What types of physical presence create sales tax nexus?

Physical nexus is the original form of sales tax nexus, it predates economic nexus by decades. It’s based on your business’s physical presence in a state, and it still matters even now that economic nexus exists. Here’s what counts.

Core physical nexus triggers

Owned or leased locations

The most straightforward form: a business has a store, office, warehouse, distribution center, or showroom in a state. Nexus is immediate and continuous as long as the location operates. Applies to any owned or leased space used for business purposes, including a home office used for business.

Inventory in a state

Storing inventory in a state creates physical nexus even if the business doesn’t own or lease the storage location. This covers:

• Amazon FBA: Inventory stored in Amazon fulfillment centers creates nexus in those states. Amazon can and does redistribute inventory across its fulfillment network without seller notice.
• Third-party logistics (3PL) warehouses: Using a 3PL for fulfillment from their facility creates nexus in that state. The business doesn’t need to own the warehouse: the inventory’s presence is sufficient.
• Consignment inventory: Goods consigned to a retailer in a state typically create nexus for the consignor.

Employees and contractors

An employee working in a state creates nexus for the employer. This includes:

• Office employees at a company location
• Remote employees working from home (their home state = nexus for the employer in most states)
• Independent contractors performing ongoing work in a state (more state-dependent, some states require a higher degree of activity or control before contractors trigger nexus)

Sales representatives

A person soliciting sales on your behalf in a state can create nexus. The critical qualifier is “soliciting” — simply sending mail into a state or advertising there doesn’t create nexus. Having a person in the state conducting sales activity typically does.

The scope of what a representative must do to trigger nexus varies by state. Some states require ongoing, regular activity; others have broader standards. Solicitation-only activity was historically protected under federal law (P.L. 86-272), but that protection applies only to sales of tangible personal property and has specific scope limits.

Trade show participation

Participating in trade shows with active selling (taking orders, processing payments, handing over goods) can create nexus, particularly when participation is regular and systematic rather than a one-time event. States vary on their thresholds. A single show at a major annual convention is treated differently from regular quarterly attendance. See: Do trade shows trigger sales tax nexus?

Delivery vehicles

A company operating its own delivery vehicles into a state on a regular basis can create nexus through those deliveries. This generally applies to businesses operating their own fleet for customer deliveries, not UPS/FedEx shipments.

The complications worth knowing

Remote work changed the map. Starting in 2020, many businesses had employees shift to working from home in states where the employer previously had no presence. Each of those home states became a physical nexus state, often without anyone tracking it. For businesses that hired remotely during this period, an audit of their current nexus footprint often reveals states that weren’t on the list pre-2020.

FBA nexus is dynamic. Amazon moves FBA inventory to optimize its fulfillment network. A seller’s physical nexus footprint through FBA can change without any action by the seller. The only reliable way to know where you have FBA nexus at any given time is to check Amazon’s Inventory by State report.

Nexus ends when presence ends. Unlike economic nexus (which often persists for a full measurement period after you drop below the threshold), physical nexus typically ends when the physical presence ends. Closing an office, removing all inventory from a 3PL, or ending a remote employee’s employment can terminate physical nexus, though the obligations that accrued while nexus existed remain.

P.L. 86-272 protects pure order solicitation. Federal law prohibits states from imposing income or business taxes on businesses whose only in-state activity is soliciting orders for tangible personal property, but the protection is narrower than commonly understood. It applies to income taxes and doesn’t override sales tax nexus created by other activities. And state DORs have taken increasingly aggressive positions about what activities fall outside its protection (digital interactions, customer service, etc.).