Tax nexus is the level of connection a business must have with a state before that state can require it to register, collect, file, or pay tax there. For most of the past decade, the biggest shift has been the move away from physical presence as the only trigger. More recently, two developments have accelerated: states are simplifying sales tax nexus rules in ways that can capture sellers previously below the line, and several states are narrowing a long-standing federal protection from state income tax for businesses that sell over the internet. For many small and mid-sized businesses, the practical effect is that obligations can now arise in states where they have no office, no employees, and no inventory.
Economic Nexus: The Foundation of Today's Rules
Under economic nexus, a remote seller can be required to register, collect, and remit sales tax in a state once its sales there pass that state's threshold, even without a physical presence. Most states set that threshold in dollars of sales into the state, though a few states use higher thresholds.
Many states originally added a second test based on transaction count, so a seller could cross the line by exceeding either a dollar amount or a number of separate sales.
Development 1: States Are Dropping the Transaction Count Test
States have been repealing the transaction test because it captured very small sellers, since a large number of low-priced sales could trigger nexus while producing little revenue. The most recent changes include:
- Illinois dropped its transaction test on January 1, 2026.
- Kentucky removed its test effective August 1, 2026, following Utah's repeal in July 2025.
- Alaska's remote seller commission, which administers local sales tax for participating jurisdictions, also eliminated its transaction threshold.
The practical shift is that sellers of many low-priced items may now trigger obligations based mainly on revenue, while sellers of fewer, higher-priced items need to watch dollar thresholds closely. Not every state has made this change, and measurement periods, what counts toward the threshold, and how marketplace sales are treated still vary from state to state.
Development 2: Narrowing Protection From State Income Tax (P.L. 86-272)
Public Law 86-272, a federal law, generally prevents states from imposing net income tax on an out-of-state business whose only in-state activity is soliciting orders for tangible goods that are approved and shipped from outside the state. For decades, many product sellers relied on that protection.
In 2021, the Multistate Tax Commission revised its interpretation to address internet activities, and some states have since adopted that view. Under these interpretations, activities that may break the protection include:
- Placing cookies on users' devices for market research or product development
- Offering post-sale support through online chat or email
- Accepting job applications from in-state residents for non-sales roles
New Jersey formalized this approach in regulations effective June 16, 2025, and Massachusetts amended its corporate excise regulations effective October 10, 2025, with New York and California also among the states taking this position.
One thing owners consistently underestimate is that ordinary website features, added for marketing or customer service, may now carry state income tax consequences.
Income Tax Nexus for Service Businesses
Some states have adopted bright-line and other economic nexus standards that can create income tax obligations for service providers with no physical presence in the state. Because P.L. 86-272 applies only to sellers of tangible goods, service and software businesses generally never had that protection to begin with.
Remote Work Creates Another Layer of Nexus
An employee working from home in another state can create a physical connection to that state, which may lead to payroll withholding, unemployment insurance registration, and potentially income or franchise tax filing obligations depending on the state and the nature of the work.
In practice, this usually shows up when a business hires one remote employee, sets up payroll correctly for that person, and does not consider whether the business itself now has filing requirements in that state. Workforce decisions and tax obligations are closely connected, and the time to evaluate them is before the hire is made (see our HR & Workforce services).
Why Multi-State Tax Nexus Matters Now
- The changes are recent. A business that reviewed its nexus position a few years ago may have reached a different conclusion than it would today.
- Exposure accumulates quietly. Income tax statutes of limitations generally run three to four years, but they do not begin if no return was ever filed, which means a state can look back further for a business that never filed. Unpaid sales tax is especially costly, because a business that failed to collect it from customers typically has to pay it from its own funds, along with any penalties and interest.
- Issues surface at inconvenient moments. Nexus problems frequently appear during a financing review, an acquisition, or a sale, when buyers and lenders examine potential liabilities and may adjust price or require protections.
Does Selling Through a Marketplace Remove Your Obligations?
A question business owners often ask is whether selling through a marketplace removes their obligations. Marketplace facilitator laws generally require large marketplaces to collect and remit sales tax on sales made through their platforms, which can significantly reduce a seller's collection burden for those sales.
However, how marketplace sales count toward a seller's own thresholds varies by state, and sales made through the business's own website or other channels may still create obligations. Marketplace collection also does not address income tax nexus.
What If You Discover You Should Have Been Filing?
Many states offer voluntary disclosure programs that may limit the lookback period and reduce penalties for businesses that come forward before being contacted. The terms vary by state, so the decision about whether and how to use them should be made with a tax advisor.
How to Review Your Multi-State Tax Position
A practical review starts with data:
- Compile sales by state for recent years, separated by channel, and compare them against each state's current thresholds and measurement rules.
- Identify where employees, contractors, inventory, and property are located.
- Review the website and customer-facing tools for features that some states now treat as beyond solicitation.
- Check whether the business is registered and filing in each state where obligations may exist.
Accurate, consistently categorized revenue data makes this analysis far easier, and automated sales tax tools can help monitor thresholds as they change (see our technology services).
Final Thoughts
Multi-state tax nexus has shifted in ways that matter for businesses of nearly every size. Revenue-only sales tax thresholds, narrower income tax protections for internet sellers, and the spread of remote work mean obligations can arise without any intentional expansion into a new state.
If you sell across state lines, have remote employees, or have not reviewed your multi-state position recently, a nexus study is a practical place to start. Secure Accounting can help you identify where obligations may exist, evaluate options for addressing past exposure, and build a process to monitor thresholds going forward (see our multi-state tax services) as part of broader tax planning.
When you are ready, start a conversation with our team.