nexus information, and exemption certificates can save you time and stress while demonstrating compliance.
Your records should include key details for every transaction: customer location, shipment origin, product or service details, applied tax rates, and any exemptions claimed. For SaaS and digital service providers, it’s also important to document where employees are using the software to account for multi-point-of-use apportionment.
Exemption certificates deserve special attention. Whether it’s for multi-point-of-use exemptions, manufacturing, research and development, or B2B resale transactions, collecting and organizing these certificates is critical. They can protect your business from liability if a customer later disputes the tax collection.
Neglecting proper record-keeping can have serious consequences. Failing to address sales tax nexus could lead to back taxes, penalties, interest, and even personal liability. In some cases, interest and penalties can add up to 25% or more of the unpaid tax. This makes accurate documentation a cost-saving necessity.
Cloud-based systems that integrate with your accounting and e-commerce platforms can simplify this process. They reduce manual errors, ensure consistency, and make your business audit-ready. While these systems require an upfront investment, they often pay off by lowering compliance costs and speeding up the resolution of tax inquiries.
As Robert L. Rojas and J. Michael Pusey highlight in their nexus planning analysis:
"If there is a nexus and the taxpayer is slow to identify it and plan for it, there is the possibility of back taxes, penalties, and interest."
In short, thorough record-keeping isn’t just about meeting legal requirements – it’s a smart way to manage risks and support your overall tax strategy.
Sales Tax Registration and Payment Process
Once you’ve determined where your business has an economic nexus, the next step is to tackle registration and payment. This involves registering with the state, setting up accurate tax collection systems, and staying alert to common compliance issues. Here’s how to handle this process effectively.
How to Register for Sales Tax in New States
Before you can start collecting sales tax, you’ll need to register with the state where your nexus exists. This registration is essentially your business’s authorization to collect and remit taxes on behalf of that state. While the process is similar across the board, each state has its own specific requirements and timelines.
To get started, gather essential details like your legal business name, address, FEIN, business entity type, and the date you exceeded the nexus threshold. Then, head to the Department of Revenue website for the state(s) where you need to register. Most states provide an online option for registration, though some might still require fax or mail submissions. Look for the sales and use tax registration forms on the site.
Deadlines for registration vary by state. Some states, like California and Ohio, require immediate registration once you exceed the threshold. Others, such as Arizona and Kentucky, allow a 30–90 day window, while states like Alabama and Florida often defer registration to the next calendar year.
Take New York as an example. Businesses must register within 30 days of meeting the $500,000 in sales and more than 100 transactions threshold. Once registered, they’re required to start collecting tax 20 days later. Registration can be completed via New York Business Express, the state’s online portal.
If your business operates in multiple states, consider using the Streamlined Sales Tax (SST) Registration System. This tool simplifies the process by enabling you to register in several participating states at once.
Collecting and Paying Sales Taxes
After registering, it’s time to set up systems for calculating accurate tax rates, collecting the correct amounts, and remitting payments on time. Tax rates can vary widely – not just between states but also between cities, counties, and special districts.
The key is determining the correct tax rate based on the customer’s location. For physical goods, this is usually the shipping address. For digital products or SaaS services, it can be more complicated, as the tax rate might depend on where the customer accesses the service.
Many businesses turn to automated tax calculation tools that integrate with e-commerce platforms or accounting software. These tools can calculate the right rate based on the customer’s location and product type, while also accounting for rate changes throughout the year.
Taxes are typically collected at the point of sale. For subscription services or recurring billing, ensure your system applies the correct rate for each billing cycle, especially if customers move or tax rates change.
Payment schedules depend on your sales volume and the state’s requirements. Some states require monthly filings, others quarterly, and some annually. Once the reporting period ends, payment is usually due shortly after. Electronic filing and payment options are widely available, making the process more efficient.
Common Compliance Mistakes to Avoid
Even with solid systems in place, there are common mistakes that can lead to penalties, interest charges, or audits. Here are some pitfalls to watch out for:
- Underestimating Past Tax Liability: Some businesses mistakenly think they only need to collect tax moving forward. However, many states require taxes on sales made after you exceeded the nexus threshold – even if you didn’t collect tax at the time.
- Incorrect Product Classification: Taxability varies by state. A product might be fully taxable in one state, partially taxable in another, or exempt elsewhere. SaaS products, for instance, can be classified as tangible property, intangible property, or a service depending on state rules.
- Filing in the Wrong State: Taxes are generally owed in the state where the product is delivered or the service is used – not necessarily where your business is located. This can get tricky with digital products, especially when customers have multiple addresses.
- Missing Exemption Certificates: If a customer claims an exemption for resale, manufacturing, or other reasons, you must collect and keep the proper exemption certificates. Without these, your business could be held responsible for uncollected taxes.
- Overlooking Marketplace Facilitator Rules: If you sell through online platforms, know that some states require the marketplace to collect tax on your behalf. It’s important to understand how these sales impact your nexus calculations.
- Late Filing and Payment: Even if no tax is owed for a period, failing to file a return on time can result in penalties.
BusinessAnywhere’s compliance support services can help you manage these challenges. With expert guidance on multi-state tax obligations and automated tools to monitor nexus thresholds, you can stay compliant and avoid costly mistakes.
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Using Technology for Economic Nexus Management
Managing multi-state tax obligations can feel overwhelming, but technology has made it much easier to navigate. By automating processes and improving accuracy, modern tools simplify the complexities of staying compliant across multiple states.
Automated Nexus Tracking and Compliance Tools
Today’s platforms handle the heavy lifting when it comes to tracking economic nexus. These tools monitor sales activity across all channels, keeping tabs on your progress toward economic nexus thresholds in every state.
Multi-Channel Tracking is a must-have in today’s business world, where sales happen across various platforms. Whether it’s direct-to-consumer websites, marketplaces like Amazon or eBay, wholesale orders, or even social media sales, advanced tracking tools integrate seamlessly with your existing systems. They pull transaction data automatically, cutting down on manual entry mistakes.
Real-Time Threshold Monitoring is another game-changer. These tools alert you the moment you’re close to – or have exceeded – state thresholds. Many platforms offer dashboards that show exactly where you stand, giving you clear visibility into your compliance status.
"I think one of the things that I’ve heard from customers is that the lack of transparency creates anxiety and uneasiness. Having the nexus tracker in the dashboard is a visual way of giving businesses visibility with where they stand with each state." – Clete Werts, COO of Zamp
Automated Tax Calculations handle the complexities of varying tax rates across thousands of jurisdictions. These systems maintain up-to-date databases of tax laws, lookup tools, and legislative changes. They also apply state-specific rules automatically, accounting for nuances like depreciation, R&D deductions, or exempt income.
Automation not only reduces the risk of errors but also prepares you for audits. These tools can identify reporting gaps across jurisdictions before tax authorities do, helping you avoid penalties or interest from missed filings or incorrect returns.
How BusinessAnywhere Helps with Compliance
BusinessAnywhere takes automation a step further by combining it with essential compliance services. Their platform supports businesses managing economic nexus with tools and services designed to simplify the process.
Virtual Mailbox Services ensure you never miss important tax-related correspondence. With unlimited mail scanning, BusinessAnywhere uploads tax notices, audit requests, and compliance updates directly to your dashboard, complete with alerts for required actions.
Registered Agent Services provide the legal presence you need in states where you’ve established nexus. These services help you stay compliant with filing deadlines and changing requirements while maintaining your privacy.
Business Registration and Maintenance services make it easier to expand into new states. When your automated tracking tools flag new nexus obligations, BusinessAnywhere helps you register and meet compliance requirements in those states.
Bookkeeping and Accounting Services integrate seamlessly with your compliance efforts. Accurate financial records ensure your transaction data is properly categorized and ready for automated tax systems.
All of these services are housed in an all-in-one dashboard, giving you 24/7 access to manage your multi-state operations from anywhere.
Regular Nexus Reviews and Updates
While automation handles day-to-day tracking, regular reviews are essential for staying compliant over the long term. States frequently adjust their economic nexus thresholds and enforcement strategies, such as eliminating the 200-transaction threshold. Tax authorities are also using more advanced systems to identify non-compliant businesses.
Monthly Sales Tracking should be automated through your platform, but it’s still important to review sales by state periodically. This helps you reassess your nexus exposure and ensures timely registration where needed.
Annual Nexus Reviews provide an opportunity to evaluate your overall compliance strategy. While technology can flag potential issues, human expertise is critical for interpreting complex tax rules and applying them to your specific circumstances.
Regular updates ensure your tools stay aligned with current tax laws. Although most platforms update automatically, verifying these updates for accuracy in your situation is a smart move.
Performance Evaluation helps you measure the effectiveness of your technology investments. Consider factors like the number of states where you have nexus, the types of taxes you manage, reporting challenges, and the potential return on investment.
State tax authorities are becoming more sophisticated, cross-referencing revenue streams and tax license registrations to identify businesses that aren’t compliant.
"These small businesses, they’re just trying to make it. They’re working their tail ends off. They have supply chain challenges, branding, shipping, so many things that they’re worried about. And then next thing you know, they’re four or five, six states exposed and like, ‘oh my gosh, I didn’t even know.’" – Clete Werts, COO of Zamp
Combining automated tools with regular reviews creates a strong compliance framework that can grow alongside your business.
Key Points for Economic Nexus Compliance
Navigating economic nexus requirements across states calls for careful planning, smart tools, and staying informed about ever-changing rules. Here’s a breakdown of the key steps to help you stay compliant.
Start tax planning as soon as your business begins selling in multiple states. Keep a close eye on your sales figures against state-specific thresholds. For example, many states set the bar at $100,000 in sales, but some, like New York, have higher thresholds – $500,000 and 100 transactions. Register with the appropriate tax authorities before you exceed these limits.
Leverage automated nexus tracking tools to make this process easier. These tools can monitor your sales across all channels, notify you when you’re nearing a threshold, and even handle the complex tax calculations required for different jurisdictions.
Stay updated on state regulations, as they can change frequently. For instance, Alaska removed its 200-transaction threshold starting January 1, 2025. Subscribing to updates from tax authorities and using compliance software that incorporates legislative changes can save you from falling behind.
Keep detailed, cloud-based records, including transaction logs and tax-related correspondence. These records not only help with nexus determinations but also make audits far less stressful.
Conduct regular reviews of your nexus status – quarterly or annually – to ensure your compliance strategy keeps up with your business growth and any new rule changes. These reviews can help you spot potential nexus triggers early, avoiding unnecessary complications.
For businesses operating in multiple states, treating compliance as an ongoing priority is essential. Investing in the right tools, maintaining accurate records, and staying proactive can help you avoid steep penalties. Services like BusinessAnywhere can simplify this process by centralizing compliance tasks – everything from registration to registered agent services – in one user-friendly dashboard.
FAQs
How can small businesses manage compliance with economic nexus laws across different states on a limited budget?
Small businesses can handle economic nexus laws more efficiently by leveraging automated tax compliance tools. These tools monitor state-specific thresholds and alert you when it’s time to register, cutting down on manual work and helping maintain accuracy – even if your resources are tight.
It’s also crucial to stay updated on the rules in each state. Make it a habit to check trusted tax resources and guides regularly to stay ahead of any changes. If things start to feel overwhelming, reaching out to a tax professional can help you sidestep expensive errors and simplify the entire compliance process. By taking these steps, you can save time and make managing multi-state tax requirements far less daunting.
What are the risks of not maintaining accurate sales and transaction records across multiple states?
Failing to keep precise records of sales and transactions across state lines can put your business at risk. You might face intense audit scrutiny, steep penalties, fines, or even owe back taxes to state tax agencies. Beyond that, sloppy record-keeping can spiral into legal troubles, potential restrictions on your business, and financial setbacks that could throw your operations off track.
Maintaining accurate records isn’t just about staying organized – it’s crucial for complying with economic nexus rules. This helps your business steer clear of unnecessary liabilities and ensures it remains in good standing in every state where you operate.
How can automated tools simplify managing multi-state sales tax compliance?
Managing multi-state sales tax compliance becomes far less daunting with the help of automated tools. These tools keep track of fluctuating tax rates and economic nexus thresholds in real-time, ensuring businesses stay aligned with ever-changing regulations across different states – without the hassle of manual monitoring.
On top of that, automated tools take care of essential tasks like calculating, collecting, and remitting sales taxes. By streamlining these processes, they minimize the risk of errors and help ensure compliance is always on point. For businesses navigating multiple jurisdictions, this not only saves a ton of time but also helps avoid steep penalties tied to non-compliance.
