Multi-State Tax Nexus in 2026: Sales Tax, Income Tax, P.L
Multi-state nexus rules have exploded since Wayfair and the MTC's 2021 P.L. 86-272 erosion. Remote employees, $100K sales thresholds.
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TLDR
Multi-state nexus is the tax issue growing businesses miss most. Three different nexus regimes apply, and each has its own trigger. (1) Sales tax: $100K in sales, or 200 transactions, in most states (this rule started after Wayfair in 2018). Once you trigger it, you register and collect. (2) Income tax: physical presence still triggers it. Now 15 states also claim the right to tax your income based on receipts, with thresholds as low as $100K-$500K. P.L. 86-272 used to protect sellers of physical goods from state income tax. The MTC’s 2021 revised statement cut that protection for any business with a website, cookies, or in-state customer support. (3) Payroll tax: one remote employee in another state triggers payroll-tax registration there. The cost when you find nexus 3 years late: back tax, plus a penalty near 25%, plus interest near 8% a year, for every state you triggered. Back tax, penalties and interest can add up fast. The amount depends on the state, the type of business and the income.
In this guide, you’ll learn:
- The three nexus regimes (sales tax, income tax, payroll tax) and how each one triggers differently.
- The post-Wayfair $100K/200-transaction sales tax thresholds, plus the income tax economic nexus map across 15 states.
- Why the MTC’s 2021 statement cut P.L. 86-272 protection for any internet-active business.
- How to figure the back-tax, penalty, and interest cost when nexus is found 3 years late (a worked SaaS example).
- How a Voluntary Disclosure Agreement (VDA) limits look-back and waives penalties when you come forward first.
#What “nexus” actually means
Nexus is the legal line that gives a state the right to tax you. Each state sets its own line. There’s no federal nexus standard. The same business can have:
- Nexus for sales tax in 12 states.
- Nexus for income tax in 7 states (a different set).
- Nexus for payroll tax in 3 states (yet another set).
Most owners only think about nexus when a state’s revenue department sends a notice. By then it’s been triggering for months or years. The state’s clock has been running the whole time.
#The three types of nexus
The three regimes trigger on different facts. Each demands different filings. Each carries its own classic trap.
| Sales tax | Income tax | Payroll tax | |
|---|---|---|---|
| Trigger | $100K in sales or 200 transactions | Physical presence + economic nexus (15 states) | One employee working in the state |
| What you must do | Register, collect, file + remit returns | File a state income/franchise return, apportion income | Register, withhold, pay SUI, file payroll returns |
| Key gotcha | Wayfair (2018) made economic nexus universal | P.L. 86-272 protection is eroding fast | The remote-move trap: employee relocates, you go non-compliant day one |
#1. Sales tax nexus
Triggered by either:
- Physical presence: an office, warehouse, employee, inventory, or contracted sales rep in the state.
- Economic nexus: going over sales-volume limits the state sets.
South Dakota v. Wayfair (2018) changed everything. After that ruling, every U.S. state with a sales tax has economic nexus laws. Most states use this bright-line rule:
- $100,000 in gross sales to in-state customers in the prior year, OR
- 200 separate transactions to in-state customers in the prior year.
Once you trigger it, you have four jobs. Register. Collect sales tax. File returns on a set schedule (monthly, quarterly, or yearly, based on volume). Send the collected tax to the state.
Important trend: most states use $100,000 in sales, and some also count 200 transactions. Illinois dropped the transaction test in 2026. California and Texas use $500,000. New York needs both $500,000 and 100 sales. Check each state before you decide.
#2. Income tax nexus
Triggered by:
- Physical presence: same as sales tax.
- Doing business: having employees, inventory, or operations in the state.
- Economic nexus for income tax: many states now tax out-of-state businesses by receipts. Some tax net income. Some tax gross receipts or franchise value instead. The table below lists examples, not every state.
The major income-tax economic nexus states + their thresholds (current as of 2026):
| State | Threshold |
|---|---|
| California | About $757,000 in California sales for 2025 (adjusted each year). Payroll or property in California above about $75,700 can also count. |
| New York | $1,283,000 in New York receipts (2024 through 2026, adjusted for inflation) |
| Texas | $500,000 in Texas receipts (franchise tax) |
| Massachusetts | $500,000 in Massachusetts sales |
| Connecticut | $500,000 in Connecticut sales |
| Pennsylvania | $500,000 in Pennsylvania sales |
| New Jersey | ”Operating in New Jersey” + nexus presumption |
| Tennessee | $500,000 in receipts |
| Hawaii | $100,000 in sales or 200 transactions |
| Ohio | Ohio has a gross receipts tax (CAT), not an income tax. You have nexus at $500,000 in Ohio receipts, but you pay only on receipts above $6 million (2025 and later). |
| Washington | $100,000 in Washington receipts (B&O tax) |
Go over the threshold, and the state can tax part of your income. The taxed part depends on your activity in that state, using apportionment formulas. The formula varies by state: it can be sales-only, three-factor, or single-sales-factor.
#3. Payroll tax nexus
Triggered when you have any employee working in the state. Even one remote worker who lives there counts. It requires:
- Registering as an employer in that state’s payroll-tax system.
- Withholding state income tax from the employee’s wages.
- Paying state unemployment insurance.
- Filing payroll returns on a set schedule.
The post-COVID trap: an employee who used to live in your home state moves to another state without telling you. You keep paying them the same way. You’re now out of compliance with payroll tax in the new state, from day one of their move.
#P.L. 86-272: the federal income-tax protection that used to matter
Public Law 86-272 passed in 1959. It’s a federal statute. It stops states from taxing income from sellers of tangible personal property. That protection holds as long as the only in-state activity is taking orders that go outside the state for approval and fulfillment. Public Law 86-272 still protects sellers of physical goods who only take orders. Many states now treat some website features, like in-state chat support or app downloads, as going beyond that. Each state decides for itself.
This used to be a huge shield. It protected traveling salespeople, mail-order businesses, and remote-sales-only companies.
What still qualifies for P.L. 86-272 protection (the old way):
- Sales reps physically traveling through a state to take orders.
- Mail-order solicitation.
- Trade-show booth attendance for taking orders.
What disqualifies P.L. 86-272 protection:
- Selling intangibles (software-as-a-service, licenses, services). These never qualified; the law only covers tangible goods.
- Any non-sales activity: installation, repair, technical support, post-sale customer service, training.
- Having an in-state employee whose work goes beyond taking orders.
- Holding inventory in-state.
#The MTC’s 2021 revised statement: P.L. 86-272 is dying
In August 2021, the Multistate Tax Commission (MTC) rewrote its statement on P.L. 86-272. It now says everyday digital things go beyond mere order-taking. That cuts off protection. These things include:
- Having a website that uses cookies to gather customer data.
- Giving in-state customer service through the website (chat, contact form, etc.).
- Sending post-sale electronic messages (emails, push notifications).
- Letting customers download free apps on devices physically in the state.
- Inviting in-state customers to create accounts, save preferences, or submit reviews.
In plain terms: does your website do anything beyond a static product list and an order form? Then the MTC says P.L. 86-272 doesn’t protect you.
Some states have written rules or guidance that follow the MTC’s 2021 view of P.L. 86-272. New York and New Jersey are two examples. Court fights over these rules are still going on. Check each state’s current rules before you rely on this.
A court challenged how California applied this view (American Catalog Mailers Association v. Franchise Tax Board). Litigation status (2026): the case is still going, but California keeps enforcing its position. Most CPAs assume P.L. 86-272 offers no real protection to any business with an internet presence.
#The dollar math: what nexus mistakes cost
To make this real: Andrea is a SaaS founder running a $1.2M-revenue business in 2026. She lives in Texas. She has:
- 400 customers in California, totaling $280K in revenue.
- 200 customers in New York, totaling $190K in revenue.
- 1 remote employee in California.
- 1 contractor (W-9, not employee) in Florida.
What nexus has she triggered?
| State | Income tax nexus? | Sales tax nexus? | Payroll nexus? |
|---|---|---|---|
| CA | YES (a California employee gives her presence there. The $280K in sales is under California’s sales threshold) | NO (SaaS is generally not taxable in CA) | YES (employee) |
| NY | NO (about $190K of receipts, far under the $1,283,000 threshold, and no New York employee or property) | NO (under the sales tax threshold, though SaaS is taxable in New York once you pass it) | NO |
| FL | NO (contractor, not employee) | NO | NO |
| TX | YES (home state, franchise tax) | NO (under $500K TX-only) | YES |
Andrea owes income tax in CA, NY, and TX. That’s three state returns. She also needs payroll registration and ongoing payroll tax compliance in CA and TX. If she misses any one of these:
- CA back income tax for 3 years, at about 9% effective state rate on her CA-apportioned income: about $5K-$15K.
- CA failure-to-file penalty: up to 25%.
- CA interest: about 5-7% a year, compounded.
- CA payroll registration penalty for the unregistered remote employee: up to $500 a quarter.
- NY: a similar size problem.
- Total exposure 3 years late: $25K-$75K.
The same business, properly registered from day one, would have owed about $8K-$15K total across all three states. Waiting makes the penalty and interest cost far bigger.
#What triggers nexus most commonly (the avoidable cases)
Based on our work with growing businesses, here are the top 5 surprises:
- Hiring a remote employee in a new state. Payroll nexus is instant. The employee triggers it the day they start work.
- Crossing the $100K sales threshold in a new state for the first time. Most businesses have no tracker that flags this. They find out from a notice.
- Storing inventory at an Amazon FBA warehouse. Inventory stored in a state creates physical presence there. Amazon usually collects sales tax on marketplace sales for you. You may still owe income or franchise tax filings, and you must collect tax on sales made outside Amazon.
- Trade-show attendance, even briefly. Some states count this as physical presence.
- Hiring contractors in new states who get reclassified as employees by the state’s labor department. The state then comes back for income tax and payroll tax, both.
#What to do once you’re nexus-positive
Your fix depends on how long you've been triggering
How long have you been nexus-positive in that state?
-
Recommended
Less than 90 days
Register now + start filing
Penalty + interest are mild this early. Some states waive prior-period liability if you register voluntarily inside a registration window.
- 3 months to 3 years
Voluntary Disclosure Agreement
A VDA limits look-back to 3-4 years, waives some or all penalties, and charges back tax + reduced interest. Submit through a representative, often anonymously.
- 3+ years
Amnesty or VDA with representation
Exposure is large enough that professional representation is essentially mandatory. Use state amnesty if offered, otherwise a carefully-disclosed VDA.
Never approach a state directly before a VDA is filed: they look up your taxpayer ID before you sign anything.
Different strategies apply, based on how much time has passed:
#If you’ve been nexus-positive < 90 days
Register now and start filing. Most states keep the penalty and interest mild if you come forward early. Some states have a “registration window.” Register on your own inside it, and they waive what you owed before.
#If you’ve been nexus-positive 3 months to 3 years
Voluntary Disclosure Agreement (VDA): most states have a formal VDA program that:
- Limits look-back to 3-4 years (not the state’s full statute of limitations, which can be 6+ years for unfiled returns).
- Waives some or all penalties.
- Charges back tax plus reduced interest.
A VDA needs a written submission, often done without naming you, through a representative. Don’t approach the state directly. They will look up your taxpayer ID before you ever sign anything.
#If you’ve been nexus-positive 3+ years
Most states let you come forward on your own before they contact you. They often limit how far back they look, but not for sales tax you already collected. At this point, get professional representation. The dollar exposure is large enough that mistakes get expensive.
#How to actually track nexus going forward
A real nexus-monitoring practice does this:
-
Quarterly nexus review. Pull state-by-state revenue. Compare it against each state’s threshold. Flag any state you’re within 80% of, for closer watching.
-
Employee and contractor residence check. Every quarter, confirm where each one physically works. Anyone who’s moved can trigger a whole new registration process.
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Sales-tax automation tools (Avalara, TaxJar, or similar) handle the tracking and filing once you’re registered. The $50-300 monthly cost is worth it for any business over $300K in revenue.
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An annual nexus study. At minimum, spend 30 minutes a year with someone who knows multi-state tax. We run these as part of advisory engagements for any ETS client with operations in 2 or more states.
#Common questions
Does P.L. 86-272 still apply to my business? Do you sell physical goods only through traveling reps, with no online presence, and no in-state activity beyond the reps asking for orders? Then yes, it still applies. Is your business active online in any other way? Then assume it doesn’t apply. That’s especially true in CA, NY, and NJ.
I have customers in 30 states. Do I have nexus in all 30? Probably not. It depends on the state. In states with a bright-line income or franchise tax test, meeting the threshold is enough. In other states, you also need some physical connection, like an employee or inventory. For sales tax, the $100K/$200-transaction thresholds trigger nexus no matter what else is going on. That’s the post-Wayfair rule.
What if my products aren’t subject to sales tax in a particular state? You still have nexus if you go over the threshold. You just don’t have to collect or send sales tax on the exempt products. You may still have INCOME tax nexus, separately. Each state defines what’s taxable in its own way.
I’m a SaaS company. Do I have sales tax nexus? It depends on the state. Some states tax software as a service, and many do not. Check each state’s rule, since it changes your filing duty once you meet the nexus threshold. Whether it’s taxable is a separate question from whether you have nexus.
My contractor is a 1099. Does that trigger nexus? A contractor usually does not trigger payroll tax nexus. But a contractor who sells for you or does your work in a state can still create income or sales tax nexus there. Higher-risk states for misclassification: CA, NY, MA, NJ. A long-term 1099 working 30+ hours a week is a reclassification risk.
What about inventory in an Amazon FBA warehouse? This is the classic nexus trap. Inventory stored in a state creates physical presence there. Amazon usually collects sales tax on marketplace sales for you. You may still owe income or franchise tax filings, and you must collect tax on sales made outside Amazon. Most FBA sellers have nexus in 20+ states without knowing it.
Can I dissolve nexus by stopping activity in a state? Yes, but the state can still bill you for the years you were nexus-positive. If you never filed, the time limit may not have started. A voluntary disclosure usually limits how far back a state looks.
What does a nexus study cost? For an ETS-style boutique advisory engagement, a nexus study is usually part of the Tax Analysis, when complexity calls for it. As a stand-alone deliverable, expect $1,500-$5,000. The price depends on the number of states and how complex the work is.
Does your business have revenue over $300K across multiple states? Do you have any remote employees? Have you crossed $100K of sales in any state outside your home state? If any of those are true, run a nexus study before the next state notice arrives. The Discovery call is the right first step. We map your current footprint. We find states where you’re already nexus-positive. We lay out a registration or voluntary-disclosure path, before back taxes, penalties, and interest pile up any more.
For the exact threshold in your state, check that state’s own revenue department page. The MTC’s revised statement on P.L. 86-272 is the source for the P.L. 86-272 discussion.