Does having a sales rep or affiliate in a state create sales tax nexus?

Yes, in most states, a person soliciting sales on your behalf in a state creates physical nexus for your business there, regardless of whether they’re a W-2 employee or an independent contractor. This is one of the older forms of nexus, predating economic nexus by decades, and it remains live.

Sales representative nexus

The standard that most states apply is whether the representative is regularly and systematically conducting sales-solicitation activity in the state. Key factors:

• Are they visiting customers or prospects in the state?
• Are they conducting product demonstrations?
• Are they negotiating contracts or taking orders?
• Is this activity regular (recurring visits) rather than occasional?

A sales rep based in Ohio who makes weekly calls on customers in Indiana is creating nexus for their employer in Indiana. An independent rep who represents your product line and regularly works Indiana accounts is creating the same nexus, even though they’re not a company employee.

What doesn’t typically create nexus: Simply having marketing materials or a catalog reach customers in a state, maintaining a website accessible from a state, or having no human representatives conducting activity there. Passive presence isn’t presence.

Affiliate nexus

Around 2008–2012, states began enacting “affiliate nexus” laws, sometimes called “Amazon laws” after the original target. These laws held that an out-of-state seller had nexus in the state if they used in-state affiliates (bloggers, website owners, referral partners) who earned commissions on sales they drove.

About a dozen states enacted these laws. Several were later repealed or challenged. The practical enforcement reality shifted after the 2018 Wayfair ruling: once economic nexus laws went into effect, states had a cleaner mechanism to reach out-of-state sellers. Most sellers who cross economic nexus thresholds now have registration obligations regardless of whether they have affiliates.

For most ecommerce sellers today, affiliate nexus is a secondary concern, economic nexus thresholds are the primary nexus trigger for remote sellers, and physical nexus from inventory is the primary trigger for marketplace sellers. But affiliate nexus remains on the books in some states and can still apply for sellers below economic nexus thresholds.

Remote employees and contractors

The expansion of remote work created a significant physical nexus expansion for many businesses starting in 2020. An employee working from home in a state is creating physical nexus for their employer in that state: the home office is effectively a company location.

This applies to employees performing any business function, not just sales reps. An engineer, a customer service representative, or an operations employee working from home in a state creates nexus for their employer there.

Independent contractors are more nuanced, states vary on how much control and ongoing relationship is required before a contractor triggers nexus. But contractors who work substantially on behalf of one company, or who are conducting solicitation activities, often create nexus.

P.L. 86-272 and its limits

Federal law (P.L. 86-272) prohibits states from imposing income taxes on businesses whose only in-state activity is soliciting orders for tangible personal property. This protection:

• Does NOT apply to sales tax nexus, only income taxes
• Only covers solicitation of orders for tangible personal property (not services or digital products)
• Has been increasingly narrowed, state DORs have argued that digital customer interactions (chat, app support, etc.) fall outside its protection

A business can be protected from income tax nexus under P.L. 86-272 while simultaneously having sales tax nexus in the same state through the same activity. The two questions are independent.

What to do if you have unaddressed rep-created nexus

Sellers who’ve had sales reps operating in states without registering have back-tax exposure. The exposure runs from when the nexus-creating activity began. A VDA (Voluntary Disclosure Agreement) limits the lookback and waives penalties, and is typically the right path when the gap period is significant.

Related: What types of physical presence create sales tax nexus? | I haven’t been collecting sales tax — what do I do now?