What is economic nexus, and how does it differ from physical nexus?

Economic nexus is a sales tax obligation triggered by how much you sell into a state, not by whether you have any physical presence there. Sell more than $100,000 a year to customers in Ohio, and Ohio can require you to collect and remit sales tax on those sales, even if you’ve never been to Ohio and have no operations there.

Economic nexus exists in every state with a sales tax as of 2020, following the Supreme Court’s South Dakota v. Wayfair decision.

How economic nexus differs from physical nexus

There are two ways to create a sales tax obligation in a state. Understanding both matters because each triggers differently, starts on a different date, and has different implications for how far back your liability might go.

Physical nexus

Physical nexus is the older rule. It’s created by your presence in a state:

• An employee or contractor working in the state (including remote workers)
• Inventory stored in the state, including FBA inventory in an Amazon fulfillment center or goods at a third-party logistics (3PL) warehouse
• An office, retail location, or warehouse you lease or own
• Attending a trade show or pop-up with sales activity in the state

Physical nexus has no threshold. One remote employee, one pallet in a fulfillment center, that’s enough. And there’s no grace period: your obligation begins on the first day the physical presence exists.

Economic nexus

Economic nexus is triggered purely by sales volume. You cross the state’s threshold, typically $100,000 in sales to customers in that state during a calendar year, and you have nexus. The state can now require you to register and collect on future sales.

The key differences from physical nexus:

The $100,000 threshold

The standard economic nexus threshold is $100,000 in sales to customers in the state during a calendar year. Most states use this figure, adopted after the Supreme Court upheld South Dakota’s law in 2018.

California uses $500,000: the highest in the country. This means many mid-market brands that have nexus in 20+ other states don’t have economic nexus in California based on sales volume alone. (FBA inventory in California warehouses is a different matter, that’s physical nexus and has no threshold.)

A handful of states set thresholds higher or lower than $100K. See What are the economic nexus thresholds by state? for the full breakdown.

The transaction count test

South Dakota’s original law used two triggers: $100,000 in sales OR 200 separate transactions. Many states initially copied this dual test. The idea was to catch high-volume/low-value sellers who might not hit $100K in revenue but were clearly doing significant business in the state.

The trend since then has been to drop the transaction count. As of 2026, many states have eliminated the 200-transaction test and use the dollar threshold alone. Some states still use both. When evaluating your threshold exposure in a specific state, confirm whether it uses sales-only or sales-plus-transactions.

How the measurement period works

Most states measure your sales on a calendar year basis, either the prior calendar year (January 1–December 31) or the current calendar year. A smaller number of states use a trailing 12-month lookback: a rolling window that’s always measuring the most recent 12 months.

The distinction matters if your sales are growing:

• Calendar year: If you cross $100K in Michigan in October, your nexus starts from that crossing. On January 1, your counter resets. If the following year’s sales stay under $100K, you may lose Michigan nexus.
• Trailing 12 months: If you cross $100K in a trailing 12-month state in July, your nexus continues as long as any rolling 12-month window stays above threshold. There’s no annual reset.

Related: How is the nexus threshold calculated, calendar year or trailing 12 months?

What counts toward the threshold

Not just your direct sales. Depending on the state:

• Your own website and storefront: always counts
• Amazon FBA sales: counts in most states, even though Amazon collects the tax
• Etsy, eBay, Walmart Marketplace sales: counts in most states, same logic as Amazon
• Wholesale and B2B sales: generally counts unless the state specifically exempts certain sale types

If you sell across multiple channels, you need to aggregate all of them when calculating threshold exposure in each state. A seller with $70K in Shopify sales and $60K in Amazon sales into Texas has crossed Texas’s threshold: the $130K combined total is what matters.

Related: Do marketplace sales count toward my economic nexus threshold?

Can you have both types of nexus in the same state?

Yes. It’s common. A seller with FBA inventory stored in an Ohio fulfillment center has physical nexus in Ohio: the collection obligation started the day Amazon moved that inventory there. If that same seller also has $200K in annual sales to Ohio customers, they also have economic nexus in Ohio. Both are real. The physical nexus started first, from day one of the inventory storage.

In practice this mostly matters for understanding your full compliance timeline, when your Ohio obligation started and what your potential retroactive exposure looks like.

When economic nexus disappears

Economic nexus can be lost if your sales drop below the threshold for a full measurement period. In states that use a calendar year approach, that means a full calendar year under $100K. In trailing 12-month states, it means the rolling 12-month total falling below the threshold.

If you lose nexus, you don’t immediately close your permit and stop collecting. You’d continue to collect through the end of your current registration period and then file to close the permit. Not all states make this easy, and the rules for de-registration vary. Before acting on a potential nexus loss, verify with your state’s Department of Revenue.