ARTICLE | September 3, 2026

Your Tax Footprint May Be Larger Than You Think

A business can establish a meaningful presence in a state without opening a location there.

That presence, commonly called nexus, may require the business to register, collect sales tax, withhold payroll taxes, pay unemployment insurance, or file income, franchise, gross receipts, or other state returns.

There is no single nexus standard. Each state applies its own rules, and the analysis can differ depending on the type of tax involved. For example, a business may have payroll obligations in a state without a sales tax collection requirement, or it may have an income or franchise tax filing obligation even when a marketplace facilitator collects sales tax from its customers.

The traditional questions remain important: Where are the company’s facilities, employees, and inventory? But the analysis often goes further. States may also consider where customers are located, where services are performed or delivered, and the nature and volume of a company’s in-state sales.

Three Routine Decisions Can Create Nexus

1. Hiring someone in another state

A remote employee may create payroll withholding, unemployment insurance, business registration, or tax filing requirements. In some circumstances, the activity of an independent contractor working on the company’s behalf may also be relevant.

Remote work can produce additional wage-sourcing complications. New York, for example, applies a “convenience of the employer” test to certain nonresident employees whose assigned or primary office is in New York. Work performed from another state may still be treated as New York work unless specific employer-necessity or bona fide office requirements are met.

2. Storing inventory through a fulfillment provider

Using Amazon FBA or another third-party fulfillment network can place inventory in states the business did not personally select.

That inventory may create physical presence nexus. Although a marketplace facilitator may collect sales tax on marketplace transactions, that does not automatically resolve every registration, income tax, gross receipts tax, or filing question.

3. Growing sales in a new market

For sales and use tax purposes—separate from state income-tax filing obligations—businesses can establish tax obligations in a new state through either physical or economic presence.

The Supreme Court’s 2018 South Dakota v. Wayfair decision permits states to require remote sellers with no physical presence in the state to register, collect, and remit sales tax once specified economic thresholds are met. These thresholds vary significantly. For example, California generally requires qualifying remote sellers to register when sales of tangible personal property delivered into the state exceed $500,000 during the current or preceding calendar year. Colorado generally applies a $100,000 annual retail-sales threshold for remote sellers.

However, once a business creates physical presence in a state—such as through employees, inventory, offices, or certain in-state representatives—sales tax collection obligations may apply beginning with the first taxable dollar of sales, without regard to an economic threshold. Businesses should also keep in mind that, while sales tax often applies to tangible personal property, many states tax certain services, digital products, software, or other transactions.

The real mistake is treating nexus as a tax-season issue

Nexus Should be Treated as an Operating Trigger, Not a Year-End Compliance Cleanup.

By the time a return is being prepared, the decision that created the obligation may have occurred months or years earlier. The employee has already been hired. The fulfillment agreement has been signed. Sales have already crossed a state threshold.

Consider an Oregon-based product company with $85,000 in California sales and $110,000 in Colorado sales. It may remain below California’s sales tax threshold while exceeding Colorado’s. The company does not need a Colorado office or employee for the Colorado question to arise. It needs reliable sales data and a process for recognizing when the threshold has been crossed.

The better business question is not simply, “Can we sell or hire there?”

It is:

What obligations will this decision create, when will they begin, and who is responsible for addressing them?

Build nexus checks into business decisions

A practical nexus process should track four categories:

• People: Where employees and regular contractors perform their work
• Property: Where inventory, equipment, and other assets are located
• Revenue: Sales by state, channel, product, and service type
• Business changes: New hires, sales channels, fulfillment arrangements, acquisitions, and market expansion

Businesses should also distinguish between sales tax, payroll, income tax, gross receipts tax, and registration requirements. Reaching a sales threshold does not answer every other state tax question.

A quarterly review is often more useful than a one-time annual exercise. Internal alerts can also be set before sales reach a state’s threshold, giving the business time to evaluate registration, pricing, systems, and filing responsibilities.

Past Exposure Does Not Automatically Mean a Crisis

When an internal review identifies prior exposure, voluntary disclosure may offer a path to compliance.

Many states offer voluntary disclosure programs for qualifying taxpayers with potential income tax or sales and use tax exposure. These programs may provide a limited lookback period and relief from certain penalties in exchange for voluntary registration, filing, and payment of the applicable tax. Eligibility and terms vary by state and tax type, and prior contact from a taxing authority may disqualify a business from participating. That makes early identification and action important.

Growth Should Be Informed, Not Delayed

State tax nexus should not discourage a business from hiring talented people, reaching new customers, or improving distribution.

It should encourage the business to understand the cost and compliance consequences before acting.

The goal is not to register in every state. It is to identify where the company’s actual activities create obligations, address exposure deliberately, and prevent tax surprises from becoming business problems.

Larson Gross works with closely held businesses to evaluate nexus by state and tax type, assess potential exposure, consider voluntary disclosure options, and build more reliable multistate compliance processes.

This article provides general information only. State tax obligations depend on the business’s specific activities, tax types, and jurisdictions and should be evaluated with a qualified tax advisor.