As interstate commerce, e-commerce, and remote work continue to expand, understanding state tax nexus has become essential for U.S. and cross-border businesses. State nexus determines when a company has a sufficient connection to a state to be required to collect or pay taxes there. Even without a physical presence, many businesses now find themselves subject to multiple state tax obligations due to evolving economic nexus laws.
In 2025, more states are tightening enforcement, lowering thresholds, and using data-sharing tools to identify out-of-state sellers and service providers. For businesses operating across state lines, or Canadian companies entering the U.S. market, staying compliant means understanding where and when tax responsibilities apply. This guide explains how nexus is established, the difference between sales and income tax nexus, and what businesses should do to maintain compliance across states.
TLDR: What U.S. and Cross-Border Businesses Should Know
State tax nexus determines when a business must register, collect, and remit state taxes based on its presence or activity within that state. In 2025, states continue to expand their definitions of nexus to include remote employees, online sales, and digital services, even when no physical office exists.
Businesses can establish state tax nexus through physical office, in-state employees, or meeting economic thresholds such as $100,000 in sales or 200 transactions in a state. Both sales tax and income tax nexus may apply, and requirements vary widely by state.
To stay compliant, companies should monitor where they do business, track state-specific thresholds, and file the appropriate returns. TMP Corp helps U.S. and cross-border businesses assess exposure, register correctly, and manage ongoing multi-state tax filings.
What Is State Nexus and Why It Matters
State tax nexus refers to the level of business activity or connection a company has with a U.S. state that requires it to collect or pay state taxes. Historically, nexus was tied to physical presence—such as maintaining an office, warehouse, or employees—but the definition has broadened significantly. The rise of e-commerce, digital services, and remote work has shifted how states determine tax obligations.
Following the COVID-19 pandemic, many states revised their nexus standards to capture revenue from remote employees and out-of-state sellers. States now use advanced data tools and cross-agency reporting to track business activity across jurisdictions. For companies operating in multiple states, or for cross-border businesses entering the U.S. market, understanding state tax nexus is critical to managing compliance, avoiding penalties, and filing correctly.
The Two Main Types of Nexus
Physical Nexus
A physical nexus arises when a business has a tangible presence in a state, such as owning or leasing property, maintaining offices or warehouses, or employing staff who live and work there. Even short-term activities like attending trade shows or conducting in-person business can establish nexus in certain states.
Economic Nexus
Economic nexus emerged after the 2018 South Dakota v. Wayfair Supreme Court decision, which allowed states to impose tax obligations on out-of-state sellers based solely on sales volume or transaction counts. Under these rules, businesses can trigger nexus by surpassing thresholds like $100,000 in revenue or 200 transactions within a 12-month period, even without a physical location in the state.
Key Examples of Nexus Triggers
- Owning or leasing property within a state
- Hiring employees based in that state
- Exceeding economic thresholds (for example, $100,000 in sales or 200 transactions)
- Attending trade shows, conferences, or other business events in-state
Each state defines its own nexus thresholds and criteria. For instance, New York requires both revenue and transaction minimums, while others apply only one standard. Businesses should regularly monitor their sales, employee locations, and activities to identify when new nexus obligations arise. Using accounting software or specialized tax tools can simplify tracking and ensure proper registration for state tax collection and remittance.
Understanding these triggers helps businesses anticipate filing requirements early and stay compliant with complex multi-state tax laws.
Sales Tax vs. Income Tax Nexus: What’s the Difference?
Sales tax nexus and income tax nexus are two separate but equally important concepts that determine a business’s state tax obligations. While both depend on a company’s level of activity or connection with a state, they apply to different types of taxes and are governed by different criteria. Understanding the distinction is essential for businesses operating across multiple states, as each form of nexus can trigger unique compliance and filing requirements.
Sales Tax Nexus Explained
Sales tax nexus arises when a business is required to collect and remit sales tax on taxable goods or services sold within a state. This obligation is typically triggered by either a physical presence (such as property or employees) or economic activity (such as exceeding sales or transaction thresholds).
Following the 2018 South Dakota v. Wayfair decision, nearly every state now enforces economic nexus standards. In most cases, a business will be required to register for sales tax collection once it surpasses thresholds like $100,000 in annual sales or 200 transactions in that state. Sales tax nexus is managed by each state’s revenue department and primarily applies to sellers of tangible products and taxable digital goods.
Income Tax Nexus Explained
Income tax nexus determines whether a business must pay income tax on profits attributable to a specific state. Like sales tax nexus, income tax nexus also looks at the amount of economic activity a company generates in a state. This can include revenue generated through remote employees, agents, or digital operations within the state.
A company may have income tax nexus even if it does not collect sales tax. For example, a business with no physical office but a remote employee performing work in a state may be required to file a corporate income tax return there. Many states apply both physical and economic presence tests to determine whether income is subject to taxation
States with Aggressive Nexus Enforcement
Some states have become particularly proactive in identifying out-of-state businesses that meet nexus thresholds. These states use data analytics, information sharing, and audit programs to enforce compliance.
- California: Enforces both sales and income tax nexus aggressively, especially targeting e-commerce and remote work activities.
- New York: Closely monitors out-of-state sellers and service providers, with a strong focus on digital and cross-border operations.
- Texas: Applies both physical and economic nexus rules strictly, especially for companies with large sales volumes or in-state contractors.
In short, sales tax nexus relates to the obligation to collect and remit sales tax once a business has sufficient sales or physical activity in a state, while income tax nexus pertains to the obligation to pay state income tax on earnings sourced to that state. As of 2025, states like California, New York, and Texas continue to expand enforcement, making it increasingly important for businesses to track both types of nexus carefully to remain compliant.
How Nexus Rules Affect Cross-Border and Remote Businesses
For Canadian companies expanding into the U.S., understanding state nexus rules is essential for maintaining compliance. Nexus laws determine when a business must register, collect, and remit state taxes, and in 2025, these rules increasingly apply even without a physical U.S. presence. The rise of e-commerce, digital services, and remote work has blurred traditional boundaries, creating new compliance obligations for cross-border businesses and remote employers alike.
Canadian Businesses Selling into the U.S.
Canadian e-commerce sellers often trigger economic nexus in U.S. states through online platforms, even without owning property or operating a warehouse. Once annual sales exceed a state’s threshold—typically $100,000 in revenue or 200 transactions—a Canadian company becomes subject to that state’s tax rules.
After establishing nexus, businesses must register for sales tax collection in each applicable state. This process usually requires obtaining a U.S. Employer Identification Number (EIN) from the IRS, followed by state-level registration through revenue departments. Some states participate in streamlined systems that simplify multi-state registration, but most require individual filings.
Canadian sellers are responsible for collecting and remitting sales tax on taxable goods, digital products, or services according to each state’s rules. While marketplace facilitators like Amazon or Shopify may handle tax collection in certain states, the legal obligation to comply still falls on the seller. Keeping accurate records, filing returns regularly, and tracking changing state thresholds are crucial steps to avoid penalties and interest charges.
Remote Teams and Service Providers
Employing remote workers or contractors based in the U.S. can also create nexus, triggering payroll and income tax obligations. Even without a permanent office, having a remote employee performing work in a state can establish physical nexus.
In these cases, the business must register for state payroll taxes, withhold employee income tax, and remit unemployment insurance contributions. Remote employees can also create income tax filing requirements for the corporation itself, even if the company has no direct sales in that state.
Companies should carefully track the locations of all employees and contractors, as each state applies different rules for determining payroll and corporate tax nexus. Regular reviews with payroll and tax professionals can help manage multi-state withholding, avoid duplicate filings, and maintain compliance with evolving regulations.
Cross-border businesses that sell or hire within the U.S. must pay close attention to state tax nexus. With states expanding enforcement through digital tracking and data-sharing initiatives, proactively monitoring sales, workforce locations, and registration requirements has never been more important.
How to Stay Compliant with Multi-State Nexus Requirements
Compliance with multi-state nexus rules requires organization, continuous monitoring, and a clear understanding of each state’s thresholds and filing requirements. As more states expand enforcement and adjust economic nexus standards, businesses must stay proactive to prevent penalties and missed filings. TMP Corp helps companies establish systems that simplify compliance, maintain accuracy, and ensure ongoing readiness across all relevant jurisdictions.
Track and Monitor Your State Activity
The first step toward compliance is keeping accurate, up-to-date records of your activity in each state. Track total sales, employee locations, inventory, and other operations that may create tax obligations. Using accounting software or specialized platforms such as TaxCloud or Avalara can help monitor when your business nears key thresholds like $100,000 in sales or 200 transactions.
Many tools provide automated alerts, giving you time to register and collect taxes before crossing a state’s economic nexus threshold. Consistent tracking also supports audit readiness, allowing you to demonstrate compliance if state authorities request documentation.
Register in Each Applicable State
Once nexus is established, registration must be completed promptly to avoid penalties and backdated liabilities. Businesses should apply for sales tax permits or income tax accounts through each state’s revenue department and ensure all required identification numbers are in place, such as a U.S. Employer Identification Number (EIN) for foreign entities.
Because state registration processes vary widely, conducting a state-by-state analysis is crucial. Some states allow combined or streamlined applications, while others require manual filings. Timely registration confirms compliance and prevents enforcement actions that could disrupt operations or lead to fines.
File the Right Returns on Time
Filing obligations differ across states and tax types. Sales tax returns may be due monthly, quarterly, or annually depending on the volume of sales, while state income tax filings report revenue attributable to each jurisdiction. Businesses must also reconcile collected sales taxes and remit payments accurately.
Missing deadlines can lead to compounded interest and penalties, particularly in states with strict enforcement. Setting up automated calendar reminders or working with a dedicated advisor helps ensure that filings remain current and complete.
Managing Complexity Across States
Navigating multi-state compliance can quickly become overwhelming. Each state maintains its own tax rates, rules, and filing schedules, which change frequently. Overlapping requirements can cause confusion without a structured process in place.
TMP Corp provides centralized support to simplify these obligations—monitoring thresholds, managing registrations, coordinating filings, and maintaining compliance documentation. By consolidating oversight under one advisory partner, businesses can reduce administrative strain and avoid costly compliance gaps as they expand across U.S. markets.
How TMP Corp Helps Businesses Navigate State Nexus Compliance
Managing multi-state and cross-border tax obligations can be challenging, especially as nexus rules continue to evolve. TMP Corp supports businesses by simplifying compliance, coordinating filings across states, and ensuring all obligations are met accurately and on time. Whether your company is expanding into new U.S. markets or hiring remote employees in different states, TMP Corp provides the guidance and structure needed to stay compliant with confidence.
Assessing State-by-State Exposure
TMP Corp begins with a detailed nexus review to determine where your business may have tax exposure. This assessment identifies physical and economic connections across states, evaluates sales activity, and reviews employee locations to pinpoint filing obligations. By mapping your footprint, TMP Corp helps you understand which states require registration and where potential liabilities may exist.
Registering and Filing in Multiple Jurisdictions
Once exposure is confirmed, TMP Corp manages the registration process with each state’s tax authority, obtaining necessary permits, IDs, and accounts. The team also coordinates filing schedules and submission of both sales and income tax returns, ensuring compliance with each jurisdiction’s specific requirements. Through organized, centralized filing management, businesses can streamline multi-state reporting and reduce administrative complexity.
Supporting Ongoing Monitoring and Compliance
Nexus rules and thresholds continue to evolve, especially as states adjust their standards for remote work and digital operations. TMP Corp provides ongoing advisory support to track changes, monitor state activity, and update compliance strategies as new regulations take effect.
This proactive approach helps businesses avoid missed filings, prevent penalties, and maintain accurate, up-to-date tax positions across all operating states. By partnering with TMP Corp, companies can focus on growth while maintaining confidence that their multi-state compliance obligations are handled efficiently and correctly.