Do Remote Workers Create Nexus?
Remote work isn’t a temporary trend. It’s the permanent operating model for e-commerce brands, agencies, SaaS companies, professional services firms, and almost every modern SMB. But as teams spread across states, something else spreads too: tax obligations.
Whether you hire a remote employee in Colorado, sell heavily into Texas, or keep a contractor-ish “employee” in Pennsylvania, you may create nexus. This legal connection allows a state to tax your business even if you’re not physically located there.
Nexus is a concern for all businesses with distributed teams or customers across states. This article explains how remote work, online sales, and revenue generate nexus, and how to avoid penalties, back taxes, and unexpected registrations.
Why Sales Tax Is Now Triggered by Activity, Not Location
Before 2018, most states required physical presence to impose sales tax obligations. Then came South Dakota v. Wayfair, which opened the door for states to require remote sellers to collect sales tax based solely on economic activity.
Nearly every sales-tax state enforces economic nexus rules. If your revenue in a state exceeds a threshold, often $100,000 in sales, you may be required to register, collect sales tax, and file returns, even if no one from your company has ever set foot there.
Many states are replacing “200-transaction” tests with dollar thresholds, so sales volume, rather than transaction count, determines sales tax obligations. As your revenue grows, you might owe sales tax in more states than expected.
Remote Employees
If an employee works in a state, your business generally needs to register and withhold payroll taxes in that state, regardless of where your office is.
It doesn’t matter if the employee is part-time, travels to headquarters, or was hired or moved there. If they perform work from a state, you may be required to register as an employer, withhold state income tax, and file quarterly payroll returns there.
In some cases, like in New York, an out-of-state employee may still have their wages taxed as if they worked in NYC if they are working remotely “for their own convenience,” not for business necessity. That single rule alters withholding responsibilities and is among the most common multistate payroll disputes today.
Income and Franchise Tax
Many business owners think income tax exposure requires a physical office or major presence. Not anymore.
A single remote employee can create income tax nexus, meaning the state can require you to file corporate income or franchise tax returns even if you didn’t meet the sales tax threshold, and you never had any formal presence there.
Add in service-based businesses or companies offering post-sale digital support, and you run into limitations of Public Law 86-272, a federal rule that only protects companies selling tangible goods and only when their activity is limited to soliciting orders. Modern business models, such as SaaS, digital products, consulting, and subscription services, are often not protected at all.
If you’re expanding into new states, adding remote staff, or delivering online services, income/franchise tax filings may be required long before you realize it.
The Most Common Nexus Problems We See
While every business is different, a handful of patterns recur. Check out these examples:
- Exceeding sales thresholds without registering – An e-commerce brand hits $110,000 in sales in a new state but doesn’t realize that’s enough to trigger nexus even without 200 transactions.
- Quiet payroll nexus – A remote employee is hired in a new state without registering payroll tax accounts, leaving months of unfiled returns.
- Convenience-rule confusion – A New York–based company believes a Connecticut employee is only subject to Connecticut withholding. But New York still expects tax because of the convenience rule.
- Service-based businesses assuming 86-272 protection – Coaches, consultants, SaaS companies, marketing agencies, IT businesses all believe they’re exempt. Most are not.
- Contractors treated like employees- States often look at behavior, not labels. A full-time contractor who behaves like an employee can create nexus.
How to Get Ahead of Nexus
The smartest approach is to build a simple, repeatable review process.
Start by mapping your team and revenue. Where does each employee live and work? How much did you sell in each state last year? You don’t need perfect precision, just a clear snapshot.
Then check each state’s economic nexus thresholds and payroll rules. Focus on two questions:
1. Did we break the sales threshold?
If yes, sales tax registration may be required.
2. Do we have a person working in that state?
If yes, payroll registration is almost always required.
Finally, review whether you’re exposed to income or franchise tax. If you’re purely selling physical goods and not providing support, P.L. 86-272 may help. But if you’re doing anything service-related or anything digital, you likely need to file.
This step doesn’t need to be complicated. Most businesses simply need a state-by-state matrix that shows:
- Where employees live
- Where customers are
- What thresholds were crossed
- What filings are required
This Will Be Big in 2026
States are aggressively enforcing the remote-work nexus. Budgets are tight, audits are up, and cross-state data matching has become sophisticated. If your team has grown, spilled into new states, or been allowed to “work from anywhere,” your compliance footprint has expanded with them.
What used to be an occasional risk is now routine: if you’re multi-state, you almost certainly have multi-state obligations.
Schedule a State-by-State Exposure Check
If you have remote employees, sell across state lines, or operate in e-commerce or services, a state tax exposure review can save you from penalties, interest, and costly cleanup work. We’ll assess your employee locations, state-by-state revenue, economic nexus thresholds, withholding rules, and income/franchise triggers.
Also, if you need assistance with any tax issue, such as sales tax, payroll withholding, income tax, audits, cleanup, or voluntary disclosures, schedule a consultation with Todd!
