United States Economic Nexus Thresholds

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 [1] 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. [2]

The concept became central to state tax policy after the 2018 United States 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 a physical footprint. This ruling overturned decades of precedent, most notably the Quill Corp. v. North Dakota decision, enabling states to expand tax‑collection 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 statutes that have fundamentally transformed sales‑tax compliance for businesses operating across state lines, compelling many online retailers, digital platforms, and marketplace facilitators to register, collect, and remit taxes in jurisdictions where they previously had no obligation. The shift has generated both administrative burdens and revenue gains for states, while also prompting a wave of legislative adjustments as policymakers fine‑tune thresholds, definitions, and enforcement mechanisms to balance fiscal needs with commercial realities.

History

Background

Before 2018, the authority of U.S. states to require businesses to collect sales tax was primarily governed by the North Dakota Supreme Court ’s 1992 decision in Quill Corp. v. North Dakota [3]. In that case, the Court reaffirmed the principle that a business must have a physical presence—such as an office, warehouse, or employees—in a state before that state could impose tax‑collection obligations. This physical‑presence rule was rooted in the U.S. Constitution , which limits state regulation of interstate commerce.

The Quill decision limited state tax enforcement at a time when remote commerce and online sales were rapidly expanding. States argued that the rule created a tax loophole, allowing out‑of‑state or remote sellers to avoid collecting, reporting, and remitting sales tax even when they generated substantial sales within the state. This situation placed brick‑and‑mortar businesses at a competitive disadvantage and led to growing concerns about lost tax revenue .

South Dakota v. Wayfair, Inc.

The legal framework surrounding state sales‑tax collection changed dramatically with the 2018 Supreme Court ruling in South Dakota v. Wayfair, Inc. [4]. The State of South Dakota had enacted a law requiring out‑of‑state sellers to collect and remit sales tax if they exceeded specific economic thresholds set at $100,000 in sales or 200 transactions annually in the state, regardless of physical presence. [5]

The Court upheld South Dakota’s law, ruling that the physical‑presence requirement established in Quill was “outdated and artificial.” It reasoned that substantial economic and technological changes in commerce justified a shift in legal standards. The opinion noted that “states were losing between $694 million and $3 billion per year in sales‑tax revenues as a result of the physical‑presence rule.” [4]

This decision effectively sanctioned the use of economic‑nexus standards, allowing states to assert tax authority based on the aggregate volume of sales or transactions within their borders, even when the seller has no physical presence.

State‑by‑State Economic Nexus Threshold Overview

The following table summarizes the current economic‑nexus thresholds adopted by each state as of July 2025, including the dates when the regulations were introduced, the quantitative thresholds, the measurement periods used, the types of sales included, and the deadlines for registration once a threshold is crossed. [6]

Note: Economic thresholds are as of July 2025 and are subject to change.

U.S. States Without Economic Nexus

Although the vast majority of the U.S. states that impose sales tax have adopted economic‑nexus laws, a small number of states do not impose a statewide sales tax. These states are Delaware , Oregon , Montana , and New_Hampshire , and together with Alaska they are known as the NOMAD states. [1]

• Delaware imposes a gross receipts tax on businesses that sell goods or provide services within the state. Remote or out‑of‑state sellers are exempt from paying gross receipts tax in Delaware, as it generally applies to businesses with physical nexus and activity within the state. [58]
• Oregon imposes a vehicle‑privilege and use tax [59] on new vehicles purchased out of state, and excise taxes are applied to products such as cigarettes and marijuana .
• Montana levies excise taxes on gasoline , alcohol , tobacco , lodgings , and other items.
• New_Hampshire does not have a general sales tax, but it does levy certain selective taxes on specific goods and services.

Alaska, while not part of the NOMAD group, nonetheless allows local jurisdictions to adopt economic‑nexus rules through the Alaska Remote Seller Sales Tax Commission (see above).

See also

• South Dakota v. Wayfair, Inc
• Quill Corp. v. North Dakota
• Sales taxes in the United States
• Streamlined Sales Tax Project