TL;DR

• Physical nexus turns on presence, not revenue. A single employee, contractor, warehouse, or event visit in a state creates a sales tax obligation regardless of how little you sell there.

• Four triggers catch growing companies off guard: 1099 contractors performing services, inventory at a 3PL or Amazon FBA warehouse, remote employees, and trade show or sales-call travel.

• Missing nexus stacks back taxes from the original nexus date, interest from each unfiled return, and penalties on top, plus a separate penalty for registering late.

• A Voluntary Disclosure Agreement shortens the lookback period and can waive penalties, but only if you act before the state contacts you. A nexus questionnaire closes the window.

Why One Hire Can Create Nexus in Three States at Once

A company headquartered in Texas hires its first fully remote engineer in Colorado. That single decision creates three separate tax obligations in Colorado at once. The employer now owes sales tax registration, payroll tax withholding, and corporate income tax filing in a state where it has no office, no customers, and no prior footprint. The hire generated no revenue, yet it still triggered nexus everywhere it touched.

Physical nexus runs on presence, not sales. The U.S. Supreme Court settled this in Quill Corp. v. North Dakota (1992), which held that a tangible connection to a state, such as an employee, an office, or stored inventory, obligates a company to collect and remit that state's sales tax. No revenue minimum applies. One worker in the state is enough.

Economic nexus is a separate test that operates alongside the physical one. In South Dakota v. Wayfair, Inc. (2018), the Court allowed states to tax sellers based on sales volume even with no physical presence, and most states set that bar at $100,000 in annual sales or 200 transactions (numeral.com). Thresholds vary by state. Several states have removed the 200-transaction test, and some use higher dollar thresholds. A company can clear the physical test without ever approaching the economic one, and vice versa. You owe a state if you trip either trigger, so you have to monitor both.

The remote hire is dangerous because one operational choice multiplies your exposure. Hire in three states, and you have created nexus in three states the same week, often before anyone in finance hears about it.

1099 Contractors Performing Services in a State

A 1099 contractor performing services in a state creates physical nexus for your company exactly the way an employee would. The state does not distinguish between a worker on your payroll and an independent contractor acting on your behalf. The presence of the person doing work in that state is the trigger, full stop (numeral.com).

No state attaches a dollar threshold or transaction count to this trigger. Economic nexus turns on revenue, usually $100,000 in annual sales or 200 transactions. Thresholds vary by state. Several states have removed the 200-transaction test, and some use higher dollar thresholds. Physical nexus through a contractor turns on nothing but presence. You can owe sales tax registration in a state where a single contractor spent one afternoon installing equipment, even if you booked zero sales there.

Duration does not save you either. No state requires a minimum engagement length or a minimum payment to the contractor before nexus attaches. One service visit by one contractor is sufficient. A Controller who assumes a short, low-dollar engagement is too small to matter has the rule backward. Size and length never enter the analysis for physical presence.

Click-through and referral arrangements work the same way through a different door. When you pay commissions to an in-state referral agent or third-party seller who sends you customers, that relationship can create what states call click-through nexus, generating a sales tax obligation in the agent's state (uschamber.com). Affiliate programs and partner referral deals fall squarely inside this rule, and most finance teams classify those payments as marketing spend rather than a nexus event.

This trigger goes unnoticed because little published guidance covers it. Plenty of published material walks through office locations, warehouses, and economic thresholds, yet contractor presence and click-through arrangements get far less attention. A growing company can sign a dozen contractor agreements and a handful of affiliate deals across several states without anyone connecting those decisions to a registration obligation. The contracts sit in legal and procurement. The tax consequence never reaches finance, and the exposure compounds quietly until a state notice arrives.

Inventory at a 3PL or FBA Warehouse

Storing inventory in a state creates physical nexus there, even when a third party owns and operates the building. The state taxes the presence of goods within its borders, not the identity of the property owner. A company with no office, no employees, and no other ties to that state still owes sales tax once its products sit in a warehouse inside it (numeral.com).

How you arrive at that exposure splits into two patterns, and the difference matters for how blind the obligation can be. With a traditional third-party logistics provider, you pick the warehouse, sign the contract, and know the address, so you can see which states hold your goods. The nexus is yours to track from day one because you chose the location.

Amazon FBA inverts that control. When you enroll, Amazon decides which fulfillment centers receive your inventory and routinely moves it across centers in multiple states to position stock near buyers. A single FBA enrollment can place your goods in several states at once, each one a separate physical nexus, without any action or notice on your part (uschamber.com). You may never see the addresses, yet each state still expects registration and remittance.

Not knowing where your inventory sits does not excuse the obligation. States treat the presence of goods as the trigger regardless of whether you directed the placement or even knew about it. The burden falls on you to find out where Amazon has stored your products and to register in each of those states. Sellers who treat FBA as a hands-off fulfillment service often discover years of accumulated liability across a dozen states when a single notice arrives.

This trigger surprises sellers because it carries no revenue threshold and gives no warning. One pallet in one fulfillment center establishes nexus as firmly as a leased office would. Published guidance on inventory-driven nexus stays thin, so you may reach this conclusion only after a state assessment forces the question. Mapping where your goods physically sit, state by state, is the only reliable way to size the exposure before it surfaces on its own.

Remote Employees

A single remote hire is the trigger most likely to blindside a growing company, because one new employee in one new state can create nexus for sales tax, payroll tax, and income tax all at once. The mechanism is the same as any physical presence rule. An employee working from their home in a state establishes physical presence for the employer there, even when the company has no office, no inventory, and no customers in that state (numeral.com).

The obligation exists the moment the employee starts work, regardless of whether you ever notice. Hiring teams rarely loop in finance before extending an offer, so a recruiter filling a role in a new state often creates a registration requirement that no one tracks. The financial consequence compounds quietly. Sales tax obligations accrue from the hire date, payroll withholding requirements attach immediately, and corporate income tax apportionment shifts to include that state.

Companies with distributed teams feel this fastest, because each hire in a fresh state adds another jurisdiction to monitor. A 60-person SaaS company that hires across 12 states for talent reasons can carry nexus in all 12 without a single deliberate tax decision. The back-tax window keeps growing for every month the registration goes unfiled.

Anrok built its product around this problem. It connects to your HR system to track employee locations and alerts you when a new remote hire creates nexus in a new jurisdiction (anrok.com). The integration is genuinely useful, and it reflects how acute the remote-hire problem has become for SaaS finance teams. The tool changes whether you catch the exposure. It does not change whether the exposure exists. A state expects you to register from the date the employee began working there, whether or not any software flagged it. That distinction matters most when a notice arrives and you realize you owe back taxes in a state you never knew you had to register in.

Event Staff and Trade Show Attendance

Sending a single employee or agent across state lines for a trade show creates physical nexus in that state, with no minimum duration and no minimum sales required. The same applies to a sales rep visiting for a pitch or a technician traveling for an on-site installation. The U.S. Chamber of Commerce names crossing state lines to sell at trade shows, craft fairs, and similar events as a standalone trigger (uschamber.com). Numeral lists in-person selling by agents who visit a state, even for one event, as a nexus-creating activity (numeral.com). One person at one booth for one afternoon is enough.

You probably book trade shows as marketing spend, which is exactly why this trigger goes unnoticed. The finance team treats the booth fee, the travel, and the staffing as a demand-generation line item. The tax obligation lands in a different ledger entirely, and nobody connects the trip to a filing requirement until a notice arrives years later.

Some states soften this rule with short-duration safe harbors that exempt brief event attendance below a set number of days, but the terms vary widely and the exemption is never automatic. Check the relevant state department of revenue before assuming a single show is exempt, because the threshold, the day count, and the activities that qualify all differ by state. Much published guidance stops at the general rule and leaves you to figure out the state-specific safe harbor on your own, so verify the rule that applies to each state where you exhibit.

The Financial Cost of Missing These Triggers

When a state discovers nexus you never registered for, it assesses back taxes from the date that nexus began, not from the date it found you. A remote hire from four years ago means four years of uncollected sales tax you now owe out of pocket, because you can no longer go back and charge customers who bought during that period. The liability runs to the original nexus date, with no cap when a state initiates the contact (numeral.com).

Interest compounds the damage because it starts accruing from the original due date of each return you failed to file. A return that should have been filed three years ago has been accruing interest for three years, and that meter keeps running until you pay. The longer the gap between the nexus date and discovery, the larger the interest layer grows relative to the tax itself.

States stack penalties on top of the tax and interest, and they apply a separate penalty for registering late once nexus exists. A single missed trigger can produce four distinct charges that all land at once: back tax, accrued interest, a failure-to-file or failure-to-pay penalty, and a late-registration penalty. Stripe, quoted by the U.S. Chamber of Commerce, characterizes the combined penalty and interest burden as averaging around 30% of the sales tax owed (uschamber.com).

How much of this you actually pay depends on who moves first. If a state contacts you through an audit or a nexus questionnaire, you face the full picture. The lookback runs to your original nexus date with no limit, and penalties get assessed in full (salestaxinstitute.com). A company that has been remote-hiring across states for a decade can face ten or more years of exposure under audit.

Voluntary remediation through a disclosure agreement changes that math, but only while you still control the timing. A Voluntary Disclosure Agreement caps the lookback and typically waives penalties, which is why the gap between audit exposure and voluntary disclosure can run into six figures for a mid-sized company. That option disappears the moment the state contacts you first. Once a nexus questionnaire or audit notice arrives, most states no longer let you into the program, and the clock running against your eligibility has already stopped.

How a VDA Limits the Damage and When You Lose the Option

A Voluntary Disclosure Agreement caps how far back a state can reach when you come forward on your own. Most states limit the VDA lookback period to three or four years for sales tax, while an audit can assess tax all the way back to your original nexus date with no cap. For a company that created nexus six or eight years ago, that difference decides whether you owe a few years of back tax or a decade of it.

The penalty treatment moves the same direction. A VDA typically waives or reduces penalties on the unpaid tax, while an audit assesses them in full. Interest is the exception in both cases. States usually charge full interest under a VDA and reduce it only in narrow circumstances, so the interest line stays roughly constant whichever path you take.

Anonymity is the part that makes a VDA worth pursuing before you're certain you owe. Most states let a CPA or attorney negotiate on your behalf without naming you, so you can review the proposed terms and walk away if they don't work before disclosing your identity. Two states break that pattern and require identity disclosure earlier in the process. Check the relevant state DOR before applying, because the timing and disclosure requirements differ from the standard anonymous negotiation model.

Two facts close the window for good, both tied to who acts first. If a state has already contacted you about an audit or sent a nexus questionnaire, you are disqualified in most states. If you are already registered for the tax at issue in that state, the VDA option is gone there too. The protection only exists while you still control the timing, so a VDA is a planning tool and not a response to a notice.

Companies with exposure in several states at once should look at the Multistate Tax Commission's National Nexus Program, which lets you negotiate anonymously with up to 39 member states through a single process and covers income and franchise tax alongside sales and use tax. The MTC will not reveal your identity to any state that rejects the settlement. For a large or complex case, negotiating directly with a state can still produce better terms, so weigh the convenience of the multistate path against what a single high-exposure state might concede on its own.

How to Find Out Which States You Owe Before They Ask

A nexus study maps every physical presence trigger your company has created, state by state, and dates each one so you know exactly when your filing obligation began. Pull your employee roster, contractor agreements, warehouse and 3PL contracts, FBA inventory reports, and travel records for trade shows and sales visits. For each entry, record the state and the date the activity started. That start date sets the boundary of your back-tax window, because liability runs from the moment nexus began, not from the day you discovered it.

The study converts a vague worry into a concrete number. Once you know you placed an employee in Colorado in March 2022 and stored FBA inventory in Pennsylvania since 2021, you can calculate the sales, the tax owed, and the interest accruing on each unfiled return. That figure tells you which states warrant a Voluntary Disclosure Agreement and which carry exposure small enough to register and move on.

Taxwire runs this kind of study for SaaS and e-commerce finance teams who suspect they have nexus in states they never registered in. The work is the same whether you do it internally or bring in help. Reconcile every trigger against every state's rules, quantify the liability, and decide on remediation before a state forces the timeline.

Speed matters because your remediation options narrow the instant a state contacts you. Most states disqualify you from a VDA once they have sent a nexus questionnaire or opened an audit, which removes the lookback cap, the penalty waiver, and the anonymous negotiation that make voluntary disclosure worth pursuing. After that point, the state assesses tax back to your original nexus date with full penalties and interest.

The companies that come out ahead are the ones that finish the study while they still hold every option. Run it now, quantify what you actually owe, and choose your remediation on your own schedule rather than the state's.

FAQs

Does attending one trade show really create nexus? Yes. Sending an employee or agent across state lines to sell or take orders at a trade show creates physical nexus in that state, with no minimum duration or sales volume required (uschamber.com). Some states publish short-duration safe harbors, so check the relevant state department of revenue before assuming a one-day event is exempt.

Does a 1099 contractor with their own LLC create nexus for my company? Yes. A contractor performing services on your behalf in a state triggers physical nexus for your company regardless of how the contractor is incorporated (numeral.com). The contractor's business structure does not change the fact that someone is acting for you inside that state's borders.

If Amazon controls where my FBA inventory goes, am I still liable? Yes. Storing inventory in a state creates nexus there even when Amazon, not you, decided to route units to that fulfillment center (numeral.com). You own the goods, so you carry the sales tax obligation in every state where they sit.

Can I apply for a VDA in multiple states at once? Yes. The Multistate Tax Commission National Nexus Program lets you negotiate anonymously with up to 39 member states at the same time for sales, use, and income tax (thetaxadviser.com). For large or complex exposure, direct negotiation with individual states can produce better terms.

How far back can a state go if they audit me with no VDA in place? A state can assess tax all the way back to your original nexus date, with no lookback cap, plus full penalties and interest (salestaxinstitute.com). A VDA typically limits that window to a few years, but only if you come forward before the state contacts you.

Reviewed by Marco Puopolo, International Tax Lead — June 2026