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There is a version of US Sales Tax compliance that feels reassuring. You know your revenue figures. You check them against the thresholds. You are under $100,000 in a state, so you assume you are safe. No registration required. No filing obligations. Nothing to worry about.
That assumption is understandable. It is also one of the most common reasons businesses find themselves with unexpected US Sales Tax exposure.
Economic nexus thresholds are not a safety net. They are a trigger point. And the gap between thinking you are below them and actually being below them is wider than most finance teams realise.
When economic nexus rules were introduced following the 2018 South Dakota v. Wayfair decision, the $100,000 revenue threshold became the number most businesses focused on. It felt like a clear, manageable line. Stay below it, and you are outside the system.
The problem is that the $100,000 figure is not universal, not consistently calculated, and not the only factor that determines whether a business has nexus in a state.
Thresholds vary. Some states set their threshold at $100,000 in gross sales. Others use net sales. Some look at the previous calendar year. Others look at a rolling twelve-month period. A handful of states have thresholds at different levels entirely. Assuming that the same calculation applies everywhere is a mistake that creates gaps.
What counts toward the threshold also varies. In some states, exempt sales count toward the threshold even though no tax is collected on them. In others, sales made through marketplace facilitators may or may not be included depending on how the state treats facilitated sales. For a detailed breakdown of what triggers US Sales Tax compliance obligations across states, see our guide on economic nexus and US Sales Tax.
Most businesses approach threshold monitoring by looking at their total revenue in a state and comparing it to $100,000. That is a reasonable starting point, but it leaves out several factors that can materially change the picture.
Marketplace sales
If you sell through Amazon, Shopify, or another marketplace facilitator, those sales may or may not count toward your economic nexus threshold depending on the state. In most states they do. That means a business selling exclusively through a marketplace platform can cross a threshold without ever making a direct sale into that state. Read more about how marketplace facilitator laws interact with seller obligations.
Exempt sales
Sales to tax-exempt buyers, such as resellers, non-profits, and government entities, are often still included in threshold calculations even though no tax is collected. A business with a high proportion of exempt sales may be closer to a threshold than its taxable revenue figures suggest.
Transaction count thresholds
While most businesses focus on the $100,000 revenue figure, it is important to know that some states also apply a separate transaction count threshold, typically 200 transactions in a calendar year. This means a business could trigger nexus in a state based on the number of individual sales alone, even if total revenue remains below $100,000. States with transaction thresholds assess them independently from revenue, so both need to be monitored. Businesses with high volumes of low-value sales are particularly exposed to this and often do not realise it until they are already in scope.
Multi-entity structures
Businesses operating through multiple legal entities need to consider whether sales across those entities should be aggregated for threshold purposes. Some states require aggregation where entities are under common ownership or control. Treating each entity in isolation when the state does not is a compliance error that auditors are well equipped to identify.
Look-back periods
The period a state examines to determine whether a threshold has been crossed varies. Some states look at the previous calendar year only. Others use a rolling twelve-month window, which means threshold status can change month to month. A business that was below the threshold in January may be above it by March without any single large transaction triggering the crossing.
One of the most financially significant aspects of economic nexus exposure is what happens when a business discovers it crossed a threshold in the past without registering.
Registration obligations do not begin the moment a threshold is crossed in most states, as there is typically a grace period of thirty to sixty days to register after the threshold is met. But that grace period only applies if the business identifies the crossing in real time. A business that crosses a threshold in January 2024 and discovers it in January 2026 does not get a grace period. It has two years of unregistered activity to account for.
In most states, failure to register once a threshold is crossed creates a prior period liability. The state can assess tax on all sales made after the threshold was crossed, plus interest and penalties. The statute of limitations for unfiled returns is often indefinite, meaning there is no ceiling on how far back a state can look where returns were never filed.
For businesses that have been selling into the US for several years without a formal nexus review, the retroactive exposure can be substantial. It is not uncommon for the liability identified in an audit to cover multiple years across multiple states simultaneously.
The most common trigger for discovering economic nexus exposure is not proactive compliance monitoring. It is one of three events: an audit, an acquisition, or a state nexus questionnaire arriving in the post.
Audits are increasingly data-driven. States have access to third-party sales data, marketplace transaction records, and interstate data-sharing arrangements that make it straightforward to identify businesses with significant in-state sales that are not registered.
Acquisitions trigger due diligence processes that include indirect tax reviews. Buyers routinely identify unregistered nexus exposure in targets, and the cost of that exposure is either deducted from the purchase price or becomes a post-closing liability. For businesses considering a future sale, unresolved nexus exposure is a direct financial risk.
Nexus questionnaires are letters from state revenue departments asking businesses to confirm whether they have a sales tax obligation in the state. Receiving one is not automatically a problem, but it is a signal that the state believes you may have an obligation and wants to know why you are not registered.
In all three scenarios, the cost of addressing the exposure after the fact is significantly higher than the cost of identifying and managing it proactively.
For businesses scaling their US Sales Tax presence, threshold monitoring is not a one-time exercise. It is an ongoing operational process.
Practically, that means:
For businesses that have not yet conducted a formal nexus review, the starting point is a comprehensive assessment of historical sales activity across all states. This identifies where thresholds have already been crossed, quantifies any retroactive exposure, and establishes a baseline for ongoing monitoring.
If your business sells into the US and has not recently reviewed its economic nexus position across all states, the risk of unidentified exposure is real. The longer the gap between threshold crossings and registration, the larger the potential liability.
The right approach depends on where your business is in its US Sales Tax journey:
For a comparison of the US Sales Tax compliance solutions available to support this process, see our guide on the best US Sales Tax compliance solutions.
VAT IT supports businesses in assessing and managing their US Sales Tax compliance position, from initial nexus reviews through to ongoing registration, filing, and threshold monitoring across all states.
Get in touch with our team to find out where your business stands.
1. Can a business have economic nexus in a state without making any direct sales there?
Yes. Economic nexus can arise from sales routed through marketplace platforms, from inventory stored in a state by a fulfilment partner, or from other business activities that create a taxable connection with the state. Physical presence is no longer required to trigger US Sales Tax obligations, and businesses should not assume that a lack of direct customer relationships in a state means they have no exposure there.
2. What happens if a business crosses an economic nexus threshold but does not register in time?
Failure to register once a threshold is crossed creates a prior period liability in most states. The state can assess tax on all sales made after the threshold was crossed, along with interest and penalties. Where returns have never been filed, the statute of limitations is often indefinite, meaning there is no ceiling on how far back the state can look. Businesses that identify historical exposure should seek advice on voluntary disclosure options, which can reduce penalties in many states.
3. Do economic nexus thresholds reset each year?
It depends on the state. Some states assess threshold status based on the previous calendar year only, which means a business that crossed the threshold in one year but not the next may be able to deregister. Others use a rolling twelve-month window, which means threshold status is reassessed continuously. Businesses should understand which look-back period applies in each state where they have sales activity rather than assuming a uniform rule applies.
4. How does economic nexus interact with physical nexus?
Economic nexus and physical nexus are separate triggers for US Sales Tax obligations. A business can have physical nexus in a state through an office, employee, or inventory without having crossed the economic nexus threshold, and vice versa. Where both apply, the result is the same: a registration obligation exists. Businesses should assess both types of nexus independently rather than assuming one cancels out the other.
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