Economic nexus in the United States

Economic nexus in the United States is a legal standard that U.S. states use to determine whether a business has a substantial connection with the state, thereby imposing the obligation to collect and remit sales tax. Unlike the traditional physical presence requirement, economic nexus is established through the volume or value of a business's economic activity within a state, such as reaching a certain threshold of sales or number of transactions.

The concept became central to U.S. state taxation following the 2018 Supreme Court decision in South Dakota v. Wayfair, Inc., which allowed states to require out-of-state or remote sellers to collect sales tax based solely on economic activity, even in the absence of physical presence. The ruling overturned decades of precedent, most notably the Quill Corp. v. North Dakota ruling, enabling states to expand tax compliance obligations to out-of-state or remote sellers, particularly those engaged in the e-commerce industry.

Since the decision, most U.S. states have enacted economic nexus laws, which have transformed sales tax compliance for businesses operating across state lines.