Economic nexus

Definition

The sales threshold that makes another state's sales tax yours to collect.

Why It Matters

Since 2018 a state can tax a seller with no office, no staff and no warehouse inside it, on volume alone, and most states set the line at $100,000 of sales into the state or a couple of hundred separate transactions. A seller who crossed that line in states they never registered in has an unfiled liability in each one, and it does not show up in the financials because nobody ever computed it. This bites hardest on the trades where it is easiest to miss: anything selling online, shipping, or licensing software. Ask for the state-by-state sales figures and count the thresholds yourself, because the seller's accountant may never have been asked to.

In numbers: Crossing $100,000 of sales into six states and registering in none of them is six unfiled returns, and at a 6% rate that is $6,000 a state for every year it ran, before penalties.