Quick primer

State nexus is the legal link between a taxpayer (an individual, contractor, or business) and a state that gives that state authority to impose taxes or reporting duties. Since the U.S. Supreme Court’s decision in South Dakota v. Wayfair (2018), states have expanded economic and marketplace-based nexus rules. That shift matters to gig workers and platforms because it means you can owe state sales tax, income tax withholding, or filing obligations even if you don’t have an office or employees in that state (South Dakota v. Wayfair, 2018; IRS State Tax Resources).

This article breaks the post‑Wayfair reality into practical, actionable steps so gig workers and platform operators can limit surprises, reduce audit risk, and stay in compliance.

Sources and further reading: South Dakota v. Wayfair (U.S. Supreme Court, 2018), IRS — State Tax Resources for Businesses, California Franchise Tax Board (AB5 background). See also FinHelp resources on Remote Worker Nexus: Complying with Multi-State Tax Rules, State Sales Tax Nexus for Remote Sellers: Practical Steps to Register and Comply, and our primer on Wayfair Nexus.

Why the gig economy changed the nexus problem

Traditional nexus tests focused on physical presence: an office, warehouse, or employees working in a state. The gig economy disrupted that model:

  • Workers and independent contractors sell services across state lines using apps and marketplaces.
  • Platforms operate nationwide and often collect and remit tax; some states treat platforms as the responsible party (marketplace facilitator laws).
  • States adopted economic thresholds and transaction-count tests after Wayfair to capture remote sellers and service providers.

In my practice advising freelancers and small platforms, I regularly see two practical consequences: (1) people assume they’re exempt because they “don’t have an office,” and (2) they underestimate the administrative steps to correct a missed registration. Both mistakes can create back taxes, penalties, and interest.

Practical, prioritized compliance steps

Follow these steps in roughly this order. Each step includes what to do, why it matters, and common pitfalls.

1) Run a multi-state nexus inventory (monthly or quarterly)

  • What: Map where you sell services or goods, where your clients are located, and where you physically perform work (even temporarily).
  • Why: Nexus can be based on economic activity (sales, transaction counts), physical presence (job performed in a state), or marketplace facilitation. A single spreadsheet that tracks sales by state, dates you worked there, and platform activity will reveal likely exposure.
  • Pitfall: Relying only on home-state records. If a client pays you from another state but work is delivered remotely, that may still create obligations.

2) Identify which taxes could apply

  • Sales and use tax: Many states tax certain services or digital goods. After Wayfair, states can require remote sellers or platforms to collect sales tax if they meet thresholds. Check whether the services you provide are taxable in a given state.
  • State income tax: Earning money in a state—by performing services there—can create income tax filing or withholding obligations.
  • Withholding payroll taxes: If gig workers are classified as employees under state law (e.g., California’s AB5 framework in 2019), employers must withhold payroll taxes.
  • Reporting: 1099/1099-K rules and marketplace reporting are separate but related obligations.

3) Check marketplace facilitator laws

  • What: Many states now require the marketplace (Uber, Etsy, Airbnb) to collect and remit sales tax on behalf of sellers.
  • Why: If a platform collects and remits tax, an individual gig worker may have fewer collection duties but still might owe income tax or need state registration for other reasons.
  • Pitfall: Assuming a platform’s collection removes all your obligations. It doesn’t eliminate income tax filing or state registration for other taxes.

4) Register where required, then collect and remit

  • Action: If your nexus inventory shows you meet a state’s threshold, register with that state’s taxing authority and set up collection systems.
  • Tools: Sales-tax automation services (e.g., TaxJar, Avalara) and bookkeeping platforms can automate rate lookups and filings.
  • Pitfall: Missing local (city/county) requirements. Some localities levy their own taxes.

5) Use voluntary disclosure and cleanup programs if you have past noncompliance

  • Many states offer voluntary disclosure agreements (VDAs) that limit penalties if you come forward and register voluntarily. These programs often prevent discovery audits from going back indefinitely.
  • In my experience, a negotiated VDA can reduce exposure to penalties and give a clear statute-of-limitations for past periods.

6) Implement ongoing controls

  • Keep state-by-state ledgers and receipts. Track dates and locations of work, platform reports, and gross receipts by jurisdiction.
  • Reconcile marketplace reports (1099-K) against your own records to catch underreported amounts.
  • Review nexus triggers quarterly: new marketplaces, a sudden surge in out‑of‑state customers, or temporary work assignments can change your status quickly.

7) Update contracts and client terms

  • Ask where the client is located and who is responsible for local taxes. Clear contract language reduces disputes and helps determine who should register and remit.
  • Consider geoblocking or pricing that anticipates tax collection for services to customers in taxable states.

Examples (illustrative, not legal conclusions)

  • Freelance designer: Lives in Ohio but takes a multi-month project that requires on-site work in California. Even if the firm paid via an app, working physically in California can require registration and state income tax withholding for some engagements.
  • Digital consultant: Provides remote consulting to multiple clients across the U.S. If consulting services are taxable in a purchaser’s state or the consultant exceeds the state’s economic threshold, sales tax collection may be required.
  • Platform driver: Drives for a rideshare company whose platform collects sales-related taxes in some jurisdictions. The driver still must report income and may face withholding or unemployment tax questions if reclassification occurs.

Because state rules vary sharply, treat these as scenarios to test against your records rather than direct guidance.

Common mistakes and how to avoid them

  • Mistake: “I don’t have a physical presence, so I’m safe.” Avoid by documenting remote sales volumes and transaction counts. Economic nexus can apply without physical presence.
  • Mistake: “The platform does everything for me.” Confirm what the platform remits vs. what you must report for income tax and other obligations.
  • Mistake: “Small one‑off jobs won’t matter.” Repeated short assignments or seasonal work in a state can cumulatively trigger nexus.

Recordkeeping checklist (minimum)

  • Gross receipts by state and by month
  • Date and location of any in‑state work performed
  • Marketplace reports (1099‑K and similar) and reconciliation notes
  • Registration numbers and tax filings for each state
  • Copies of VDAs, if used

How to prioritize costs and next steps

  1. If you have a sudden spike in out-of-state revenue, run a nexus scan immediately.
  2. For exposures older than three years, contact a tax professional experienced in multi-state issues to evaluate VDAs and audit risk.
  3. Automate going forward: use tax software and bank integrations to reduce manual errors and ease filings.

Useful authoritative resources

Also see FinHelp’s related guides:

Frequently asked questions (short answers)

  • Can a gig worker owe sales tax? Possibly—if the state taxes the service or product and you meet that state’s nexus threshold. Check the state’s rules and the taxonomy of taxable services.
  • Do marketplace collections remove all my obligations? No. Marketplace collection may satisfy sales-tax collection, but you still have income tax, registration, and reporting responsibilities.
  • How far back can states audit? Look to each state’s statute of limitations; voluntary disclosure programs often limit penalties if you self-report.

Professional disclaimer: This article provides educational information about state nexus and compliance for gig workers and platforms. It does not constitute legal or tax advice for your situation. Consult a licensed tax professional or state taxing authority to address specifics.

If you want, I can help you draft a simple nexus inventory template or review a checklist you already use.