Do I owe taxes in states where I don't have an office?

Why can a state tax a business with no office there?

For decades the working rule was that a state could only reach a business with property or people inside its borders. The Supreme Court's 2018 decision in South Dakota v. Wayfair changed that for sales tax. A state may now require an out-of-state seller to register, collect, and remit sales tax once the seller's sales into that state cross a threshold measured in dollars or in number of transactions.

Every state with a sales tax has since adopted its own economic nexus threshold and its own measurement period. That is why a growing online seller can find itself with collection duties in a dozen states during a single strong year, without ever opening a location outside its home state.

How is income tax nexus different from sales tax nexus?

Income tax nexus is triggered by a different set of facts, so a business can have one without the other. An employee working remotely from a state, a crew performing services on site, inventory sitting in a third-party fulfillment center, or real or personal property held in the state can each give that state a claim to tax a share of the company's income.

Once income tax nexus exists, the business generally files a return in that state and apportions part of its profit there under the state's formula. Several states also apply their own economic thresholds to service and digital businesses, so activity that feels minor, such as a handful of remote consultants, can still create a filing requirement.

When does the liability start, and how do you fix past exposure?

Liability accrues from the date nexus began, not from the date the business notices or registers. If sales crossed a threshold two years ago, the collection duty started then, and uncollected tax, interest, and penalties have been accumulating since. Because sales tax is the customer's money passing through the seller, tax that was never collected comes out of the business's own pocket.

Most states run voluntary disclosure programs. A business that comes forward before it is contacted registers, pays the tax for a limited lookback period, and typically receives reduced or waived penalties. A CPA experienced in state and local tax usually prepares the disclosure and negotiates the lookback, while a state-tax attorney is worth adding when the exposure is large or the facts are disputed.

The practical discipline is a nexus map reviewed at least annually: where customers are and how much is sold into each state, where employees and contractors physically work, and where inventory sits.

Who does this not apply to?

A business whose sales into a state stay below that state's threshold, with no people, property, or inventory there, generally has no obligation in that state. Sellers whose sales all flow through a marketplace that collects tax under a marketplace facilitator law may have little or no direct sales tax duty, though those sales can still count toward thresholds for other channels.

Public Law 86-272, a federal statute, still bars a state from imposing a net income tax on a business whose only in-state activity is soliciting orders for tangible personal property that are approved and shipped from outside the state. That protection does not extend to sales tax, to services, or to most digital activity, and states have narrowed how they read it, so it should be confirmed rather than assumed.