A growing startup can create state tax obligations much earlier than founders expect. Crossing a sales threshold, warehousing inventory with a fulfillment provider, launching on a marketplace, or hiring a single remote employee can trigger separate obligations for sales/use tax, payroll withholding, unemployment tax, and sometimes income or franchise tax. The difficult part is not just nexus; it is that thresholds, apportionment formulas, registration mechanics, filing frequencies, and penalty regimes vary materially by state.
For a general startup, the safest operating model is to track nexus by state and channel, register before collection or payroll begins where required, keep separate calendars for sales tax, payroll, and annual income/franchise filings, and preserve evidence-grade records. This guide assumes no industry-specific excise tax regime and focuses on generally applicable startup obligations.
Nexus Triggers
Most startups must deal with four types of nexuses in the real world. First, physical nexus is still associated with having employees, offices, and inventory. Then there’s the economic nexus which has replaced many of the physical nexus rules when it comes to sales tax, as it typically goes by the amount of gross receipts or number of transactions to determine if a company has economic nexus. Third, there are marketplace facilitator laws that shift the responsibility for collecting sales tax from the selling company to the marketplace.
Finally, the fourth type of nexus is the click-through or affiliate nexus. This fourth type of nexus is currently less significant as it is no longer used to establish nexus at the front door of businesses; however, it is still relevant for historical clean-up, audit defence, and due diligence purposes since referrals were one of the original triggers for establishing nexus in some states before the creation of the economic nexus rules (meaning that California still uses referrals as a trigger for establishing nexus before the economic nexus rules were created).
| Assumed state | Current sales/use-tax economic nexus trigger | Measurement window | Marketplace / startup note |
| California | More than $500,000 of sales for delivery into the state | Preceding or current calendar year | Facilitated sales count toward the threshold; if all sales are through registered marketplace facilitators acting as retailers, separate seller registration may not be required |
| New York | More than $500,000 and more than 100 sales of tangible personal property delivered into the state | Immediately preceding four sales tax quarters | Marketplace providers with the same threshold must register |
| Texas | Safe harbor below $500,000; above that, remote sellers and remote marketplace providers are engaged in business | Preceding 12 calendar months | Threshold is based on total Texas revenue from taxable and non-taxable sales into Texas |
| Florida | Taxable remote sales more than $100,000 | Previous calendar year | Marketplace providers making substantial remote sales must register and remit electronically |
| Washington | More than $100,000 in combined gross receipts sourced or attributed to the state | Current or prior year | Registration can pull in both B&O tax and sales tax; marketplace facilitators use the same threshold logic |
| Massachusetts | Sales exceed $100,000 | Calendar year | Remote sellers and remote marketplaces collect once threshold is exceeded; no transaction-count test appears in current guidance |
| New Jersey | Gross revenue exceeds $100,000 or 200 transactions | Current or prior calendar year | Marketplace collects tax on marketplace transactions; over-threshold marketplace-only sellers may still need to register and request non-reporting status |
| Illinois | As of January 1, 2026, $100,000 or more in cumulative gross receipts; the 200-transaction test was removed | Tested quarterly over the preceding 12-month period | 2026 rule change is material for startups that previously monitored only transaction counts |
| Pennsylvania | Sales exceed $100,000 | Prior year | Remote sellers exceeding the threshold must register and collect or use a certified service provider; marketplace facilitators with economic nexus collect on marketplace sales |
| Virginia | More than $100,000 or 200 transactions | Previous or current calendar year | Marketplace facilitators collect marketplace sales; direct sales remain the seller’s own responsibility when thresholds are met |
These are only sales-tax thresholds. Income/franchise nexus can begin at different levels and with different tests. For 2025 tax years, California’s “doing business” threshold starts at $757,070 of California sales or 25% of total sales; New York’s corporate tax instructions place economic nexus at $1.283 million of New York receipts; Washington’s remote-seller registration can cover both B&O tax and sales tax; and Texas says a taxable entity with inventory stored in a marketplace provider’s facility can have franchise-tax responsibility.
Marketplace rules reduce, but do not eliminate, compliance work. California counts facilitated sales toward the threshold, Virginia treats direct sales separately from facilitated sales for marketplace sellers, and New Jersey may still require an over-threshold seller that sells only through marketplaces to register and request non-reporting status.
Registration and Payroll
Typically, when nexus is established, you will want to register as an employer prior to collecting taxes from employees or payroll in that marketplace or state. For example, when a new employer establishes its nexus in California, the employer must establish an employer payroll tax account within 15 days of becoming a subject employer.
In the state of New York, new employers must withhold state income tax from the employees’ wages and report that withholding on Form NYS-45 on a quarterly basis (for calendar quarters). In the State of Texas, you must register for unemployment tax within 10 days of becoming liable. At the federal level, the Internal Revenue Service has several regulations that govern withholding, deposits, reporting and payments, in their Publication 15 and Form 941.
Thus, remote workers can provide impacts outside of HR – such as taxes. Tax withholding and unemployment obligations might occur for an employee in different states. An employee might also have a resident/non-resident sourcing issue, depending on where they receive certain income. According to NY’s guidelines, if someone lives and works in different states, that person may have liability for taxes in both states. However, many times, residents are given credit to avoid double taxation. California has the same type of credit; it allows a deduction if an employee has income taxed in/on California and taxed in another state.
Apportionment and Double Tax Relief
Sales taxes are separate from income taxes, and the latter are apportioned based on factors like where you do business, but there is not one national standard for how income numbers get apportioned between two states that do not have an official agreement to share those numbers. For example, most of California uses a single sales factor method.
Florida has historically used three factors to allocate income (25 percent to property, payroll and sales with 50 percent of total sales included in the numerator when determining taxable income) while the instructions for New York’s corporate tax define receipts within NY as based on the numerator in the apportionment formula. Therefore, if a new business tried to estimate its tax liability in each state simply by multiplying its total earnings by the state’s tax rate; this would yield different results depending upon the composition of revenues, where payroll expenses were incurred and where products were shipped.
Double-tax relief typically is available to founders and employees from the state in which they reside. Residents of New York can claim a resident credit against their New York taxes for income that was taxed by another state. New York also recognizes resident credits for certain substantially similar taxes imposed on pass-through entities outside of New York, such as a partner’s share of any entity-level tax. Residents of California may receive an other-state tax credit if their income was taxed by both California and by another state and California’s elective pass-through entity scheme provides a credit against California taxes based on the owner’s share of the tax assessed at the pass-through entity level.
Filing Calendar and Penalties
Once registered, expect multiple calendars. California assigns sales-tax filing frequency by expected or reported activity; Texas monthly filers generally file by the 20th of the following month; New York sales tax returns are generally due within 20 days after the end of the reporting period; and Virginia sales-tax returns are due on the 20th of the month after the filing period, even when there are no sales to report.
| Filing type | Typical cadence | Typical deadline pattern | Practical examples from primary sources |
| Federal payroll deposits and federal Form 941 | Deposits can be monthly, semiweekly, or accelerated; Form 941 is quarterly | Monthly depositors generally deposit by the 15th of the following month; Form 941 is generally due Apr. 30, Jul. 31, Oct. 31, and Jan. 31 | IRS deposit rules and Form 941 calendar govern even before the startup has complex state filings |
| State sales/use tax returns | Monthly, quarterly, or annual, depending on state assignment and volume | Common patterns are the 20th or the last day of the following month | California quarterly returns are due the last day of the following month; Texas and Virginia commonly use the 20th; New York is generally within 20 days after the period |
| State withholding and wage reports | Usually quarterly, with faster remittance when withholding hits state thresholds | Quarter-end returns often due Apr. 30, Jul. 31, Oct. 31, Jan. 31; some states accelerate deposits | California DE 9/DE 9C are quarterly; New York NYS-45 is quarterly, and NYS-1 may be due within 3 or 5 business days after a payroll once thresholds are hit |
| State unemployment or reemployment returns | Quarterly | Usually, last day of the month after quarter-end | Texas quarterly wage reports are due by the last day of the following month; Florida requires quarterly RT-6 reporting |
| Corporate income or franchise returns | Annual | Often 15th day of the fourth month after year-end, but not always | California C corps: 15th day of the 4th month; New York generally: 15th day of the 4th month; Texas franchise tax: May 15; Florida calendar-year Form F-1120: generally, May 1 |
Startup Checklist and Pitfalls
A practical startup checklist is straightforward:
- Track nexus monthly by direct sales, marketplace sales, employees, contractors, inventory, and property.
- Maintain separate analyses for sales tax, income/franchise tax, withholding, and unemployment.
- Register before the first taxable collection event or payroll run where the state requires it.
- Keep direct-channel and marketplace activity separated in your ERP, billing stack, and tax engine.
- Preserve invoices, exemption certificates, payroll work-location records, marketplace statements, inventory movement reports, and proof of filing/payment.
- Re-check thresholds after every new hire, warehouse change, or marketplace launch.
FAQ
Does one remote employee really matter for multistate tax?
Yes. A single employee in another state can create payroll withholding and unemployment-tax obligations there, and it can also affect state income-tax sourcing and nexus analysis.
If a marketplace collects sales tax, can the startup ignore sales-tax compliance?
Not safely. Marketplace rules often shift collection on facilitated sales, but direct website sales can still trigger seller obligations, and some states still require registration or a non-reporting election even for marketplace-only sellers.
Are sales-tax nexus and income/franchise-tax nexus the same test?
No. California, New York, Washington, and Texas all show that business-tax nexus can use different standards from sales-tax nexus, including separate receipts thresholds or inventory-based rules.
How do founders reduce double taxation across states?
Usually through resident credits and, in some cases, pass-through entity tax relief. New York and California both publish formal credit mechanisms for income taxed by more than one jurisdiction.
Why ERB?
ERB is a strong venue for this subject because founders and finance teams need practical, source-driven guidance that turns fragmented state rules into operating decisions. A concise, analytical explainer like this helps position ERB as a credible resource for growth-stage businesses navigating real compliance risk.