State Tax Nexus in 2026: Understanding Your Multi-State Tax Obligations
State Tax Nexus in 2026: Understanding Your Multi-State Tax Obligations
As businesses expand beyond their home state, many owners are surprised to learn that their tax obligations may expand as well.
Hiring remote employees, selling products online, working with contractors in other states, or using third-party fulfillment providers can all create tax responsibilities in jurisdictions where a business has never opened an office or established a physical location.
The concept that determines when these obligations arise is known as nexus. While the rules vary by state and tax type, nexus generally refers to the level of connection a business has with a state that allows it to impose tax, registration, or filing requirements.
Understanding where nexus may exist can help businesses minimize compliance risk and avoid unexpected obligations as they grow.
Understanding Nexus
Nexus is not a single rule that applies uniformly across all taxes. Sales tax, income tax, payroll withholding, unemployment taxes, business registration requirements, and gross receipts taxes may each have different standards. Those standards can also vary significantly from state to state.
Generally, nexus is established in one of two ways:
- Physical presence within a state
- Economic activity within a state
Both can create significant tax and compliance obligations.
Physical Presence: It’s More Than Just an Office
Historically, nexus was most commonly associated with maintaining an office, storefront, warehouse, or other physical location within a state. Today, the definition is much broader.
Remote Employees and Contractors
One of the most common ways businesses create nexus is through remote workers.
In many states, having an employee working remotely may create payroll tax, unemployment insurance, registration, or business tax filing obligations. Depending on the state and circumstances, a single employee may be enough to establish nexus.
Independent contractors can create similar concerns. Whether providing sales support, consulting services, installation work, or customer assistance, individuals working on behalf of a business in another state may create filing or registration requirements.
Remote work can also create payroll complexities. Certain states, most notably New York, apply a “convenience of the employer” rule under specific circumstances. Depending on the facts, employers may be required to withhold tax even when employees perform services outside the state.
Even when the initial obligation is primarily administrative, failing to identify requirements early can create compliance issues later.
Inventory Held by Third-Party Fulfillment Providers
Businesses selling products online should also consider where inventory is stored.
Companies that use Amazon FBA or other fulfillment networks may have inventory distributed across multiple states, often without actively selecting those locations.
In many states, inventory stored within a state’s borders may create nexus, potentially resulting in registration, reporting, or tax obligations. Even where marketplace facilitators collect and remit sales tax, businesses may still have additional compliance responsibilities to evaluate.
Economic Nexus: When Sales Activity Creates an Obligation
Nexus is not limited to physical presence.
Following the Supreme Court’s decision in South Dakota v. Wayfair, states gained authority to require remote sellers to collect and remit sales tax based on economic activity alone.
Today, every state that imposes a statewide sales tax has adopted some form of economic nexus standard.
The most common threshold is $100,000 in annual sales into a state, although some states use higher thresholds. For example, California and Texas currently apply a $500,000 threshold.
Once a business exceeds a state’s threshold, registration and sales tax collection obligations may arise, even if the business has no employees, property, or physical location in that state.
Important Considerations
When evaluating economic nexus exposure, businesses should keep several factors in mind:
- Not all sales are treated the same. Some states measure thresholds using gross sales rather than taxable sales, meaning exempt transactions may still count toward the threshold.
- Marketplace sales may be included. Sales made through platforms such as Amazon, Etsy, or similar marketplaces may count toward nexus thresholds, even if the platform handles sales tax collection.
- Transaction-count thresholds are becoming less common. Many states have moved away from thresholds based on the number of transactions and now focus primarily on sales volume.
Common Nexus Triggers
Several business activities frequently warrant a closer look, including:
- Hiring employees in states where the business has never operated before
- Expanding online sales into new markets and approaching economic nexus thresholds
- Storing inventory in multiple states through marketplace or fulfillment providers
- Using contractors or employees to perform services across state lines
If any of these situations apply to your business, a nexus review can help determine whether additional compliance obligations may exist.
Taking a Proactive Approach
A nexus review can help identify where obligations may exist and whether action is needed. Areas to review often include:
- The location of employees and contractors
- Inventory locations, including third-party fulfillment providers
- Sales activity by state
- Potential economic nexus thresholds
- The specific products or services being sold
Even when historical exposure exists, businesses often have options available. Many states offer voluntary disclosure programs that may help limit penalties and reduce lookback periods for businesses seeking to come into compliance.
Because nexus rules continue to evolve, periodic reviews are often more effective than a one-time assessment. Businesses should revisit their state tax footprint whenever they expand into new markets, hire employees in new locations, add fulfillment arrangements, or experience significant revenue growth.
How HTB Can Help
As businesses grow, state tax obligations can become increasingly complex. Activities that seem routine, such as hiring a remote employee, expanding online sales, or using a third-party fulfillment provider, may create filing and compliance requirements in states where a business has never operated before.
At HTB, we help businesses evaluate their state tax footprint, identify potential nexus exposures, assess compliance requirements, and develop practical strategies that support continued growth. Whether you’re expanding into new markets, managing a remote workforce, or simply looking to better understand your multi-state tax obligations, our team can help you evaluate your situation and determine the most appropriate path forward.
By taking a proactive approach, businesses can reduce risk, avoid unexpected surprises, and focus on growth with greater confidence. Contact us today to start the conversation.