By Laura Dohanes, CPA | Founder, My CPA Pro | February 17, 2026
Laura Dohanes is a CPA with over 20 years of experience in tax strategy and compliance for business owners. She has represented over 3,000 clients in federal and state tax audits and is the founder of My CPA Pro, a tax strategy firm serving entrepreneurs across multiple states.
State tax nexus is the legal connection between your business and a state that gives that state the authority to require you to collect sales tax, file income tax returns, or meet other tax obligations. If your business has nexus in a state, you owe that state something — whether or not you have a physical office, warehouse, or employee there.
This matters right now because the rules changed again in 2026. Several states have tightened their economic nexus thresholds, AI is being integrated into state tax enforcement, and most business owners I talk to have no idea how many states they actually have an obligation in.
Last quarter, a business owner came to us after getting a notice from a state he had never set foot in. They said he owed sales tax — plus two years of penalties and interest. He runs a profitable e-commerce business, files on time, and had what he thought was a good accountant. But nobody had ever asked him one question: do you know how many states your business has a tax obligation in? When we looked into it, the answer was five. He thought it was one.
He is not unusual. This is one of the most common speed bumps I see with business owners right now.
The biggest shift in 2026 is the continued move toward revenue-only economic nexus thresholds. States are dropping transaction-count triggers and simplifying to a single revenue number — but that simplification creates new traps for business owners who are not paying attention.
As of January 1, 2026, Illinois removed its 200-transaction rule entirely. Now, if your gross sales into Illinois exceed $100,000 over the prior 12 months, you are required to register, collect, and remit sales tax. This applies to gross sales — including exempt transactions — not just taxable sales.
California's economic nexus threshold for sales tax is $500,000 in total combined sales of tangible personal property delivered into the state. However, California also imposes income and franchise tax obligations on businesses "doing business" in the state, and those thresholds are lower and adjusted annually for inflation. Having even one remote employee in California creates an immediate employment tax obligation.
New York maintains both a revenue and transaction threshold: $500,000 in gross receipts and more than 100 sales over four consecutive quarters.
Most states with a sales tax now use a $100,000 revenue threshold as the primary trigger. Illinois joins Alaska, Utah, and North Carolina in dropping transaction-based triggers entirely. This trend simplifies compliance in one sense but creates exposure for businesses that previously stayed below the transaction count even while exceeding the revenue number.
Nexus used to require a physical presence — an office, a warehouse, employees on the ground. That changed after the 2018 Supreme Court decision in South Dakota v. Wayfair, Inc., which allowed states to require out-of-state sellers to collect sales tax based on economic activity, not just physical presence. Today, nexus can be triggered by a range of activities that many business owners do not think of as creating a tax obligation.
This is the question I hear most often, and the answer is straightforward: most accountants focus on preparing and filing your return for the states they already know about. They are not proactively reviewing your business activities to determine whether you have created new nexus obligations in other states.
Nexus analysis requires a different kind of review. It means looking at where your customers are, where your employees are, where your inventory is stored, and where your revenue is concentrated — and then comparing that against each state's current thresholds. Most compliance-focused firms do not include this in their standard engagement.
That does not make them bad accountants. It means nexus monitoring is not part of what they do. But it is exactly the kind of question a tax strategist should be asking.
States now have access to significantly more data than they did even five years ago. Marketplace facilitator laws require platforms like Amazon and Etsy to report seller data to state tax authorities. Payment processors report transaction volumes. And states are beginning to integrate AI and machine learning into their enforcement and audit selection processes.
What this means practically is that the window for discovering and correcting nexus exposure on your own terms — before a state discovers it for you — is getting smaller. States are not sending warnings. They are sending notices with penalties and interest already calculated.
The IRS has also expanded its data-sharing capabilities, and state agencies are increasingly cross-referencing federal data with state filings to identify businesses that may be under-reporting or failing to file in states where they have economic activity.
If you sell across state lines, have remote team members in other states, or use any kind of third-party logistics or fulfillment, the first step is understanding where you actually have obligations. This is not something to guess at or ignore.
Start by mapping your business activities by state. Where are your customers? Where are your employees? Where is your inventory stored? Where do you attend events or have contractors working?
Review your revenue by state. Most e-commerce platforms and accounting software can generate a sales-by-state report. Compare those numbers against each state's current threshold.
Understand the difference between sales tax nexus and income tax nexus. Having nexus for sales tax purposes does not automatically mean you have income tax nexus, and vice versa. The rules are different, and the thresholds are different.
Talk to a tax strategist — not just a tax preparer. This is the kind of issue that requires proactive analysis, not reactive filing. A strategist will look at your full picture and help you get ahead of exposure before it becomes a compliance problem.
Economic nexus is a connection between a business and a state based on the business's economic activity in that state — typically measured by revenue or transaction volume — rather than physical presence. Most states now use a $100,000 revenue threshold to trigger economic nexus for sales tax purposes.
Yes. Economic nexus is based on your sales activity, not your physical location. If your business exceeds a state's revenue threshold from online sales alone, you likely have a registration and collection obligation there.
In many states, yes. Gross sales — including exempt transactions — count toward the economic nexus threshold. This means you can trigger a filing obligation even if none of your sales into that state are actually taxable.
If a state determines you have had nexus and were not collecting and remitting sales tax, you may be liable for back taxes, penalties, and interest. Some states offer voluntary disclosure agreements that can reduce or eliminate penalties if you come forward before the state contacts you.
There is no limit. A business selling online across the country could have nexus in dozens of states simultaneously. Each state makes its own determination based on its own rules.
In most cases, yes. A remote employee working in another state can create physical nexus for income tax, payroll tax, and sometimes sales tax purposes, depending on the state's specific rules.
State tax nexus is one of the most common blind spots I see with business owners — not because they are doing anything wrong, but because nobody is asking the right questions. If you are not sure where your business stands, it is worth taking 15 minutes to find out before a state finds out for you.
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