Nexus questions rarely arrive labeled as nexus questions. They arrive as "we hired a developer in Colorado," or "our sales into Texas doubled," or "do we really have to file in a state where we have no office?" Behind each one sits the same underlying issue: which states can tax this business, for which taxes, starting when, and the answer is different in every state, and often different for each tax type within the same state.
Physical presence still counts, and so does economic presence
The traditional trigger is physical: property, payroll, or people in the state. One remote employee working from home can be enough to create nexus for the employer, which is why the remote-work era turned nexus from a specialty topic into an every-engagement question. Since the Supreme Court's Wayfair decision, states can also assert nexus based on economic activity alone: cross a state's sales or transaction threshold and you can owe sales tax collection (and in many states, income or franchise tax filings) with no physical presence at all. The thresholds, the measurement periods, and what counts toward them differ state by state.
P.L. 86-272 protects less than clients think
The one federal shield in this area, Public Law 86-272, bars a state from imposing a net income tax on a business whose only in-state activity is soliciting orders of tangible personal property, approved and shipped from outside the state. Every limit in that sentence matters: it protects only net income taxes (not franchise, gross-receipts, or sales taxes), only sales of tangible personal property (not services or software delivered electronically), and only solicitation. States have also taken the position that certain internet activities, like a website that does more than solicit, fall outside the protection. Whether a specific client's activities stay inside the shield is a facts-and-authorities question, state by state.
Franchise tax versus income tax
Several states impose a franchise or gross-receipts tax instead of, or alongside, a net income tax, and these taxes generally sit outside P.L. 86-272's protection entirely. A business can be shielded from a state's income tax and still owe its franchise tax. Getting this distinction right per state is one of the most common places multistate answers go wrong.
Fifty answers to the same question
Once nexus exists, the follow-on questions multiply: which form, what rate, when is it due, is there a minimum tax, how is income apportioned, does a pass-through owe withholding for nonresident owners? Answering for one state is research; answering for six is an afternoon of revenue-department websites. That's the problem our State Tax Matrix was built for: pick the states and the attributes, and compare income tax and sales & use tax treatment side by side, with every cell cited to the state's own authority.
Ask it in one line
For the questions a table can't hold ("does one remote employee in Colorado create income tax nexus for a Delaware corporation selling software?"), the AI Tax Assistant answers from the statutes, regulations, and state guidance themselves, with clickable citations to the authority behind every claim. Ask in one line; verify the source in one click.
Shashank Sharma is the founder of Partnertax.ai, an AI tax assistant for tax professionals, built on cited IRS and Treasury sources.