Nexus
A connection to a state sufficient to trigger state-level tax obligations.
Definition
Nexus is the legal connection that creates state tax obligations. Types: physical nexus (employees, office, warehouse), economic nexus (sales volume), click-through nexus (affiliate relationships).
Context
Delaware LLC with no Delaware operations has no Delaware sales-tax nexus (Delaware has no sales tax). Nexus arises in other states where the LLC operates or sells.
Example
A Delaware LLC ships products to California customers. After exceeding California's $500K economic-nexus threshold, the LLC must register for California sales tax.
Common pitfalls
- Economic nexus thresholds vary by state ($100K-$500K).
- Wayfair decision (2018) expanded economic-nexus rules.
- Nexus for sales tax differs from nexus for income tax.