How nexus rules changed and why freelancers should care
The U.S. Supreme Court’s 2018 South Dakota v. Wayfair, Inc. decision let states set economic nexus rules for sales tax without a physical presence (South Dakota v. Wayfair, Inc., 2018). Since then many states also refined income and commercial activity rules. In my practice I’ve seen freelancers first learn about nexus when a state issues a notice or when marketplace platforms start collecting tax on their behalf.
How nexus can be established (common triggers)
- Physical presence: a home office, temporary workspace, trade show booth, or employee in a state can create nexus.
- Economic presence: reaching a state’s sales or transaction threshold (thresholds vary by state; many use dollar or transaction tests).
- Inventory or fulfillment: storing goods in third‑party warehouses (e.g., FBA/3PL) often creates nexus.
- Agents and contractors: having an agent or contractor who solicits business in a state can trigger nexus.
- Marketing/activity targeted to a state: strong, systematic business activities aimed at residents may be relevant.
For a deeper comparison of physical vs economic tests, see our guide: Nexus for Remote Sellers: Economic vs Physical Presence Explained.
Sales tax vs. state income tax nexus — know the difference
- Sales tax nexus requires you to register and collect sales tax on taxable sales into that state. Rules depend on product or service taxability and state thresholds.
- Income tax nexus determines whether a state can tax business income or require personal income tax filings. Remote work can create income‑tax filing obligations in a client’s state in some situations; see our piece on Nexus for Remote Employees: State Income Tax Considerations.
Both tests are separate: you can have one without the other.
Practical examples (realistic scenarios)
- A freelance designer exhibiting at a week‑long trade show in another state may create physical presence nexus there.
- Storing print materials with an out‑of‑state printer or a fulfillment center can create nexus in the warehouse state.
- Frequent projects for clients in a state could create economic nexus if you exceed that state’s threshold.
Quick compliance checklist for freelancers
- Track revenue and number of transactions by buyer state.
- Inventory where goods or digital products are hosted or fulfilled.
- Note any in‑state activity: trade shows, co‑working, contractors, or agents.
- Review marketplace facilitator rules — platforms often collect and remit tax for you.
- If you meet a threshold, register, collect sales tax, and file timely returns.
I recommend quarterly reviews with your tax advisor to catch new nexus risks early.
For service providers, our related primer is here: Nexus Basics for Remote Sellers and Service Providers.
Common mistakes freelancers make
- Assuming no physical office = no nexus. Temporary activity or third‑party storage can still create nexus.
- Ignoring small out‑of‑state client bases until a threshold is crossed.
- Failing to separate sales tax rules (state and product‑specific) from income tax obligations.
What to do if you discover you have nexus
- Register with the state’s tax authority as soon as possible.
- Consider voluntary disclosure programs to reduce penalties where available.
- Adjust pricing and contracts to reflect tax collection needs.
- Keep clear records of when sales crossed any state thresholds.
Short FAQs
- Which states can tax me? Any state where you have nexus under that state’s rules.
- Do digital services get taxed? It depends on the state and the service type.
Sources and further reading
- South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018).
- Streamlined Sales Tax Governing Board and state revenue departments for current thresholds and taxability lists.
- Tax Foundation summaries on economic nexus developments.
This article is educational and not legal or tax advice. Your situation may differ — consult a qualified tax professional for personalized guidance.
