Multistate Nexus: When Remote Work Creates State Tax Obligations

Quick answer

Multistate nexus determines when a state can require you to register, collect, withhold, or file taxes. Remote work creates new and sometimes unexpected nexus through telecommuters, temporary on‑site visits, and expanded online sales. Businesses that ignore these rules risk back taxes, penalties, and heightened audit exposure.

Why this matters now

Remote and hybrid work models became widespread after 2020 and remain common. In my practice working with employers and small businesses for 15+ years, I’ve seen employers unintentionally create multistate obligations simply because one or two employees moved across state lines. The Supreme Court’s Wayfair decision (South Dakota v. Wayfair, 2018) also shifted many sales‑tax rules from physical‑presence standards to economic thresholds, making nexus assessment essential for online sellers (South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018)). For plain‑language summaries and practical state‑by‑state rules, see Tax Foundation analyses (https://taxfoundation.org) and state departments of revenue (examples below).

How multistate nexus is established

States use several tests to decide whether you have nexus. The three most common are:

• Physical presence nexus: An office, warehouse, employee, contractor, or even inventory stored in a state can create nexus. Short‑term presence—such as an employee working on a client site—can also trigger obligations.

• Economic nexus: Many states impose nexus when sales into the state exceed a dollar amount or number of transactions (often $100,000–$500,000 or a set count). This rule arose from Wayfair and is particularly important for e‑commerce and SaaS companies.

• Employee/presence nexus: Remote employees who live or perform work in another state commonly create nexus, leading to payroll withholding, unemployment insurance registration, and income‑tax filing responsibilities for the employer.

Remember: each state defines and applies nexus standards differently. Always check the specific state guidance.

Typical tax obligations that follow from nexus

When nexus exists, a business may face one or more of the following:

• Sales tax collection and remittance for taxable sales in the state.
• Corporate or franchise income tax filing and apportionment obligations.
• State payroll registration and withholding for employee wages, plus unemployment insurance and workers’ compensation rules.
• Registration for use tax or marketplace facilitator requirements.

For practical guidance about state sales tax registration and thresholds, our article on State Nexus Rules: When Your Business Owes State Taxes covers common triggers and registration steps at the state level.

Remote workers: the specific triggers to watch

• Employee residence vs. employer location: If an employee lives and performs duties in State A while the employer is based in State B, State A can require payroll withholding and income‑tax filing for the employer and employee.

• Temporary assignments and business travel: Short stays can create nexus in some states. Use a conservative approach and document time spent in each jurisdiction.

• Home office and equipment: Supplying equipment or reimbursing home‑office expenses in another state can strengthen a nexus argument by that state.

• Remote sales and support activities: Account managers, installers, or service technicians performing work remotely in a state can create nexus even without a physical office.

Real examples from practice

• A client with a single employee who moved to California after the company adopted remote work didn’t expect California withholding requirements. California treats employee presence as sufficient to require employer registration for payroll and unemployment — a surprise that led to several years of retroactive filings and penalties. This is common: states treat employee presence as a strong nexus factor.

• An e‑commerce client had annual sales to New York that exceeded the state’s economic nexus thresholds. After Wayfair, New York required registration and remittance of sales tax even though the business had no physical office there. That client avoided a larger liability by voluntarily registering and coming into compliance quickly.

Steps to evaluate and manage multistate nexus risk

Follow these practical steps to reduce surprises:

1. Inventory employee locations. Maintain a live register of where employees work, including remote and hybrid days. Update it whenever someone moves or starts working in a new state.

2. Map business activities to state tests. For each state where you have employees or customers, compare your activities to that state’s physical and economic nexus rules.

3. Monitor economic thresholds. Track sales and transaction counts by state to know when you hit economic nexus thresholds.

4. Register proactively. Register for payroll and sales‑tax accounts when nexus is likely — voluntary registration often reduces penalties if you later need to show good faith compliance.

5. Revisit contracts and remote‑work policies. Specify employee work locations and approval processes for relocations to reduce ad‑hoc nexus events.

6. Use a consistent apportionment method. If you must file income tax in multiple states, apply each state’s apportionment rules consistently; consider the guidance in our article on Multi‑State Filing for Remote Workers: When to File and How to Allocate Income.

7. Engage experienced multistate tax advisers. A multistate review can quantify likely exposures and recommend registration and payroll actions.

Common mistakes to avoid

• Assuming physical presence is the only trigger. Economic nexus and employee presence are equally important.
• Failing to track short business trips and client work that cumulatively create nexus.
• Relying on old thresholds or outdated state guidance — rules change frequently.
• Not coordinating payroll, HR, and finance teams when employees change locations.

Example table (illustrative — check state sites for current rules)

Note: Thresholds differ by tax type (sales vs. income vs. franchise) and change over time. Always confirm with the state department of revenue.

Audit risk and remediation

If you discover unregistered nexus duties, act immediately. Voluntary disclosure agreements (VDAs) are available in many states and can significantly reduce penalties for past noncompliance. Timely self‑reporting and registration, along with a VDA where appropriate, are often less expensive than waiting for an audit.

FAQs (brief)

Q: Does every remote employee create nexus? A: Often yes for payroll and withholding, but obligations depend on the state and the employee’s activities. Q: If my company has no physical office, do I still need to collect sales tax? A: Yes—economic nexus after Wayfair means large or frequent sales into a state can require collection even without a physical presence.

Useful authoritative resources

• Wayfair decision: South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018).
• Tax Foundation — nexus and state analyses: https://taxfoundation.org
• California Department of Tax and Fee Administration (CDTFA): https://www.cdtfa.ca.gov/
• For state payroll and withholding rules, consult the relevant state department of revenue websites and the IRS employer pages for federal payroll obligations (https://www.irs.gov).

For related how‑to content on collecting sales tax after Wayfair, see our guide Nexus and Sales Tax for Remote Sellers After Wayfair.

Professional tips (from my practice)

• Automate location tracking through HR software that logs remote‑work locations and flags relocations for review.
• Build a relocation approval workflow so HR, tax, and payroll have advance notice before employees move states.
• Use state voluntary disclosure programs proactively when you find missed registrations.

Bottom line

Remote work materially increases the chance your business will have multistate tax obligations. Treat employee locations and remote sales as active tax triggers, not passive details. Early detection, documented policies, and timely registration will reduce penalties and the operational burden of retroactive compliance.

Professional Disclaimer: This article provides general information and examples based on current (2025) public guidance; it is not tax or legal advice. For decisions about your specific situation, consult a qualified tax advisor or attorney. For state‑specific filing requirements, always check the relevant state department of revenue.