Property and personnel remain the most reliable triggers for state tax and registration obligations. When your business owns property, stores inventory, or has employees working in a state, you've likely created nexus, regardless of revenue thresholds or transaction counts.
Understanding these physical presence triggers helps businesses anticipate compliance obligations before state enforcement actions occur.
This article covers how property and personnel create nexus for sales tax, income tax, employment tax, and the Secretary of State foreign registration requirements. We'll examine the MTC factor presence framework, the shrinking protections of P.L. 86-272, and how to coordinate compliance when physical presence spans multiple jurisdictions.
Property in a state creates an immediate nexus for most tax types. This includes real property (offices, warehouses, retail locations, manufacturing facilities), tangible personal property (equipment, furniture, vehicles, machinery), and inventory stored anywhere in the state.
Third-party fulfillment centers deserve special attention. Using services like Fulfilled by Amazon can create nexus in every state where your inventory is stored, even when you don't control which Amazon warehouse is used.
Amazon operates multiple facility types (fulfillment centers, sortation centers, delivery stations) and may redistribute your inventory across states without notice.
Texas law similarly captures any business that "maintains, occupies, or uses permanently, temporarily, directly, or indirectly any office, distribution center, warehouse, or storage place." Most states take similar positions.
The Multistate Tax Commission's factor presence standard sets property thresholds at $50,000 (adjusted annually for inflation) or 25% of total property, whichever is less. Property valuation uses the original cost basis for owned assets and eight times the net annual rental rate for leased property.
However, states can establish nexus below these thresholds through other legal theories, so factor presence provides guidance rather than safe harbors.
For Secretary of State registration, income-producing property typically requires a foreign qualification. Florida illustrates the distinction: owning property alone may not require registration, but renting that property to generate income does.
Personnel often creates a nexus across all tax types and foreign registration requirements. This includes:
The critical legal principle comes from Scripto v. Carson (1960): most states make little distinction between employees and independent contractors for nexus purposes.
If someone is conducting activities on your behalf in a state, whether classified as W-2 or 1099, their presence likely creates your obligation.
Activities that trigger nexus include sales solicitation, delivery, installation, assembly, order-taking, service provision, training, and technical support.
California law broadly captures this, applying nexus to any representative, canvasser, agent, independent contractor, or solicitor responsible for selling, installing, delivering, assembling, or taking orders.
Remote work compounds these issues. The Telebright decision (2006) established that a single telecommuting employee can create nexus. With distributed workforces now common, businesses may have nexus obligations in every state where employees work from home, even temporarily.
Trade shows and temporary assignments add complexity: some states assert that even a few days of in-state activity can trigger nexus obligations. Minnesota, for example, requires retailers conducting business for four or more days in any 12-month period to register and collect tax for the subsequent 12 months.
The MTC factor presence standard sets payroll thresholds at $50,000 (adjusted for inflation) or 25% of total payroll. Like property thresholds, these represent guidance rather than absolute safe harbors.
The Multistate Tax Commission adopted its factor presence nexus standard in 2002, providing a framework that multiple states have since implemented. The standard establishes thresholds across three factors:
States that have adopted variations of this framework include Alabama, California, Colorado, Connecticut, Michigan, New York, Ohio, Tennessee, and Virginia. Additionally, each state may adjust thresholds annually for inflation.
Critical caveat: Factor presence thresholds represent one method for establishing nexus, not an exclusive standard. States retain authority to assert nexus below these thresholds through constitutional nexus principles, economic nexus theories, or agency attribution rules.
Public Law 86-272 (15 USC §381-384), enacted in 1959, provides limited federal protection against state income taxation. The protection applies only to businesses that solicit orders for tangible personal property, where orders are sent outside the state for approval and filled by shipment from outside the state.
The protection does not extend to services, digital goods, SaaS products, intangibles (franchises, patents, copyrights, trademarks), leasing or licensing arrangements, or installation and maintenance activities. Businesses operating in these sectors cannot rely on P.L. 86-272 regardless of their physical presence levels.
The MTC's August 2021 revised statement significantly narrowed internet activity protections. Under current guidance, when a business interacts with customers via website or app, the business engages in activity within the customer's state.
Unprotected activities now include:
Only minimal internet activities remain protected: cookies solely for shopping cart functionality, and basic product display with order placement.
Tax nexus and the Secretary of State's "doing business" requirements operate under different standards, but there is significant overlap. Activities that create tax obligations typically indicate the level of business activity requiring foreign registration.
Foreign registration is generally required when a business has employees or a storefront in the state, owns income-generating property, or conducts regular commercial operations. Activities like holding board meetings, maintaining bank accounts, or conducting isolated transactions typically don't require registration.
In practice, if you're paying state taxes, you likely need to be registered with the Secretary of State. Tax departments and Secretaries of State increasingly coordinate enforcement, and tax filings can trigger registration inquiries.
Discern provides registered agent services across all 51 jurisdictions, automated compliance tracking, and foreign registration management, all coordinated from a single dashboard.
When physical presence triggers new requirements, we ensure you're registered and compliant before enforcement actions begin. Book a demo to see how Discern simplifies multi-state compliance.
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