As businesses grow, expand into new states, hire remote employees, or start selling beyond their home state, state and local tax (SALT) questions tend to show up fast, and one of the most common (and most misunderstood) questions is nexus.
In this episode of Ask a DHJJ CPA, host Emma Yurchik sits down with Meaghan Figg, Principal and State & Local Tax (SALT) leader at DHJJ, to answer a question we hear all the time: When do you officially cross nexus, and what does that actually mean for your business?
Below is a recap of the key takeaways, along with a few practical “watch-outs” you can apply right away.
Meet the Guest: Meaghan Figg, DHJJ SALT Principal
Meaghan has been with DHJJ for 11 years and has spent 15+ years in public accounting focused on SALT. She works with a wide range of companies, service businesses, manufacturers, distributors, retailers, and everything in between, helping them navigate multi-state complexity and stay compliant as they expand.
One of the most important points she makes early on: SALT doesn’t just affect one “type” of company. If you sell or operate across state lines, there’s a strong chance SALT applies to you, often earlier than you’d expect.
Why SALT Gets More Complicated as You Grow
The reason SALT becomes more relevant as companies grow is simple: growth usually means more customers, more states, more movement, and more complexity.
That might look like:
- Customers located in multiple states
- Employees or contractors traveling to other states
- Remote employees working outside your home state
- Selling products (or even services) across state lines
And as Meaghan explains, nexus is the connection that triggers state-level filing requirements.
Nexus = a connection with a state that requires your company to file in that state.
Physical Nexus vs. Economic Nexus
One of the biggest “aha” moments for business owners is realizing nexus isn’t only triggered by physically showing up in a state.
Physical nexus
This is what most people think of first:
- A remote employee in another state
- Sending employees or independent contractors to perform work in another state (training, installations, jobsite work, etc.)
Economic nexus
This is the one that often gets missed:
- You don’t have to travel to a state to create nexus
- You can create a filing requirement simply by selling enough into that state
Meaghan notes this is especially surprising for service-based businesses, because many assume:
“We’re based here, we do the work here, so we only file here.”
But if customers in another state are benefiting from your service, you may have nexus depending on that state’s rules and thresholds.
Nexus Isn’t the Same for Sales Tax, Income Tax, and Franchise Tax
A really helpful part of the episode is Meaghan breaking down how Nexus depends on the type of tax.
Sales tax: the Wayfair shift changed everything
Meaghan references the 2018 South Dakota v. Wayfair Supreme Court case, which opened the door for states to require sales tax collection based on economic presence, not just physical presence.
Today, states with sales tax generally have economic nexus thresholds, often something like:
- $100,000 in sales into the state, or
- 200 transactions (though some states have adjusted or removed the transaction count)
If you cross a state’s threshold, that can trigger requirements to register, collect, remit, and file sales tax returns.
Franchise tax: often a “bright-line” threshold
Some states (Meaghan mentions Texas and California) apply franchise taxes with clearer thresholds, where crossing a defined sales level triggers a filing requirement.
Income tax: can get gray fast
Income tax depends heavily on what you sell and what activities you perform in a state.
Meaghan highlights a key concept: Public Law 86-272, which can offer protection from net income tax in certain situations if you sell only tangible personal property and your only activity in the state is soliciting sales.
But if you provide services (or have service elements tied in), that protection typically doesn’t apply, and state rules can become murky, with some states offering explicit thresholds and others offering… less clarity.
Bottom line: this is where having a tax team that lives in these rules matters.
How Businesses Cross Nexus Without Realizing It
This is where the episode gets especially practical. Meaghan shares some of the most common ways companies “accidentally” trigger nexus:
- Sales growth
- Crossing thresholds can happen quickly, sometimes from one new large customer or contract.
- And once you cross nexus, it’s often not a simple “year-to-year” choice. Filing can become ongoing.
- Independent contractors and reps
- Even if they aren’t employees, contractors acting as agents “on your behalf” in another state can create nexus.
- Trade shows
- This surprises a lot of business owners.
- Depending on the state and activity, even attending a trade show for a couple of days can create nexus.
- Multiple triggers at once
- Yes, businesses can cross nexus in multiple states at the same time, especially when sales are growing quickly and teams are traveling or working remotely.
Common Misconceptions (and Why They’re Risky)
Meaghan calls out two misconceptions she hears constantly:
Misconception #1: “We only operate in our home state, so we only file there.”
Even if your team is local, your customers might not be, and that alone can create obligations.
Misconception #2: “They’ll never find us.”
States have more visibility than many businesses realize. Meaghan explains that states share information, audits can trigger additional state attention, and even customer/vendor audits can bring your company onto a state’s radar.
One common method: the nexus questionnaire (which Meaghan jokingly calls “love letters”), a letter asking detailed questions about your activity in that state (sales, employees, contractors, advertising, etc.). Your answers can determine whether the state considers you subject to filing requirements.
What Happens If You Cross Nexus and Ignore It?
The risks can be significant:
- Growing tax liability that hasn’t been paid
- If you never file in a state, the statute of limitations may never start, meaning the state could potentially look back many years
- M&A / selling your business: SALT issues commonly show up in due diligence
Meaghan notes she hasn’t seen a deal in years where state tax didn’t come up in some form. Unaddressed SALT exposure can lead to:- larger holdbacks
- price adjustments
- and in some cases, deals falling apart
The Fix: Voluntary Disclosure Agreements (VDAs)
If a business discovers past exposure, Meaghan explains one of the best tools available: a Voluntary Disclosure Agreement (VDA).
A VDA is a way to come forward (often anonymously at first) and resolve past noncompliance. Benefits commonly include:
- Limited lookback period (often 3–4 years, rather than open-ended exposure)
- Penalty abatement in many cases (you still typically owe tax + interest)
Meaghan also explains a key difference:
- Uncollected sales tax can become a true expense to the business if you didn’t collect it from customers.
- For income tax, it’s more like a “pie”, you’re apportioning income across states, not necessarily paying tax twice (though there can be overlap depending on amendment limits and lookback rules).
When Should You Have a Nexus Conversation?
Meaghan’s “signs it’s time” list is a strong gut-check. If any of the following apply, it’s worth discussing nexus:
- Your business is growing
- You have customers in other states
- You have remote employees in other states
- You use independent contractors who operate across state lines
- You travel for work (especially trade shows)
- You have operational footprints you may not think about (like servers, phone services, etc.)
Even if you’re only operating within Illinois, Meaghan flags that local tax complexity can still apply (including nuances in areas like Chicago).
What Is a Nexus Study (and What Does It Include)?
A nexus study (or nexus review) is essentially a structured assessment of where you may have filing obligations and what exposure may exist.
Meaghan explains that an initial nexus study typically looks at:
- Sales by state (and how you track/apportion them)
- Employees by state (including remote work)
- Independent contractors and reps
- Travel activity (trade shows, trainings, installations, jobsite work, etc.)
- A quantification of potential state tax exposure, so you can make informed decisions (file going forward, pursue VDAs, etc.)
Her simple guidance: If you’ve never done one, you should.
A Simple Nexus Checklist (the Big Priorities)
If you want the “short list” to focus on, Meaghan’s checklist is:
- Sales
- Where are your customers?
- Where do they benefit from your service?
- Where are products shipped?
- Recordkeeping
- If you can’t clearly track sales and activity by state, you can’t monitor thresholds.
- Employees
- Where are they working?
- What are they doing, and in what state?
- Independent contractors
- What are they doing on your behalf?
- Where are they doing it?
- Travel
- Where are you going?
- What are you doing while you’re there?
- Trade shows matter more than most people think.
A Smart (and Often Overlooked) Strategy: Train Your Sales Team
One of the most actionable ideas from the episode: multi-state tax awareness can’t live only with the accounting team.
Sales teams are often the first to trigger nexus unknowingly, by quoting jobs, entering new states, or writing contracts that don’t address sales tax correctly.
Meaghan shares that DHJJ has done training with sales teams to help them understand:
- when to flag a new state
- what “exempt” really means
- what certificates may be needed
- how to avoid contract problems that create unexpected tax exposure later
This kind of internal alignment can prevent the classic scramble: “Great sale! Now wait… what about sales tax?”
Top 3 Takeaways from the Episode
If you only remember a few things, Meaghan suggests:
- Watch your sales by state and keep good records
- Monitor what employees and contractors are doing (and where)
- Don’t fear multi-state filing; nexus is often a sign of healthy growth
- Just involve your tax team early, so you stay ahead of compliance and avoid expensive clean-up later.
Want Help Understanding Your Nexus Risk?
If this episode sparked questions, or if your business is expanding into new states, DHJJ’s SALT team can help you:
- assess where you may have nexus
- understand filing requirements by tax type
- identify and quantify exposure
- explore VDAs when needed
- create a proactive plan that supports growth (and future exit/M&A goals)
And if you enjoyed this conversation, subscribe to Ask a DHJJ CPA so you don’t miss upcoming episodes.
