Sales and use tax nexus has become a major headache for any business that sells into the United States. But what exactly is nexus for sales and use tax purposes, and where does it come from, anyway?

Nexus is the connection a company has to a taxing jurisdiction and describes the amount and degree of business activity a business must generate in a jurisdiction before that jurisdiction can mandate compliance with its sales and use tax laws. The U.S. Constitution sets some basic parameters for determining nexus to prohibit a jurisdiction from applying its taxing authority to businesses – specifically, there must be a “minimal connection” between the business and the state in which it operates before the jurisdiction can require a business to comply with its sales and use tax laws.

Think this is just a recent snarl as states finagle for more tax dollars? Courts have actually been dealing with nexus for at least half a century.


  • In 1967’s National Bellas Hess v. Department of Revenue, the U. S. Supreme Court held that the Due Process and Commerce Clauses barred states from requiring remote retailers with no physical presence in a State to collect and remit sales tax.

  • In 1992, the U. S. Supreme Court affirmed its prior ruling under the Commerce Clause in Quill v. North Dakota. Quill, a Delaware corporation, had facilities in Illinois, California and Georgia and sold office equipment and supplies through direct mail and calls. It had no employees in North Dakota. The state of North Dakota asserted that Quill had nexus for sales and use tax purposes and attempted to impose a use tax on property sold by Quill to customers located in North Dakota  - essentially mandating use tax collection obligations on retailers that engaged in regular or systematic solicitations in the state.

  • More recently, in Direct Marketing Association v. Brohl (2015) the U. S. Supreme Court held that Colorado’s special sales and use tax reporting requirements  did not violate state or federal laws concerning a states’ sales and use tax enforcement authority.  The case was later reheard and findings were in favor of Colorado – which served to open the door for a later challenge to Quill.

  • In June 2018, the U.S. Supreme Court determined in South Dakota v. Wayfair, Inc. et al that a state could require compliance with its sales and use tax laws through economic activity alone.  The Court reasoned that the South Dakota law regulating Wayfair did not burden businesses because only merchants reaching an annual materiality threshold in the state were required to collect.  The court also reasoned that technology advancements since the Quill decision enabled companies to more easily comply with state sales and use tax compliance requirements.  This ruling expanded the nexus standards for sales and use tax purposes to include both physical presence and economic presence. 

Post Wayfair: The Next Frontier of Sales Tax

Of the states that collect sales tax, 95% have adopted economic nexus standards since the Wayfair decision, and these policies are impacting far more than just large companies. Businesses of all sizes are now having to manage the burden of sales and use tax, and often aren’t finding out they have nexus until an auditor comes knocking on their door. 

As laws continue to evolve on a state and local jurisdiction level, let TaxConnex® manage this ever-changing tax environment for you, and remove that heavy burden and responsibility. Contact us to learn about the latest developments in sales and use tax nexus and what they mean to you and your company.

Stay up to date with economic nexus standards with our Economic Nexus Guide.

Robert Dumas

Written by Robert Dumas

Accountant, consultant and entrepreneur, Robert Dumas began his public accounting career on the tax staff at Arthur Young & Co., followed by a brief stint at Grant Thornton. In 1998, Robert founded Tax Partners, which became the largest sales tax compliance service bureau in the country, and later sold it to Thomson Corporation. Robert founded TaxConnex in 2006 on the principle that the sales tax industry needed more than automation to truly help clients, thus building within TaxConnex a proprietary platform and network of sales tax experts to truly take sales tax off client’s plates.