--- title: "What Is Economic Nexus?" url: https://www.uncap.com/glossary/economic-nexus author: "Denis Dyli" published: 2026-10-28 updated: 2026-10-28 summary: "Economic nexus is a state's basis for requiring an out-of-state seller to collect and remit sales tax because of the volume of its sales into the state, even with no physical presence there. Each state sets its own threshold, and a seller that crosses it must register and collect tax in that state." --- # What Is Economic Nexus? > Economic nexus is a state's basis for requiring an out-of-state seller to collect and remit sales tax because of the volume of its sales into the state, even with no physical presence there. Each state sets its own threshold, and a seller that crosses it must register and collect tax in that state. **Economic nexus**: Economic nexus is a state's basis for requiring an out-of-state seller to collect and remit sales tax because of the volume of its sales into the state, even with no physical presence there. Each state sets its own threshold, and a seller that crosses it must register and collect tax in that state. ## How it works Nexus is the connection that makes a seller responsible for a state's sales tax. Shopify's help center puts the two kinds side by side, physical nexus versus economic nexus: - Physical nexus. When you have a business location in one or more states, you automatically have a physical liability, also known as physical nexus, and you need to register and collect sales taxes in those states. - Economic nexus. In states where you don't have a physical nexus, your tax liability depends on whether your business exceeds specific sales thresholds set by each state. When you reach a threshold, you have an economic nexus and must register and collect sales tax in that state. The US Supreme Court addressed this in South Dakota v. Wayfair, Inc., decided June 21, 2018. South Dakota's law required out-of-state sellers to collect and remit sales tax as if the seller had a physical presence in the state. It covered only sellers that, on an annual basis, delivered more than $100,000 of goods or services into the state or engaged in 200 or more separate transactions for delivery into the state. The Court held that the physical presence rule of its earlier Quill decision was unsound and incorrect, overruled Quill, and found the nexus clearly sufficient based on the sellers' economic and virtual contacts with the state. This page explains the concept; it is general information, not tax advice. ## Thresholds change Thresholds and the periods they are measured over are set state by state, and they change. South Dakota, the state in the Wayfair case, is an example. As of October 28, 2026, its Department of Revenue says that effective July 1, 2023, the remote seller criteria no longer include the 200 or more transactions threshold. Only remote sellers with more than $100,000 in gross sales into South Dakota in the previous or current calendar year must be licensed and remit South Dakota sales tax. The measurement window differs too. Shopify's tax liability tracker lists four threshold periods states use: previous or current calendar year, a twelve-month rolling period, the previous calendar year, and the previous four tax quarters. Nexus can also outlast the sales that created it. Shopify notes that falling below a threshold might not end your tax liability immediately. This is known as trailing nexus or residual nexus, and the rules differ by state. ## Example An out-of-state industrial supplier with no property, staff or delivery vehicles in South Dakota sells to farm stores there. In 2026, its sales into the state come from 260 small orders. - The old test: 260 orders is more than 200 separate transactions, which met the transaction threshold in the 2016 law. - Today's test: as of October 28, 2026, transactions no longer count in South Dakota. The supplier watches gross sales into the state instead. Its gross sales into South Dakota pass $100,000 on September 12. South Dakota says remote sellers must register by the first day of the month that starts at least thirty days after the threshold is met. October 1 is only 19 days away, so the supplier must register by November 1. ## On Shopify When your US sales tax is self-directed, Shopify's Tax liability insights page can help you determine where your store has nexus. It shows two statuses: - Action required: states where potential tax liability has been identified, from a location or from sales into the state. - Monitoring: states where you don't have a location and your sales within Shopify, including marketplaces where required by state law, have reached at least 80% of that state's threshold for economic nexus. Shopify calculates tax liability using net sales, which it defines as sales less refunds, shipping or tax, and it includes only states with economic nexus laws at the state level. Shopify's order is: first, register for sales tax with the state's tax authority to receive a permit, then set up tax collection from the same page with your sales tax ID. Shopify cautions that the page is not a substitute for advice from a tax authority or a tax professional. For B2B orders, plans that support B2B capabilities automate tax calculation and let you set tax exemptions at the company or company location level. ## How Uncap helps Uncap's guide to [Shopify tax exemption setup](/post/shopify-tax-exemption-setup) covers the B2B side of multi-state selling: verify that a buyer's certificate covers the specific state or jurisdiction the order ships to, since resale certificates are often state-specific and don't automatically apply everywhere a multi-location buyer operates. ## Related terms - Tax exemption certificate - B2B ecommerce - Wholesale ecommerce - Distributor ## Sources - Supreme Court of the United States: South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018) - Shopify Help Center: Review your US tax liability insights - South Dakota Department of Revenue: 2023 legislative updates ## Frequently asked questions ### What is an economic nexus? Economic nexus is the connection a seller has with a state because of its sales into that state, without a physical presence there. When a seller's sales exceed the threshold that state sets, it must register and collect sales tax in that state. ### What states have economic nexus? It depends on each state's law, and thresholds and measurement periods vary by state. Shopify's state tax reference table gives state-by-state information on tax rules, including the period used to determine nexus, with links to each state's tax authority. ### What is the economic nexus threshold in Connecticut? As of October 28, 2026, Connecticut's Department of Revenue Services says an out-of-state seller must register and get a Sales and Use Tax Permit if it makes retail sales into Connecticut and, during the 12-month period ending on September 30 immediately before the monthly or quarterly period for which tax liability is determined, makes 200 or more retail sales into Connecticut and has at least $100,000 in gross receipts from sales into Connecticut. Check the department's current guidance before relying on it.