Does having a remote employee in another state create sales tax nexus?

Yes. Hiring a full-time or part-time employee who works in another state creates physical nexus in that state, regardless of whether you have an office, warehouse, or any other presence there. Your obligation to collect and remit sales tax begins on the employee’s first day of work.

Why an employee’s home state is now your nexus state

States define physical nexus broadly. An employee working from their home creates a business “presence” in that state, they’re using local infrastructure, potentially meeting with customers, and (from the state’s perspective) benefiting from the state’s market. Courts have consistently upheld this interpretation.

This applies to:

• Full-time W-2 employees working remotely in another state
• Part-time employees: even a few hours a week is enough
• 1099 contractors performing ongoing work, in most states (varies by state)
• Salespeople who call on customers in the state, even without a home office there

It does not typically apply to:

• A one-time consultant engaged for a short, defined project
• An employee who briefly travels to a state for a conference but doesn’t work from there regularly

The line between “ongoing contractor creating nexus” and “short-term engagement that doesn’t” is fact-specific. When in doubt, register.

The timing question

Unlike economic nexus (which kicks in after you cross a dollar threshold) physical nexus from an employee is immediate. Day one of employment = day one of nexus. There’s no grace period and no minimum tenure requirement.

That means you should register for a sales tax permit in the employee’s state before their start date if at all possible, or immediately upon hire.

What to do if you hired someone months ago and haven’t registered

If you’ve had a remote employee in another state for some time and haven’t registered, you have retroactive exposure. The exposure runs from the employee’s start date, not from when you learned about the obligation.

Your options:

1. Register now and pay back taxes with penalties: simple, but potentially expensive
2. Pursue a Voluntary Disclosure Agreement (VDA): most states offer this, and it typically limits the lookback period to 3–4 years and waives penalties in exchange for voluntary compliance

A VDA is almost always the better path if the exposure is significant. It costs less and closes the liability more cleanly.

Related: What is a VDA, and when should I use one? | How do I prioritize states if I have retroactive exposure in multiple places?