Economic Nexus in 2026: Multi-State Sales Tax Obligations Explained

The Wayfair decision fundamentally changed how sales tax works in the United States. Nearly seven years later, economic nexus continues to create confusion and compliance challenges for businesses of all sizes. If you sell products or services across state lines, understanding your economic nexus obligations isn’t optional—it’s essential.

Economic nexus means you can owe sales tax in a state even without a physical presence there. For many businesses, this translates to sales tax obligations in dozens of states, each with its own rules, rates, and registration requirements.

What is Economic Nexus?

Economic nexus is triggered when your business exceeds a state’s threshold for:

• Gross sales revenue, or
• Number of transactions, or
• Both

Most states use a $100,000 revenue threshold or 200 transactions, but variations exist. Some states have different thresholds, and the rules continue evolving.

Why Economic Nexus Compliance is Challenging:

1. Tracking Sales Across Multiple States

You need systems that can:

• Identify which state each sale belongs to
• Track cumulative sales by state in real-time
• Account for exempt sales separately
• Monitor both current and prior period activity

Without proper tracking, you won’t know when you’ve crossed a threshold until it’s too late.

2. Understanding Threshold Variations

Not all states follow the same rules:

• Some count only taxable sales
• Others include exempt and non-taxable sales
• A few have no transaction count threshold
• Measurement periods vary (calendar year, rolling 12 months, previous calendar year)

These differences make compliance complex, especially for businesses selling in multiple states.

3. Registration and Ongoing Obligations

Once you exceed a threshold:

• You must register with the state
• Filing frequency may vary by sales volume
• You need to collect tax prospectively
• You may have prior period exposure
• You must track and remit tax correctly

Each state adds administrative burden and compliance costs to your operations.

Common Economic Nexus Mistakes:

Assuming Physical Presence is Required

This is the most fundamental misunderstanding. You can owe sales tax in states where you have:

• No office or warehouse
• No employees or contractors
• No inventory or property
• No physical contact whatsoever

Your customers’ locations create the obligation, not your business location.

Ignoring Marketplace Sales

If you sell through Amazon, Etsy, Walmart, or similar platforms, the marketplace typically collects tax on those sales. However:

• You still need to track those sales for nexus purposes
• Some states require marketplace sellers to register anyway
• Non-marketplace sales remain your responsibility
• Multi-channel sellers must manage both scenarios

Failing to distinguish between marketplace and direct sales is a common compliance gap.

Not Monitoring Thresholds Proactively

Many businesses only discover they’ve exceeded thresholds when:

• They receive a state notice
• An audit uncovers the issue
• A customer questions why tax wasn’t collected

By then, you may owe back taxes, penalties, and interest. Proactive monitoring prevents these surprises.

Treating All States the Same

Each state has unique rules for:

• What products are taxable
• How to source sales (origin vs. destination)
• Whether shipping charges are taxable
• How to handle returns and refunds
• Digital goods and services taxability

Cookie-cutter approaches to multi-state compliance create errors and exposure.

Best Practices for Economic Nexus Compliance:

Implement Automated Tax Solutions

Manual sales tax management doesn’t scale across multiple states. Automated solutions:

• Track sales by jurisdiction in real-time
• Apply correct rates based on precise location
• Update rates automatically as they change
• Generate reports for filing and reconciliation
• Integrate with your e-commerce platform

The right technology transforms compliance from a burden into a manageable process.

Establish Nexus Monitoring Procedures

Create a system to:

• Review nexus status quarterly
• Track threshold approaches before you cross them
• Document nexus determinations and dates
• Register promptly when thresholds are exceeded
• Maintain compliance calendars by state

Systematic monitoring prevents unpleasant surprises and demonstrates good faith compliance efforts.

Consider Voluntary Disclosure for Past Exposure

If you’ve been collecting nationwide but not remitting to all nexus states, voluntary disclosure can:

• Limit your look-back period
• Eliminate or reduce penalties
• Provide structured payment options
• Resolve exposure before the state contacts you

The longer you wait, the more limited your options become.

Work with Multi-State Tax Specialists

Economic nexus compliance requires specialized knowledge:

• Understanding 45+ different state regimes
• Keeping current with frequent rule changes
• Navigating registration and filing requirements
• Managing audits across multiple jurisdictions
• Identifying refund and recovery opportunities

Experienced consultants help you avoid costly mistakes while optimizing your overall tax position.

Don’t Let Economic Nexus Overwhelm Your Business

While economic nexus adds complexity, proper systems and expertise make compliance manageable. Businesses that address economic nexus proactively protect themselves from audit exposure while focusing their energy on growth rather than tax problems.

If you’re unsure about your economic nexus obligations or need help implementing compliant processes across multiple states, DDH’s team can assess your current situation and create a sustainable compliance framework tailored to your business.

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.