Nexus is the connection between your business and a state that requires you to collect and remit sales tax there. If you have nexus in a state, you’re legally obligated to charge sales tax on taxable sales to customers in that state, file returns, and send the tax money to the state. Without nexus, you have no obligation.

There are two types of nexus. Physical nexus exists when your business has a tangible presence in a state. This includes having an office, warehouse, or retail location. It also covers having employees working in the state, storing inventory there, or regularly attending trade shows. If you’re a San Diego business operating only locally with no out-of-state activities, you have physical nexus in California but nowhere else.

Economic nexus is based on your sales volume into a state, regardless of physical presence. This became the law after the 2018 Supreme Court decision in South Dakota v. Wayfair. Most states now require you to collect sales tax once you exceed a certain threshold of sales or transactions with customers in their state. The common threshold is $100,000 in sales or 200 transactions, though it varies. Some states dropped the transaction count and only look at dollar volume.

California’s economic nexus threshold sits at $500,000 in sales, which is higher than most states. If you’re selling products online to customers nationwide, you might trigger nexus in states like Texas or Florida long before you reach California’s threshold for out-of-state sellers. Each state you cross into means another registration, another set of rates to track, and another filing schedule to manage.

Once you have nexus, you need to register for a sales tax permit in that state, collect the appropriate tax on taxable sales, and file returns on whatever schedule they require. Monthly, quarterly, or annually depends on your volume. Each state has different rules about what’s taxable, what rates apply in different jurisdictions, and when returns are due.

Ignoring nexus obligations doesn’t make them disappear. States actively look for businesses selling into their borders without collecting tax. They share data with marketplace platforms and payment processors. An audit from a state where you should have been collecting tax can result in back taxes, penalties, and interest going back several years.

If you sell products online or provide taxable services to customers in multiple states, track where your sales go and monitor when you approach nexus thresholds in each state. A small business bookkeeper can help you set up reporting that shows sales by state so you know when you’re getting close. Most e-commerce platforms can calculate tax automatically once you’re registered, but someone still needs to watch the thresholds and handle registrations.

Sales tax compliance gets complicated fast when you’re selling across state lines. What starts as one California filing can turn into a dozen state registrations once your online sales grow. The earlier you build systems to track this, the less painful it is when you cross into new states.