Physical nexus vs economic nexus

Nexus is the connection that lets a state require a business to collect its sales tax. There are two kinds, and online sellers often have both in different states. This guide compares them side by side.

By Mirza Fahad Baig, Chartered Accountant. Reviewed by Hamza Fida, Chartered Accountant. Checked against official sources on . 2 minute read.

Short answer

Physical nexus vs economic nexus is the difference between being in a state and selling into it. Physical nexus comes from presence: an office, staff, or inventory stored in the state. Economic nexus comes from sales above a state's threshold, most commonly $100,000 a year, with no presence at all. Either one can require a business to register and collect sales tax.

At a glance

Physical nexus
Presence: office, staff, inventory, property
Economic nexus
Sales above a state's threshold
Most common threshold
$100,000 a year
Basis for economic nexus
South Dakota v. Wayfair, 2018
Either one
Can require registration and collection
Marketplace inventory
Can create physical nexus
Physical nexus vs economic nexusSteps: 1. List where you have presence; 2. Track sales by state; 3. Compare with thresholds quarterly; 4. Register before collecting.THE PROCESS AT A GLANCEPhysical nexus vs economic nexus1List where you havepresenceHome, office, staff and everywarehouse holding your stock2Track sales by stateBy channel, for each state'smeasurement period3Compare withthresholds quarterlyAnd monthly as you get close4Register beforecollectingSee how to get a sales taxpermitChecked against official sourcesTax BakersPhysical nexus vs economic nexusSteps: 1. List where you have presence; 2. Track sales by state; 3. Compare with thresholds quarterly; 4. Register before collecting.THE PROCESS AT A GLANCEPhysical nexus vs economic nexus1List where you have presenceHome, office, staff and every warehouseholding your stock2Track sales by stateBy channel, for each state's measurementperiod3Compare with thresholds quarterlyAnd monthly as you get close4Register before collectingSee how to get a sales tax permitChecked against official sourcesTax Bakers
The process at a glance: 1. List where you have presence; 2. Track sales by state; 3. Compare with thresholds quarterly; 4. Register before collecting.

How do they compare?

Physical nexusEconomic nexus
Created byPresence in the stateSales into the state
ExamplesOffice, employees, inventory in a warehouse, property, regular in-person sellingSales above the threshold, most commonly $100,000; $500,000 in California and Texas
ThresholdNone. Any presence can countSet by each state
StartsWhen the presence beginsWhen the threshold is crossed, with a start date set by the state
EndsWhen the presence ends, subject to state rulesUsually after a set period below the threshold

What creates physical nexus?

  • An office, shop or warehouse in the state.
  • Employees, and in some states contractors or sales representatives, working there.
  • Inventory stored there, including stock a marketplace holds for you.
  • Attending trade shows or fairs regularly to sell, in some states.

For marketplace sellers, stored inventory is the most common source. See sales tax for Amazon FBA sellers.

What creates economic nexus?

Selling enough into a state, measured over the period the state sets, such as the current or previous calendar year. States differ on which sales count, including whether marketplace sales and exempt sales are included. See economic nexus explained for thresholds by state.

Can you have both?

Yes, and often in different states: physical nexus where you live and where your stock is, economic nexus where your customers are. Each state is assessed separately.

What should you track?

  1. List where you have presence

    Home, office, staff and every warehouse holding your stock.

  2. Track sales by state

    By channel, for each state's measurement period.

  3. Compare with thresholds quarterly

    And monthly as you get close.

  4. Register before collecting

    See how to get a sales tax permit.

Where are the state-by-state sales tax guides?

Thresholds, rates, registration and filing for online sellers: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Washington DC, West Virginia, Wisconsin, Wyoming.

Want your nexus mapped?

We check where your presence and sales create nexus, register you where required, and keep tracking as your business grows.

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Questions people ask

What is the difference between physical and economic nexus?

Physical nexus comes from presence in a state. Economic nexus comes from sales into a state above its threshold.

Does storing inventory in a state create nexus?

Yes, stored inventory creates physical nexus, including stock a marketplace holds for you, although states differ on what that requires of marketplace sellers.

What is the most common economic nexus threshold?

$100,000 of sales into the state in a year. California and Texas use $500,000.

Can I have nexus in a state I have never visited?

Yes, through sales above the economic threshold or inventory stored there.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. Supreme Court of the United States: South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018)
  2. Texas Comptroller: Remote Sellers
  3. California CDTFA: Publication 109, online marketplaces and fulfillment centers

Rules and fees change. If you are reading this long after September 30, 2026, confirm the figures with the source before you rely on them.

Sales tax basicsEconomic nexus explained: when out-of-state sales create a tax dutySales tax basicsHow US sales tax works: a guide for small businessesOnline sellersSales tax for Amazon FBA sellers: where your inventory creates nexus

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This guide is general information. It is not tax or legal advice for your situation.