Economic nexus is the risk most companies don’t see until it’s too late.
It doesn’t require a physical presence. It doesn’t ask for permission. It simply follows your revenue.
Growth without oversight creates exposure. And exposure shows up when states start asking questions. If you’re operating across state lines, the question isn’t if nexus applies. It’s whether you’ve identified it before an auditor does.
If your growth strategy includes online sales, marketplace facilitators, or multi-state expansion, it may be time to reassess the assumptions guiding your tax posture.
Let’s have the conversation before it becomes a liability.
About Davis Davis & Harmon LLC – Sales Tax Experts: Headquartered in Dallas, Texas, Davis Davis & Harmon LLC – Sales Tax Experts specializes in sales/use tax refund recovery and audit defense. Our team of consultants is comprised of former Big 4 sales tax consultants and state sales tax auditors. Each of our consultants has 15 to 20 years of experience, providing our clients with access to a highly specialized team of sales/use tax professionals. At Davis Davis & Harmon, LLC, we are committed to maintaining the highest standards in our talent pool. We work hard to meet our clients’ needs by ensuring that you view our firm as an extension of your company and a member of your team.
Just When You Thought It Was Safe…Economic Nexus
What factors are used when determining nexus for economic activity?
Economic activity thresholds typically hinge on sales revenue or transaction volume within a state, regardless of physical presence. States set their own dollar and transaction thresholds, so a business selling into multiple states may trigger different rules in each one. Reviewing sales by state, marketplace facilitator activity, and prior filings is the starting point for an accurate assessment.
How is economic nexus different from physical presence nexus?
Physical presence nexus is triggered by having employees, offices, inventory, or property in a state, while economic nexus is based purely on sales activity, such as revenue or transaction counts. A business can trigger economic nexus in a state it has never set foot in simply by selling enough there. Both types can apply simultaneously, which complicates multi-state compliance.
Why do businesses often miss economic nexus obligations?
Many businesses miss these obligations because thresholds vary by state and change over time, making it easy to overlook a filing requirement after expanding into new markets. Growth through online sales, marketplace channels, or remote employees can quietly create nexus exposure that goes unnoticed until an audit or notice arrives.
Does selling through an online marketplace affect nexus determination?
Yes, selling through marketplace facilitators can affect how nexus is calculated, since some states count marketplace sales toward a seller’s threshold even when the platform collects tax on the seller’s behalf. Understanding how each state treats marketplace transactions is essential to getting an accurate nexus picture.
How often should a business reassess its nexus footprint?
A business should reassess its footprint at least annually, and sooner after any significant change in sales volume, new state expansion, or shifts in remote”