Nexus is the legal threshold of connection between a business and a state that creates an obligation to comply with that state's tax laws. It applies to income taxes, sales taxes, and sometimes other levies like gross receipts taxes.

For most of American tax history, nexus required physical presence — an office, employees, warehouse, or regular in-person activity in a state. You couldn't be taxed by a state where you had no physical footprint.

That changed significantly over the past decade. Today, nexus comes in two primary forms:

Physical nexus: The traditional kind. You have a physical presence in a state — you live there, work there, have an office there, store inventory there, or have employees or contractors working there.

Economic nexus: The post-Wayfair kind. You generate enough sales revenue or transaction volume into a state that the state deems you sufficiently connected to require compliance — no physical presence needed.

Physical nexus is straightforward for location-stable solopreneurs. If you live and work in Texas, you have Texas nexus. Full stop.

But solopreneurs — especially those who travel, work remotely while traveling, or have recently relocated — need to think more carefully. A few situations that create physical nexus that people frequently overlook:

Remote employees or contractors. If you hire a virtual assistant in Ohio, you may have nexus in Ohio — even if you've never been there. Many states take the position that having a person performing services on your behalf within the state creates nexus. This varies significantly by state, but it's a real risk worth understanding.

Temporary work while traveling. Working remotely from a coworking space in California for six weeks while on an extended trip? Some states would consider that sufficient to create nexus. California is particularly aggressive about this.

Inventory storage. If you sell physical goods and store them in a third-party fulfillment center in a state (Amazon FBA, for example), you almost certainly have physical nexus there.

Following South Dakota v. Wayfair (2018), every state with a sales tax quickly moved to implement economic nexus laws. As of 2025, nearly all states use the following standard threshold:

$100,000 in gross sales into the state in the current or prior calendar year, OR 200 or more transactions into the state.

Some states are stricter. California's threshold is $500,000 in sales (no transaction count minimum). A handful of states have lower dollar thresholds. And some states count gross receipts slightly differently.

Most states also have economic nexus for income tax purposes, though this is less universally implemented than sales tax economic nexus. Where it exists, it often uses lower thresholds than sales tax — sometimes as little as $50,000 in receipts from in-state sources.

These are separate concepts and need to be understood separately:

Sales tax nexus determines whether you must collect and remit sales tax on sales made to customers in that state. As discussed in our sales tax guide, this also depends on whether your products or services are taxable in that state.

Income tax nexus determines whether you must file a state income tax return and pay state income tax in that state — on the portion of your income attributable to business activity there.

You can have one without the other. A solopreneur selling consulting services (a non-taxable service) might have income tax nexus in several states due to economic presence but no sales tax nexus because there's nothing to collect tax on.

If you have income tax nexus in multiple states, you don't pay income taxes on your full income in every state — that would be double (or triple) taxation. Instead, you apportion your income among the states based on a formula.

For service businesses, most states now use a sales-factor apportionment based on where your customers are located (called "market-based sourcing"). Under this approach, if 30% of your clients are in New York and 70% are in your home state of Arizona, approximately 30% of your income would be apportioned to New York for income tax purposes.

Some states still use a three-factor formula that also considers payroll and property, but the trend has been toward single-sales-factor apportionment, especially for service businesses.

Seven states have no individual income tax:

Florida Texas Nevada Washington (note: Washington has a Business & Occupation tax on gross receipts)

Wyoming South Dakota Alaska New Hampshire taxes interest and dividend income but not wages or business income (and this is phasing out entirely). Tennessee eliminated its investment income tax in 2021.

Many location-independent solopreneurs consciously choose to establish residency in one of these states for this reason. If you're already in a high-tax state like California, New York, or Oregon, this can represent a substantial financial difference — but the move has to be genuine. Tax authorities are sophisticated about identifying "paper" residency changes.

State tax agencies use increasingly sophisticated data matching. Common triggers:

1099 data. When your clients file 1099-NECs with the IRS, that data gets shared with states. If a client in Michigan issued you a 1099 and Michigan can see income flowing to a freelancer who hasn't filed a Michigan return, that's a potential nexus review.

Business registration. If you registered your LLC in a state, or registered to do business in a state, that state knows you exist and expects you to file.

Sales tax registrations. If you registered to collect sales tax in a state (properly), the state's income tax department may also come looking.

Marketplace data. States increasingly obtain sales data from major e-commerce platforms.

Step 1: Audit your nexus footprint. Where do you live? Where do you have employees or contractors? What states are your largest customers in? Run the numbers against each state's economic nexus thresholds.

Step 2: Identify your actual obligations. For each state where you have nexus, determine what tax obligations exist — income tax? Sales tax? Both? Neither (if you provide exempt services)?

Step 3: Register properly. Don't collect taxes in a state before you've registered. Collecting unregistered is a compliance violation in itself.

Step 4: File returns and remit taxes. Most states with income tax require an annual return (typically due April 15, with extensions available). Sales tax returns are typically more frequent — monthly or quarterly based on volume.

Step 5: Consider a multi-state CPA. Once you're dealing with more than one or two states, the complexity justifies professional help. A CPA experienced in multi-state taxation can often pay for themselves by optimizing apportionment and identifying overpayments.

If you've realized you've had nexus in states where you haven't been filing, voluntary disclosure is usually the right path. Most states' Voluntary Disclosure Agreements (VDAs) limit the lookback period to three to four years and waive the most severe penalties in exchange for coming forward and getting current.

This is far preferable to being discovered, which carries unlimited lookback periods and full penalties. A tax attorney or CPA specializing in state and local tax (SALT) can guide you through this process.

State tax obligations for remote businesses aren't theoretical compliance issues — they're real financial risks that grow with your business. The good news is that most solopreneurs, especially those primarily providing professional services rather than selling goods or software, have a manageable obligation footprint. Understanding where you have nexus, what that nexus actually requires, and building a system to stay current is the difference between a business that scales cleanly and one that accumulates a compliance mess that becomes expensive to unravel.

Take one action today: Map out every state where you have clients, contractors, employees, or meaningful revenue. That's your nexus risk map — and the starting point for getting compliant and staying there.

The sales-tax side gets its own treatment in sales tax for digital products. If you're mobile, state residency and taxes when you move and the digital nomad legal guide cover what happens when you are the nexus.