Physical Nexus

Physical nexus refers to a business’s tax obligation in a state due to having a physical presence there. Unlike economic nexus, which is based on sales volume, physical nexus is triggered when a business has tangible connections to a state, requiring it to collect and remit sales tax.

A business establishes physical nexus in a state if it has:

• A physical office, store, warehouse, or distribution center
• Employees, contractors, or sales representatives operating in the state
• Inventory stored in the state (including third-party warehouses like Fulfillment by Amazon - FBA)

Once a business has a physical nexus in a state, it must register for a sales tax permit and begin collecting and remitting sales tax on taxable transactions within that state.