What is economic nexus ?
Economic nexus is a tax concept that requires businesses to collect and remit sales tax in a state or country once they exceed a defined revenue or transaction threshold there, regardless of physical presence.
Economic nexus was established in the US following the 2018 South Dakota v. Wayfair Supreme Court ruling, which allowed states to require out-of-state sellers to collect sales tax based on economic activity rather than physical presence.
Example: A SaaS company based in California generates $150,000 in sales from customers in Texas. Texas has an economic nexus threshold of $500,000, so the company is not yet required to collect Texas sales tax. Once it crosses that threshold, it must register and collect.
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