Physical Nexus
Category: other
A tax obligation triggered by having physical presence (inventory, employees, offices) in a jurisdiction.
Physical nexus is the traditional legal basis for requiring a business to collect sales tax in a state, based on having a physical presence such as an office, warehouse, employees, or inventory in that state. In e-commerce, storing inventory in an FBA warehouse creates physical nexus in that state. The 2018 Wayfair decision supplemented physical nexus with economic nexus, but physical nexus remains the strongest trigger for sales tax obligations.
Examples
- • A seller using Amazon FBA in the US creates physical nexus in every state where Amazon stores their inventory, requiring sales tax registration.
- • Having an employee or contractor in a state creates physical nexus, even if the seller has no office or warehouse there.
- • Physical nexus applies immediately upon establishing presence, unlike economic nexus which requires meeting sales thresholds.