Sales Tax Nexus Triggers for Startups: What Creates an Obligation and What Does Not

Sales tax nexus is created by either economic activity above a state's threshold or physical presence in the state. Before 2018, only physical presence counted. The Supreme Court's decision in South Dakota v. Wayfair (2018) allowed states to require collection from remote sellers based on sales volume alone, and every state with a statewide sales tax now has an economic nexus rule.

For a startup the practical consequence is that nexus can arrive without anyone noticing. Nobody signs a lease or opens an office. A growth campaign lands well in Colorado, a new hire moves to North Carolina, or Amazon moves inventory to a warehouse in Pennsylvania, and the company has an obligation it did not decide to take on.

This post covers the triggers and how to test for them. For the dollar threshold in each state, use our separate state-by-state table rather than a list here, since those figures change and we keep them current in one place.

Most states set economic nexus at $100,000 of sales into the state over a measurement period, usually the current or prior calendar year. A few large states use higher figures: California, Texas and New York each set the bar at $500,000 (New York also requires more than 100 transactions).

The bigger trend is the disappearance of the 200-transaction test. Many states originally copied South Dakota's '$100,000 or 200 transactions' rule, which pulled in small sellers with many low-value orders. States have been dropping it:

• Washington removed it in 2019
• South Dakota removed it effective July 1, 2023
• Utah removed it effective July 1, 2025
• Illinois removed it effective January 1, 2026, leaving only $100,000 of gross receipts
• Kentucky removed it effective August 1, 2026

This matters for consumer apps and ecommerce brands with average orders under $500, which used to hit 200 transactions long before $100,000. If you registered somewhere only because of the transaction count, you may be able to close the account, but check the state's rules on how long nexus lingers after you fall below the threshold before you do.

Also check what counts toward the threshold. Some states count gross sales including exempt and marketplace sales. Others count only retail or taxable sales. Washington, for example, counts exempt sales toward its $100,000 test, so a company selling mostly exempt items can still cross it.

Physical presence nexus comes from people or property in the state, and there is no dollar minimum. The common triggers for a startup:

• An office, coworking membership or lab space
• An employee who works there, including a fully remote employee working from home
• Independent sales reps or contractors who solicit sales for you there
• Equipment or property you own in the state (servers in a colocation facility, demo units, rental inventory)
• Inventory, whether in your own warehouse or a third-party one

Remote employees are the trigger we see most often. A single engineer who moves to a new state generally gives the company physical nexus there, which can create sales tax registration duties along with payroll and income tax filings. The sales tax piece matters only if you sell taxable products into that state, but you need to know about it the day the employee moves, not at year end.

Contractors are less clear-cut. A contractor doing engineering work usually does not create sales tax nexus. A contractor whose job is selling or servicing products for customers in the state usually does. The function matters more than the label.

Inventory stored in an Amazon fulfillment center is physical presence in the state where the warehouse sits. Amazon decides where your inventory goes, so an FBA seller can have stock in a dozen states without choosing any of them. Your Seller Central inventory reports show which states hold your goods.

Marketplace facilitator laws soften the impact. Every state with a sales tax now requires marketplaces like Amazon to collect and remit tax on sales made through the platform. If 100% of your sales go through Amazon, Amazon handles collection on those sales.

The problem starts when you also sell direct. A brand with FBA inventory in Pennsylvania that also sells on its own Shopify store has physical nexus in Pennsylvania, so it must collect on its direct sales there, regardless of the dollar volume. Some states also expect FBA sellers with inventory in-state to register even when the marketplace collects everything. Our marketplace facilitator guide covers which sales count where.

Three lower-profile triggers deserve a look.

Trade shows. Exhibiting at a trade show is physical presence for the days you are there. Some states have explicit exceptions for short trade show attendance where you do not take orders or make sales on site; others do not. If you sell or deliver product at the booth, assume you have nexus for that period and collect.

Affiliates and referral partners. Several states adopted 'click-through' nexus laws before Wayfair, starting with New York in 2008. These presume nexus when in-state residents refer customers to you for a commission and those referrals exceed a dollar amount. Economic nexus has made most click-through rules less important, because your total sales usually cross the economic threshold first. They still matter for a seller just under the economic threshold with a large affiliate program in one state.

Related companies. Affiliate nexus applies when a related entity in the state (a subsidiary, a sister company, a retail store under common ownership) performs activities that help you sell there. This mostly matters after an acquisition or when a startup sets up a separate entity for hardware or services.

Run this test state by state, at least once a quarter, using data from your billing system, payroll provider and inventory reports:

1. Do we have any employee, office, inventory, owned property or in-state sales agent in this state? If yes, we have physical nexus. Go to step 4.
2. Did our sales into this state exceed the state's economic threshold in the current or prior measurement period? Use the state's definition of which sales count. If yes, we have economic nexus. Go to step 4.
3. If neither, we have no nexus today. Note how close we are to the threshold and recheck next quarter.
4. Is what we sell taxable in this state? If no, we generally have nothing to collect, though check whether the state still wants registration.
5. If taxable, are all our sales through a marketplace that collects for us? If yes, confirm whether the state still requires us to register.
6. If we have direct taxable sales, register before the state's deadline and start collecting.
7. If the trigger date was in the past, quantify uncollected tax since that date and decide between registering prospectively or a voluntary disclosure agreement.

Write down the answer and the date for every state. When an auditor or acquirer asks how you determined nexus, a dated spreadsheet is the answer they want.

For SaaS companies, nexus is only half the analysis, because states disagree on whether SaaS is taxable at all. A company can have nexus in 30 states and a collection duty in a dozen.

A few examples of how wide the range is. California does not tax SaaS until January 1, 2027 (SB 122). Washington taxes it as a digital automated service at the full retail sales tax rate. Texas treats SaaS as a data processing service and taxes 80% of the charge, because 20% is exempt by statute. Connecticut taxes computer and data processing services at a reduced 1% rate when sold for business use. Some states tax SaaS only when sold to consumers, others only to businesses, and a few depend on how the contract bundles services.

The overlay also changes when you add products. A company that starts selling implementation services, hardware or data feeds next to its subscription may find that the new line is taxable where the core product was not. Our SaaS sales tax state guide covers taxability state by state.

The order we recommend: map nexus first, then layer taxability on top, then register only where both are present.

Most startups can run the decision tree themselves once data is clean. It is worth paying tax advisors for a startup nexus determination when one of these is true:

• You are raising a priced round or being acquired, and diligence will ask for a nexus analysis
• You sold into a state for more than a year after crossing its threshold without collecting
• Your product mixes software, services and hardware, so taxability differs by line item
• You have remote employees in more than five states
• You received a nexus questionnaire or letter from a state

A good nexus study produces a state-by-state table showing trigger dates, taxable sales, estimated exposure and a recommendation (register, voluntary disclosure, or monitor). It should take weeks, not months, if your billing data is exportable by customer ship-to or bill-to address.

This post is general guidance, not tax advice for your specific facts. Thresholds and taxability rules change several times a year, and the dates above were checked in October 2026.