Once a startup has employees and customers in multiple states, sales tax risk increases fast. Nexus rules define when a state can require you to register, collect, and remit sales tax, and those rules are triggered by both physical presence (people, offices, inventory) and economic activity (sales volume or transaction counts). With remote teams and online sales, it’s easy to “accidentally” create obligations in many states and miss registrations or filings.

Nexus 101: Physical vs. Economic

Most states now recognize two broad nexus types:

  • Physical nexus
    • Created by an in‑state office, coworking space, warehouse, inventory, or employees/contractors regularly working there.
    • A single remote employee can be enough to create nexus in some states.
  • Economic nexus
    • Created when your sales in a state exceed a revenue or transaction threshold (for example, 100,000 in sales or 200+ transactions over 12 months in many states – see our sales tax map for specific information).
    • After the Supreme Court’s Wayfair decision, almost all sales‑tax states adopted some form of economic nexus based on activity, not just physical presence.

If you have either type of nexus in a state and you sell taxable products or services there, you may need to register and collect that state’s sales tax.

How Distributed Teams Create Nexus

Remote and hybrid work can create physical nexus even when your startup has no offices:

  • Remote employees. Many states treat a full‑time employee working from home as enough physical presence to require sales tax registration.
  • Contractors and sales reps. Regular in‑state activities, like sales calls, implementation services, or on‑site support, can count as nexus-creating activity.
  • Inventory or third‑party fulfillment. Storing product in a state, including through third-party logistics providers (3PLs) and marketplaces, may create nexus even if you never visit that state.

For distributed teams, mapping where employees and key contractors sit is just as important as tracking where customers are located.

Common Economic Nexus Thresholds (High Level)

While thresholds vary by state, many follow similar patterns:

  • A typical standard is 100,000 in sales or 200 transactions into the state in the current or prior 12‑month period.
  • Some states dropped the transaction count and use only a dollar threshold (for example, certain states now use 100,000+ sales or a higher number like 500,000).
  • Exempt sales may or may not count toward thresholds depending on the state, so you cannot assume that “non-taxable” sales are irrelevant for nexus purposes.

Because rules change, startups should not rely on static charts. Instead, they should periodically review where their sales and transaction counts stand relative to current state thresholds.

A Practical Compliance Framework for Startups

A distributed, venture-backed startup can use a simple framework to manage sales tax risk:

  1. Map where you might have nexus
    • List states where you have:
      • Employees/contractors regularly working.
      • Offices or coworking spaces.
      • Inventory or third‑party fulfillment centers.
      • Significant customer revenue or transaction counts.
  2. Check whether what you sell is taxable
    • Physical goods are usually taxable.
    • Software and SaaS are taxed differently by state. Some treat SaaS as taxable tangible property or a digital good, while others don’t.
    • Services may be exempt or partially taxable depending on the nature of the service and the state’s rules.
  3. Compare your activity to each state’s thresholds
    • Look at trailing 12‑month sales and transaction counts in each state to see if you crossed economic nexus thresholds.
    • Factor in physical presence separately (a remote employee can create nexus even below economic thresholds).
  4. Register where required
    • When you identify a state where you have nexus and sell taxable products/services, register for a sales tax permit before you begin collecting tax.
    • Set up filing frequencies (monthly/quarterly/annual) based on state rules and your volume.
  5. Automate as much as possible

This approach keeps you ahead of many common compliance problems.

Frequent Mistakes Distributed Startups Make

Distributed teams create a few recurring pitfalls:

  • Ignoring remote employees for sales tax purposes. Treating remote workers as “not really there” for tax, even though the state sees them as a physical presence.
  • Monitoring customers, not transactions. Only watching revenue by state, while some thresholds also consider the number of transactions or include exempt sales in the count.
  • Collecting tax without registering. Charging customers sales tax before obtaining a permit can be a compliance issue in many states.
  • Not filing “zero” returns. Once registered, you usually must file returns even if there was no tax due during that period. Missing zero-activity returns can still trigger notices or penalties.
  • Assuming SaaS is always exempt. Some states tax SaaS as a service or digital good; failing to track these states can create large uncollected liabilities.

Each of these problems becomes more expensive to fix as your revenue and investor scrutiny grow.

How a Startup-Focused Accounting Partner Helps

For a venture-backed, distributed startup, sales tax doesn’t have to be overwhelming, but it does require a structured approach. A firm like Kruze Consulting can help you:

  • Inventory where your people, customers, and inventory are located and identify likely nexus states.
  • Coordinate with specialized sales tax technology and advisors to interpret fast-changing state rules and thresholds.
  • Make sure your revenue recognition, invoicing, and accounting systems are aligned with sales tax compliance so that returns are accurate and defensible.

Handled proactively, sales tax and nexus become a manageable operational process rather than a surprise due diligence risk when you go to raise your next round or sell the company. Kruze can help you navigate state and local taxes – contact us today.