--- title: It’s a Nexus Evolution description: State tax nexus has evolved through the years. What was once a strict physical presence standard now incorporates economic nexus. image: https://blog.picpa.org/hubfs/Imported%20sitepage%20images/the-evolution-of-nexus.jpg --- [![PICPA - Pennsylvania Institute of CPAs](https://blog.picpa.org/hubfs/picpa-name.svg)](https://www.picpa.org/picpa-home-2024) [Account](https://www.picpa.org/my-picpa) [Cart](https://www.picpa.org/cart) [Join PICPA](https://www.picpa.org/membership/become-a-member/join-as-an-individual) [Account](https://www.picpa.org/my-picpa) [Cart](https://www.picpa.org/cart) # *CPA Now* Blog [Back to all blogs](https://blog.picpa.org/) • [Tax - State & Local](https://blog.picpa.org/tag/tax-state-local) # It’s a Nexus Evolution [ Jonathan Liss ](https://blog.picpa.org/author/jonathan-liss) Aug 27, 2025 Share this post: [mailto:?subject=It’s%20a%20Nexus%20Evolution&body=Check%20out%20this%20blog%20post%3A%20https://blog.picpa.org/its-a-nexus-evolution](mailto:?subject=It’s%20a%20Nexus%20Evolution&body=Check%20out%20this%20blog%20post%3A%20https://blog.picpa.org/its-a-nexus-evolution) ##### *This blog looks at state tax nexus and how it has evolved through the years, from a strict physical presence standard to one that now incorporates economic nexus. * --- ![liss_jonathan-_90x90](https://blog.picpa.org/hs-fs/hubfs/Imported%20images/liss_jonathan-_90x90.jpg?width=90&height=90&name=liss_jonathan-_90x90.jpg)When the Beatles sang “You tell me that it's evolution, well, you know | We all want to change the world” in the rock anthem “Revolution” in 1968, they surely were not referring to nexus. But who knows? The dramatic evolution of state tax nexus over the past 50 years has coincided with a lot of great songs. Under the U.S. Commerce Clause, a tax on interstate commerce is upheld where the tax is applied to an activity with “substantial nexus” with the taxing state.1 In 1992, when Tom Cochran’s “Life Is a Highway” was a top single, the U.S. Supreme Court reaffirmed via *Quill*2 the earlier *National Bellas Hess *case (1967) that established a physical presence standard for sales tax collection. Historically, nexus was found if a business had either property or employees located within a particular state. We’ve come a long way since 1967 … and even 1992. This blog looks at state tax nexus and how it has evolved through the years, from a strict physical presence standard to one that now incorporates economic nexus. The expansion of the scope of what constitutes substantial nexus began with states passing “attributional nexus” statutes. These statutes impose nexus on a taxpayer based on the in-state presence of a third party or affiliate that conducts activities on behalf of an out-of-state taxpayer to help establish and maintain a market for the taxpayer in the state. Attributional nexus can be traced to the 1960 U.S. Supreme Court decision in *Scripto Inc. v. Carson*,3 when “The Twist” was at the top of the charts. *Scripto *sustained Florida’s imposition of a use tax collection obligation over an out-of-state seller based on the presence in Florida of independent contractors who were soliciting sales for the seller.  ![the-evolution-of-nexus](https://blog.picpa.org/hs-fs/hubfs/Imported%20sitepage%20images/the-evolution-of-nexus.jpg?width=349&height=160&name=the-evolution-of-nexus.jpg)As the U.S. economy shifted from manufacturing, to service, to e-commerce, certain states expanded their nexus standards to account for new digital business models. “Click-through” nexus, first introduced in New York, was established in response to in-state businesses referring customers to out-of-state businesses’ websites to purchase items in exchange for a commission. New York’s law provided a presumption of sales-tax-nexus-creating solicitation if the out-of-state business generated greater than $10,000 of New York sales during the previous four quarters. The physical presence nexus standard was thus gradually being replaced by an economic nexus concept. Further expanding the limits of substantial nexus, the Supreme Court of New Jersey and other state courts held that the *Quill *physical* *presence requirement only applies to sales and use taxes. Intentional exploitation of a state’s market without a physical presence in the state – for example, licensing intangible property (i.e., trademarks, tradenames, etc.) in a state – satisfies the substantial nexus requirement for income tax. As the Supreme Court of New Jersey in *Lanco* held: “The better interpretation of *Quill* is the one adopted by those states that limit the Supreme Court’s holding to sales and use taxes, an interpretation that reflects the language of *Quill*. The Supreme Court carefully limited its language to a discussion of sales and use taxes. This Court does not believe that the Supreme Court intended to create a universal physical-presence requirement for state taxation under the Commerce Clause.”4 Starting with Ohio’s Commercial Activity Tax (CAT) – a gross receipts tax enacted in 2005 – substantial nexus exists if a person has a “bright-line presence” in Ohio. Subsequently, seven states adopted factor-presence nexus standards for corporate income tax. Under factor-based nexus, substantial nexus exists if a taxpayer exceeds certain apportionment factor numerator thresholds (typically in-state property, payroll, or sales) during the tax period. California, for example, incorporated factor-presence nexus in their doing-business statute, effective Jan. 1, 2011. As the states continued to erode the physical-presence standard, a few states purposefully crafted “kill *Quill*” legislation that created “economic nexus,” whereby a taxpayer was subject to sales tax in the state based purely on surpassing various annual sales/transaction thresholds. In January 2018, South Dakota’s “kill *Quill*” law was challenged and the U.S. Supreme Court granted certiorari in *South Dakota v. Wayfair*.5 Then, on June 21, 2018, the Supreme Court handed down its blockbuster decision in *Wayfair*. The development was perhaps as popular as Ed Sheeran’s “Perfect.” In addressing the substantial nexus prong of *Complete Auto Transit v. Brady*, the Supreme Court, overturned the longstanding physical presence requirement for sales and use tax collection. In its place, it used an undefined “economic and virtual presence” test, applied on a prospective basis. For remote sellers, South Dakota’s thresholds for sales and use tax collection ($100,000 of annual sales in South Dakota or 200 separate transactions in South Dakota) were held to be sufficient because “the seller availed itself of the substantial privilege of carrying on a business in South Dakota.” Soon after the *Wayfair *decision, all of the other states that impose a sales tax had enacted remote seller sales tax collection laws similar to South Dakota. Following the *Wayfair *decision, several state and local taxing jurisdictions amended their nexus rules to impose corporate income tax nexus on out-of-state businesses that satisfy certain annual sales dollar thresholds: Hawaii, Maine, Massachusetts, Pennsylvania (and Philadelphia), Texas, and most recently New Jersey. Maybe the nexus revolution didn’t change the world, but it certainly had an enormous impact on state and local taxation.   1 *Complete Auto Transit Inc. v. Brady*, 430 U.S. 274 (1977) 2 *Quill Corp. v. North Dakota*, 504 U.S. 298 (1992) 3 *Scripto Inc. v. Carson*, 362 U.S. 207 (1960) 4 *Lanco Inc. v. Director, Div. of Taxation*, Supreme Court of New Jersey (2006) 5 *South Dakota v. Wayfair*, 585 U.S. ___ (2018) --- *Jonathan Liss is an adjunct professor at Drexel University and Villanova University School of Law, and is also a huge music fan. **He can be reached **at *[jal436@drexel.edu](mailto:jal436@drexel.edu). --- Sign up for PICPA's weekly professional and technical updates by [completing this form](https://page.picpa.org/picpa-blog-subscription?hs_preview=HLexFIXi-194565877265).  Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of the PICPA's officers or members. The information contained herein does not constitute accounting, legal, or professional advice. For actionable advice, you must engage or consult with a qualified professional. ## Read On [![Upgraded industrial equipment](https://blog.picpa.org/hs-fs/hubfs/Blog%20Art%20and%20Headshots/upgraded%20industrial%20equipment.png?width=352&name=upgraded%20industrial%20equipment.png) ](https://blog.picpa.org/a-strategic-approach-for-securing-state-and-local-incentive) ### [A Strategic Approach for Securing State and Local Incentive](https://blog.picpa.org/a-strategic-approach-for-securing-state-and-local-incentive) ##### *There is much to consider in securing state and local incentives for businesses. It takes a...* [![View of Philadelphia City Hall from street level](https://blog.picpa.org/hs-fs/hubfs/Imported%20sitepage%20images/dont-overlook-local-taxes-this-tax-season.jpg?width=352&name=dont-overlook-local-taxes-this-tax-season.jpg) ](https://blog.picpa.org/dont-let-local-taxes-slip-you-up-this-tax-season) ### [Don’t Let Local Taxes Slip You Up This Tax Season](https://blog.picpa.org/dont-let-local-taxes-slip-you-up-this-tax-season) ##### *In complying with a company’s state and local tax filing obligations, local taxes are too often...* [![Several charts and graphs, with one labeled Sales By Region](https://blog.picpa.org/hs-fs/hubfs/several%20colorful%20sales%20charts%20and%20graphs-1.png?width=352&name=several%20colorful%20sales%20charts%20and%20graphs-1.png) ](https://blog.picpa.org/expanding-sales-tax-bases-call-for-care-and-preparation) ### [Expanding Sales Tax Bases Call for Care and Preparation](https://blog.picpa.org/expanding-sales-tax-bases-call-for-care-and-preparation) ##### *The expansion of state sales taxes is a trend that has been developing for a number of years....* ```json { "@context" : "https://schema.org", "@type" : "BlogPosting", "author" : { "@type" : "Person", "name" : "Jonathan Liss", "url" : "https://blog.picpa.org/author/jonathan-liss" }, "dateModified" : "2025-08-29T15:40:42.071Z", "datePublished" : "2025-08-27T05:00:00.000Z", "headline" : "It’s a Nexus Evolution", "image" : [ "https://blog.picpa.org/hubfs/Imported%20sitepage%20images/the-evolution-of-nexus.jpg" ], "mainEntityOfPage" : { "@id" : "https://blog.picpa.org/its-a-nexus-evolution", "@type" : "WebPage" }, "publisher" : { "@type" : "Organization", "logo" : { "@type" : "ImageObject", "url" : "https://blog.picpa.org/hubfs/brand/picpa-name.svg" }, "name" : "Pennsylvania Institute of CPAs" } } ```