Sales tax nexus is a critical concept for businesses engaged in interstate commerce, as it determines which states can impose sales tax obligations on a business. In simple terms, nexus is a connection or link between a business and a state that is strong enough to require the business to collect and remit sales tax to that state. Understanding what constitutes nexus and how it is applied is essential for businesses to ensure compliance with state sales tax laws and avoid penalties.
In this blog, we will explore the concept of sales tax nexus, the different types of nexus that can trigger sales tax obligations, and how businesses can navigate these rules in 2025. We will also explain how PEAK Business Consultancy Services can help businesses optimize their tax compliance and stay up to date with the evolving nexus rules.
What Is Sales Tax Nexus?
Sales tax nexus refers to the connection between a business and a state that allows the state to require the business to collect and remit sales tax on sales made to customers within that state. Essentially, nexus is the point at which a business’s activities in a state are substantial enough that the state can impose tax obligations on the business. Without nexus, a business is generally not required to collect sales tax, even if it makes sales to customers in that state.
However, when a business establishes nexus in a state, it becomes responsible for complying with that state’s sales tax laws, which includes collecting the appropriate sales tax from customers and remitting it to the state government. Nexus can be triggered by a variety of factors, including physical presence, economic activity, and even remote selling.
Types of Nexus
Nexus can be established in different ways, and understanding these different types is crucial for businesses to determine their sales tax obligations. Below are the primary types of nexus that businesses should be aware of in 2025:
1. Physical Presence Nexus
Physical presence nexus, also known as “traditional nexus,” occurs when a business has a physical presence in a state. This includes having a store, office, warehouse, employees, or independent contractors in the state. In this case, the state has the authority to require the business to collect and remit sales tax on sales made to customers in that state.
Examples of activities that create physical presence nexus include:
- Having an office or retail store in the state
- Employing individuals who work within the state
- Maintaining a warehouse or distribution center
- Sending sales representatives to the state
Even if the business is not physically located in a state but has employees or representatives working there, physical presence nexus can be triggered, and the business will be required to comply with the state’s sales tax laws.
2. Economic Nexus
Economic nexus, which was established by the U.S. Supreme Court’s decision in the South Dakota v. Wayfair case (2018), has become a significant factor in determining sales tax obligations for remote sellers. Economic nexus applies to businesses that make a certain level of sales or transactions in a state, even if they do not have a physical presence there.
Economic nexus thresholds vary by state, but they typically include:
- A specific dollar amount of sales made in the state, such as $100,000 in gross revenue from sales
- A specific number of transactions, such as 200 or more transactions in the state
Once a business exceeds the economic nexus threshold in a state, it is required to collect and remit sales tax on sales made to customers in that state. Economic nexus is particularly relevant for e-commerce businesses and remote sellers, as it allows states to impose sales tax requirements on businesses with no physical presence but significant sales activity.
3. Click-Through Nexus
Click-through nexus, also known as affiliate nexus, arises when a business makes sales in a state through affiliate relationships with individuals or companies that refer customers to the business. If a business has agreements with affiliates in a state who refer customers via links or advertisements, the business may be required to collect sales tax in that state, even if the business itself does not have a physical presence there.
Click-through nexus is typically triggered when:
- A business has agreements with affiliates who are paid based on the sales they generate
- The affiliate refers customers to the business via a website, online link, or advertisement
This type of nexus is particularly relevant for e-commerce businesses that rely on affiliate marketers to generate sales across state lines.
4. Marketplace Nexus
Marketplace nexus refers to sales made through online marketplaces like Amazon, eBay, and Etsy. In 2025, many states require online marketplaces to collect and remit sales tax on behalf of their sellers. This type of nexus impacts sellers who use these platforms to conduct sales, as the marketplace itself becomes responsible for the sales tax obligations, rather than the individual seller.
Marketplace nexus rules typically apply when:
- The seller uses a marketplace platform to sell goods or services
- The marketplace collects payments on behalf of the seller and processes transactions
- The marketplace is located in a state with marketplace facilitator laws
Under these laws, sellers must still be aware of their responsibilities regarding sales tax for sales made through online platforms. However, in many cases, the marketplace is responsible for collecting and remitting the tax, simplifying compliance for individual sellers.
Impact of Nexus on Businesses
Understanding nexus is critical for businesses, as it directly impacts their sales tax obligations. With the expansion of economic nexus and marketplace nexus laws, businesses—particularly those engaged in remote sales or e-commerce—need to carefully monitor their activities in different states to ensure compliance. Failing to comply with nexus rules can result in significant penalties, back taxes, and interest charges.
Additionally, managing nexus can be complex for businesses operating in multiple states or jurisdictions, as each state may have different thresholds and rules. Therefore, having a solid understanding of where nexus exists is essential to avoid unnecessary compliance issues.
How to Manage Nexus and Stay Compliant
To manage nexus effectively, businesses should:
- Track Sales and Transactions: Keep accurate records of sales, transactions, and sales tax collected in each state where you do business. This helps determine whether you have exceeded nexus thresholds.
- Review State Nexus Laws: Stay updated on the nexus rules for each state where you conduct business. Nexus laws can vary widely, and understanding the specific requirements for each state is crucial.
- Use Sales Tax Automation Tools: Utilize sales tax automation software that can help track sales, calculate sales tax rates, and ensure accurate compliance with state regulations.
- Consult with a Tax Professional: Given the complexity of nexus laws, it is advisable to work with a tax professional who can help you navigate these rules, file accurate returns, and minimize your sales tax liability.
How PEAK Business Consultancy Services Can Help
PEAK Business Consultancy Services specializes in U.S. sales tax compliance and can assist businesses in managing nexus requirements across different states. Our team of tax experts can help you understand where you have nexus, guide you in filing accurate sales tax returns, and ensure that you comply with state regulations.
Whether you’re a business owner with operations across multiple states or a CPA looking for outsourced sales tax services, PEAK BCS can streamline your compliance process. We can help identify nexus, calculate sales tax obligations, and avoid costly penalties related to misreporting or late payments.
Visit www.peakbcs.com to learn more about how PEAK Business Consultancy Services can assist your business with sales tax compliance and nexus management in 2025.
Conclusion
Understanding and managing sales tax nexus is an essential aspect of running a business, especially for those engaged in interstate or online commerce. Nexus laws have evolved over time, and with the rise of economic nexus and marketplace nexus, businesses must stay informed to ensure compliance. By taking proactive steps, such as tracking sales, reviewing state nexus laws, and working with a tax professional, businesses can avoid costly penalties and ensure that they meet all their sales tax obligations.
If you’re unsure about your nexus status or need assistance with sales tax compliance, PEAK Business Consultancy Services is here to help. Our experienced team can provide the guidance and support your business needs to navigate nexus laws and ensure proper tax reporting in 2025 and beyond.
