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Economic Nexus TaxJar

Mastering Economic Nexus: Everything you Need to Prepare for the Tax Season

by Sarah Craig

Up until 2018, whether or not you needed to pay sales tax – what’s called nexus – was based solely on whether you had a physical presence in a particular state. Meaning your company must have a significant physical presence in a state to be required to collect and remit sales tax on its products. But everything changed with the South Dakota v. Wayfair Supreme Court case in 2018. Now, states can require businesses with both physical presence and “economic nexus” in a state to collect sales tax. In other words, now businesses that simply exceed a state-mandated sales volume in a state must register and collect sales tax from buyers in that state.

For financial controllers of large companies, the 2018 Wayfair Supreme Court ruling added a new complexity to sales tax management. Sales tax nexus in just one new state can mean major changes to your company’s financial processes. Depending on the size of your business and your product mix, the Wayfair ruling may mean you are required to collect sales tax in a handful or even dozens of additional states. If you are wondering where to get started, you aren’t alone. TaxJar is here to help.

What is sales tax nexus anyway? 

First, a little history on how we got here. In 2016, South Dakota passed a law requiring online sellers – regardless of physical nexus – to collect sales tax if they made more than $100,000 in gross sales or more than 200 sales in a year. They followed this action up by suing Wayfair, Newegg and other eCommerce retailers who weren’t collecting sales tax in the state. The Supreme Court ruled in favor of South Dakota in June of 2018.

What triggers nexus? 

Sales tax nexus is triggered by physical and/or economic activity. 


  • Fulfillment warehouses
    (Fulfillment by Amazon (FBA) or 3rd party services)
  • Retail locations, trade shows, or seasonal pop-up events
  • Remote employees, affiliates, etc.


  • Triggered when exceeding a state’s threshold for revenue and/or transaction volume
  • Each state has/will make their own laws as there’s no federal guidance 
  • Nearly every state has economic nexus

One of the reasons sales tax is so complex is because there’s no single governing body for sales tax. Since each state has the ability to create their own law, you have 47 states plus Washington D.C. each developing their own guidelines. 

Each state can decide who has to collect sales tax, what products they’re required to charge sales tax on, the rates of sales tax, and even the dates and frequency a business is required to file and pay sales tax. 

Economic nexus sales thresholds range from $10,000 to $500,000 in sales. Some states have also added a transaction volume threshold. Here’s an example that shows how sales tax thresholds and laws vary by state: 

Learning about sales tax nexus the hard way

Unfortunately, many companies have had to learn about sales tax nexus the hard way. TaxJar customer, Basecamp, for example. They ran into the same problem that many other SaaS companies have also experienced: not collecting sales tax because they were unclear where and when SaaS products were taxable.

Our first introduction to sales tax was dealing with it as a liability,” CTO & Cofounder Heinemeier Hansson said. “We discovered we should have been collecting sales tax but we weren’t, so we had a number of liabilities in different states that needed to be cleaned up.”

All told, they had to pay millions in back taxes and soon realized they needed a sales tax solution that could tell them when, where and what they needed to remit. To ensure they wouldn’t owe back taxes again, their quest for a sales tax solution not only needed to be easy to use, but had to fit the company’s principles and approach to technology.

Not being sales tax compliant can lead to millions of dollars in back taxes and interest payments, enough to put a company at risk of survival. While getting sales tax compliant might seem like a hassle, the cost of being out of compliance could lead to much bigger problems. 

How TaxJar can help

Luckily,  TaxJar has a tool that you can use to determine where your business meets economic nexus: the economic nexus insights dashboard. If you sign up for an account and import your data, we will begin to alert you when you are approaching nexus in a new state. We’ll also let you know when you may want to begin looking at the registration process in a state. 

Looking for more information? Watch our free, on-demand webinar that covers economic nexus here. 

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