What happens in a multistate nexus study?
Edvin Givargis Published 6 minute read
The short answer
A systematic comparison of what a company actually does in each state against what each state taxes, producing a matrix that answers, jurisdiction by jurisdiction, whether the company owes filings and collections it is not making, and whether it holds protections or planning opportunities it is not using. The study has a standard skeleton. First comes the fact gathering: a questionnaire covering people, property, and transactions by state, followed by the interviews that correct the questionnaire, because checkboxes lie in both directions. Then the data pulls: sales by state and transaction counts, matched against each state's economic nexus thresholds, and payroll and property by location. Then the law is applied twice over, once for each tax type, since sales tax nexus and income tax nexus follow different rules and a company routinely has one without the other in the same state. What emerges is not a yes/no list but a priced ledger with two sides. The exposure side: states where obligations exist and are unmet, with the lookback, tax, penalties, and interest that implies, and the voluntary disclosure paths that cap it. The opportunity side, which surprises companies expecting only bad news: taxability in more states can pull sales out of a high-rate home state's throwback, shift income toward lower-rate jurisdictions, and support refund claims for prior years, so that the study that begins as a compliance exercise sometimes ends as a tax reduction with a filing obligation attached.
The facts: people, property, and the questions behind the questionnaire
The questionnaire is organized by state and by category, employees and where they live and work, independent contractors and what they are engaged to do, inventory and where it sits, including third-party warehouses and fulfillment arrangements, owned or leased property, vehicles, trade shows and events, and licenses already held. Its answers are the beginning of the work, not the end, because the legally decisive facts hide one level below the checkbox. An employee marked present in a state matters differently if the person solicits orders, performs service work, or works remotely in a back-office role. A contractor matters differently if engaged to sell than to consult. The follow-up interviews chase exactly these distinctions, and the recurring examples from consumer products practice show why. Sales titles must be translated into duty descriptions, tier by tier, because what an area rep actually does in stores decides income tax protection under the federal solicitation statute, activity by activity, as the companion article on Public Law 86-272 details. Marketing staff with company vehicles raise a question the org chart never answers: do the vehicles cross state lines, and when the van goes to a festival or event, does anyone sell product out of it? A sample carried for demonstration and a case sold on the spot are different legal events; the second is an in-state sale that ends protection arguments and starts registration obligations. Inventory placed by a fulfillment provider creates presence in states the company has never visited. None of this is exotic; all of it is invisible until someone asks the second question.
The law, applied twice: sales tax and income tax are different maps
The same facts then run through two separate analyses per state. For sales and use tax, physical presence of any meaningful kind, employees, agents or contractors soliciting or servicing, inventory, property, generally creates a collection obligation from the first taxable sale, and where physical presence is absent, the post-Wayfair economic thresholds, measured in dollars or transaction counts that vary by state, do the work instead. Physical presence trumps the thresholds, not the other way around: a company below a state's dollar threshold but with a rep soliciting there is already in, and no federal statute protects against sales tax collection. For income and franchise taxes, the map inverts. Physical presence matters, economic nexus doctrines reach further every year, but sellers of tangible personal property hold the federal solicitation shield, so the analysis is whether each state's activities stay inside protected solicitation or break it, and gross receipts regimes in a handful of states tax what income taxes cannot. The matrix that results has four possible cells per state and tax, and every cell has a consequence: obligated and compliant, obligated and exposed, protected, or simply absent. The exposed cells get priced, tax, interest, penalty, times open years, because an unregistered taxpayer usually has no statute of limitations running at all, which is what makes the lookback the largest number in the study and voluntary disclosure, with its capped lookback and penalty relief, the standard exit.
The outcome: a ledger, not a verdict, and sometimes a savings
The deliverable is the matrix with a recommendation per state, and the recommendations sort into a familiar set: register and begin collecting prospectively where obligations are new; negotiate voluntary disclosure where exposure has history; file protectively where nexus is arguable and the cost is small; stay out, with documented reasons, where the facts genuinely support absence. Then comes the side of the ledger that reframes the engagement. For a profitable company headquartered in a high-rate throwback state, every market state where the study documents taxability is a state whose receipts leave the home-state numerator, and the arithmetic of moving apportionment points from a high rate to lower ones, or to states where the company shows little income after their own apportionment, can produce annual savings that dwarf the study's cost, plus refund claims for open prior years computed on the same analysis. The candid framing for any client: the study will probably find both things, obligations the company did not know it had and money it did not know it was leaving, and the two are often the same facts viewed from different states. What the study cannot be is static. Nexus is a moving target, thresholds and doctrines change, sales mixes shift, people move, and the responsible cadence is an annual refresh of the data pulls and a re-interview whenever the sales model, fulfillment arrangements, or headcount map changes materially.
Practice notes
The disciplines that make a study reliable: interview past the questionnaire, always, and write the duty descriptions down, because they are the evidence for every position the study takes; pull transaction counts as well as dollars, since some states' thresholds count invoices; treat vehicles, events, samples, and third-party inventory as their own inquiry rather than footnotes; and date every activity, because nexus is tested period by period and refund claims and lookbacks both turn on when things started. Price both sides of the ledger before recommending anything, the register-everywhere reflex has a compliance cost that only makes sense against quantified exposure or savings. Sequence the exits properly: voluntary disclosure before registration in any state with material history, never after, since registering first usually forfeits the program. And put the refresh on the calendar, because the study that was right two years ago is a historical document, not a position.
This article states the law as of September 16, 2026
Statutes, rates, thresholds, and agency practice change, and a different set of facts can change the answer. Before acting on anything discussed above, contact G&G State Tax Group to confirm what has changed since this was written and how the rules apply to a specific situation.
G&G State Tax Group, LLC is a state and local tax advisory firm. The firm provides state and local tax consulting and representation in state and local tax controversies. G&G does not prepare or file tax returns, perform attest services, or provide bookkeeping, and is not a CPA firm.