A single remote hire or one pallet of inventory can force you to collect sales tax in a state you have never visited. Physical nexus is that trigger, and it carries no dollar floor.
The 2018 Wayfair ruling added economic nexus, but it did not retire physical nexus. Any qualifying presence still obligates you to register, collect, and remit. Washington’s Department of Revenue (DOR) says physical presence “requires only more than the slightest presence,” per its physical presence nexus guidance.
What Is Physical Nexus for Sales Tax?
Physical nexus is a connection created by physical presence, people, property, or inventory, that obligates a business to register, collect, and remit sales tax in a state, with no minimum dollar threshold. Washington DOR sets the bar at “more than the slightest presence.” Any in-state footprint counts, whether you sell online, from a store, or both.
The standard traces to Quill Corp. v. North Dakota, 504 U.S. 298 (1992), decided May 26, 1992, which the U.S. Supreme Court used to require physical presence before a state could compel sales tax collection, per Cornell’s Legal Information Institute. South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018), decided June 21, 2018 by a 5-4 vote, overruled that physical-presence-only rule and added economic nexus alongside it, per the Supreme Court opinion. Wayfair supplemented physical nexus; it did not replace it.
What Is the Difference Between Physical and Economic Nexus?
Physical nexus is triggered by presence with no dollar threshold; economic nexus is triggered by revenue or transaction volume, commonly $100,000 in sales or 200 transactions under Wayfair. Either one alone is sufficient, and the two are not mutually exclusive. Physical presence has no safe harbor: no minimum sales figure protects you once qualifying presence exists.
| Dimension | Physical nexus | Economic nexus | Source |
|---|---|---|---|
| Trigger | Physical presence (people, property, inventory) | Sales revenue or transaction volume | Washington DOR; South Dakota v. Wayfair |
| Threshold | No dollar minimum; “more than the slightest presence” | Commonly $100,000 in sales or 200 transactions | Washington DOR; South Dakota v. Wayfair |
| Legal basis | Predates Wayfair; Quill (1992) | Established by Wayfair (2018) | Quill, 504 U.S. 298; Wayfair, 585 U.S. 162 |
| Typical triggers | Employees, offices, warehouses, inventory, trade shows, contractors | Crossing a state’s sales or transaction threshold | Washington DOR |
| Who it applies to | Any business with an in-state footprint | Primarily remote or out-of-state sellers | South Dakota v. Wayfair |
For state-by-state economic figures, see Commenda’s economic nexus guide and the broader sales tax nexus overview.
What Activities Create Physical Nexus?
Employees, real or tangible property, inventory (including third-party-held stock), leased property, agents maintaining a market, sales solicitation, installation or repair work, and services performed in-state all create physical nexus, per Washington DOR. This is the umbrella section; the highest-intent triggers get their own sections below.
Washington DOR lists these physical-presence-creating activities:
- An employee working in the state
- Real or tangible personal property in the state
- A stock of goods, including inventory held by a marketplace facilitator or other third party
- Rented or leased tangible personal property in the state
- Agents or representatives establishing or maintaining a market
- Soliciting sales through employees or representatives
- Installing, assembling, constructing, repairing, or maintaining property
- Providing services, delivering goods in your own vehicles, or maintaining a trade show exhibit
Does a Remote Employee Create Sales Tax Nexus?
Yes. A single remote employee typically creates physical nexus in their home state, even when the business has no other presence there. Washington DOR lists “having an employee in the state” as a nexus-creating activity, with no revenue floor attached.
Post-2020 distributed workforces made this the most common accidental trigger. Contractors and 1099 workers can also create nexus when they solicit sales or maintain a market. Traveling salespeople, installers, and trainers who enter a state count too. Payroll and income tax obligations often ride along with the sales tax duty.
Does Storing Inventory in a State Create Nexus?
Yes. Inventory stored in a state almost always creates physical nexus, even when a third party placed it there without your choice. Washington DOR explicitly includes stock held by a marketplace facilitator or other third-party representative in its list of nexus-creating activities.
That rule is the reason Fulfillment by Amazon inventory deserves its own treatment below.
Does Amazon FBA Inventory Create Sales Tax Nexus?
Fulfillment by Amazon (FBA) inventory can create physical nexus in every state where Amazon stores your goods. Marketplace facilitator laws now require Amazon to collect and remit on its marketplace sales in nearly all sales-tax states, which shrinks your exposure but does not erase it.
The remaining risk sits in your non-Amazon channels, such as your own website or wholesale orders. FBA-created nexus can still obligate you to register and collect on those sales into the state. The area is genuinely unsettled: some states have taken aggressive enforcement positions, and Online Merchants Guild v. Hassell in Pennsylvania questioned whether Amazon-placed inventory alone creates constitutional nexus. Treat this as litigated, not settled law.
Does Attending a Trade Show Create Nexus?
Yes, trade show attendance can create physical nexus, and Washington DOR lists “maintaining a trade show exhibit” among nexus-creating activities. Several states publish day-count or sales safe harbors that exempt limited attendance, so both the day count and whether you take orders matter.
Rules vary widely by state. Staffing a booth purely for marketing is treated differently from closing sales on the floor, and taking orders is the aggravating factor. Confirm each state’s day limit and solicitation rules with its DOR before you exhibit, because a de minimis exemption in one state does not carry to the next.
What Are the Physical Nexus Rules by State?
Every state with a sales tax treats qualifying physical presence as nexus with no dollar threshold. The five states without a statewide sales tax, Alaska, Delaware, Montana, New Hampshire, and Oregon, impose no state-level collection duty, though Alaska permits local option taxes.
| State | Physical presence standard or notable rule | Source |
|---|---|---|
| Washington | “More than the slightest presence” creates nexus; no revenue minimum | Washington DOR |
| California | Any retailer “engaged in business in this state” must register and collect; no revenue floor for physical presence | CDTFA, Rev. & Tax. Code §6203 |
| South Dakota | Physical presence requires a license; the $100,000 test is economic-only, and the 200-transaction prong was repealed July 1, 2023 | South Dakota DOR |
| Alaska, Delaware, Montana, New Hampshire, Oregon | No statewide sales tax, so no state-level collection duty (Alaska allows local option taxes) | State statutes |
Physical nexus has no per-state dollar thresholds; the 2026 figures people search for are economic thresholds. For those, use Commenda’s US nexus exposure guide and per-state pages rather than treating them as physical-nexus rules.
How Do I Determine If I Have Physical Nexus?
Audit where your people, property, and inventory actually sit: employee and contractor home states, warehouses, third-party logistics (3PL) and FBA locations, leased equipment, service or installation visits, and event attendance. Any qualifying presence in a state means physical nexus there.
Run this self-audit, state by state:
- Do we have employees, including remote workers, located there?
- Do we use contractors or sales reps who solicit business there?
- Do we store inventory there, including via FBA or a 3PL?
- Do we own or lease property, offices, or equipment there?
- Do we attend trade shows or events there, and how often?
- Do we install, repair, or service products there?
For example, an Ohio online seller with remote employees in California and New York and inventory stored in Texas and Illinois has physical nexus in all four states and must register in each.
Once you have identified nexus, the next step is registration and rate lookup. Combined state and local rates vary by jurisdiction, so use Commenda’s sales tax calculator to look up rates. The calculator finds rates; it does not check exposure.
What Are the Penalties for Not Complying With Physical Nexus?
States can assess back taxes for every year since nexus began, plus penalties and interest, and unregistered, unfiled periods generally carry no statute-of-limitations cap. Because you usually cannot recover the tax from past customers, the liability comes out of your own pocket.
Assessments run retroactively to the date nexus was established, which can be years back. Responsible-person rules can extend liability for uncollected trust-fund taxes to owners and officers personally. Nexus is a top audit trigger. The standard mitigation path is a Voluntary Disclosure Agreement, covered next.
How Do You Become Sales Tax Compliant After Establishing Nexus?
Register for a sales tax permit in each nexus state before you collect, charge the correct combined state and local rate, then file and remit on the state’s assigned schedule, whether monthly, quarterly, or annually.
Never collect before registering, because collecting without a permit is illegal in most states. If you have historical exposure, consider a Voluntary Disclosure Agreement (VDA), which typically limits the lookback period and waives penalties. Combined rates vary by city and county, so use the sales tax calculator for lookups. For the mechanics, see Commenda’s guides to US state sales tax registration and US state sales tax filing.
How Commenda Helps You Track Physical Nexus
Commenda’s global indirect tax software tracks your physical and economic nexus exposure across states, handles registrations, and files returns, so you stay ahead of triggers instead of discovering them in an audit. It supports 100+ ERPs, APIs, and custom integrations, so exposure updates as your footprint changes.
Use the US nexus exposure guide for current thresholds and the sales tax calculator for rate lookups. Book a demo call to get your free nexus exposure assessment.
