Economic Nexus

Physical nexus and economic nexus

Physical nexus did not go away after Wayfair. It still applies, and it does not need a threshold. The California Department of Tax and Fee Administration (CDTFA) says that "retailers with a physical presence in California are still generally required to be registered with CDTFA," and gives examples such as maintaining inventory or office locations in California, or having representatives there to take orders, make sales or deliveries, or install or assemble goods.

Economic nexus is the second route in, for sellers with none of that. It is measured purely from sales into the state. If you have a physical presence, the sales threshold is beside the point, because you already have nexus.

For a business selling online, the practical order is: first list the states where you have people, property or inventory. Those are physical nexus states. Then measure your sales into every other state against that state's economic nexus rule.

The three variables in every threshold

Every state's economic nexus rule answers the same three questions differently.

How much. Most rules use a dollar amount of sales into the state. Some have also counted transactions, as South Dakota's law did in 2018 with its 200-transaction alternative. Because states amend these rules, check the current rule with the state rather than relying on a summary.

Which sales count. Texas measures "gross revenue from sales of all taxable and nontaxable tangible personal property and services into Texas," so exempt sales still count toward the threshold. California counts "the total combined sales of tangible personal property for delivery in California by the retailer and all persons related to the retailer." Both states count sales made through a marketplace, even when the marketplace collects the tax on them. The Texas Comptroller is explicit: "you must include all sales in the safe harbor calculation, including marketplace sales."

Over what period. Texas looks at "the previous 12 calendar months." California looks at "the preceding or current calendar year." The same $500,000 can be crossed in one state and not the other depending on when the sales fell.

Crossing a threshold, registering, and stopping

Crossing a threshold is not the same as collecting tax. It creates an obligation to register, and the tax is only charged once you are registered and your checkout is set up to collect it. The gap between those two dates is where back tax exposure comes from, which is why the date you crossed matters as much as the fact that you did.

A state's rule also starts on a date. California's requirement for remote sellers applies to sales "on and after April 1, 2019, and is not otherwise retroactive."

Stopping has its own rule. In Texas, a remote seller can end its collection responsibility only after "12 consecutive months in which total revenue from sales of all tangible personal property and services in Texas for the preceding 12 calendar months was less than $500,000," and must resume collecting if its Texas revenue later exceeds $500,000 over 12 consecutive months. Dropping below the line for a month does not end the obligation.

How Stripe Tax measures it, and what it cannot see

Stripe Tax uses the term directly. Its threshold monitoring "provides insights about your potential tax registration obligations (called economic nexus in the US)." It tracks your Stripe-processed sales, minus refunds, by customer location and compares them against each jurisdiction's threshold, over windows such as the previous or current calendar year, the previous calendar year, the last four full quarters, or a rolling 12 months.

The monitor works from stated assumptions, and each one is a place where its number and the state's can differ. It only counts Stripe-processed sales and transactions you import. It assumes every sale uses your preset product tax code and is taxable at the destination. It does not monitor your home state, because it is built for places where you have no physical presence. Sales it cannot place in a state are grouped as US unattributed revenue rather than counted toward any state. Stripe also says it "can't differentiate between marketplace and non-marketplace sales."

Stripe sends threshold notifications once your business reaches 10,000 USD in yearly revenue, and it is clear about the limit of the tool: it highlights potential obligations, and confirming whether registration is actually required is up to you. Registering is a separate step. You register with each state yourself, or use Stripe's Register for me service in supported locations, which registers you but does not file returns.