A business doesn’t have to open an office in a new state to owe sales and use tax there. Nexus, the connection that creates a filing obligation, can be triggered by a single remote employee, a warehouse of inventory, or enough sales volume through an online store. Growth is usually treated as a revenue story. It’s also a tax exposure story, and the two often move at different speeds.

What creates nexus

Nexus is established through physical or economic presence in a state. Physical presence can come from a sales rep working remotely, inventory stored in a third-party warehouse, or even short-term project work performed on-site. Economic nexus is triggered by revenue or transaction volume, most states now set a threshold, commonly $100,000 in sales or 200 transactions, that applies whether or not the business has any physical footprint there. E-commerce growth is the fastest way to cross an economic threshold without anyone noticing.

Why this gets missed

Nexus exposure tends to build quietly. A remote hire in a new state, a new fulfillment partner, a marketplace that starts driving real volume, none of these show up on a tax calendar. By the time a state notices, the exposure can span several years of unfiled returns and uncollected tax, plus penalties and interest.

What a nexus review does

A nexus and exposure review looks at sales, payroll, and inventory activity by state to identify where an obligation already exists, and flags exposure before it becomes a liability. This is the first step in most sales and use tax engagements, precisely because it’s the piece that’s easiest to lose track of internally while a business is focused on growing.

Registering without overcorrecting

Finding nexus doesn’t mean registering everywhere at once. The right response is targeted: register where an obligation exists, apply the correct taxability rules to what’s being sold or bought in that state, and keep exemption certificates current going forward. Over-registering creates its own administrative burden without reducing risk.

Who should be paying attention

This matters most for businesses expanding through sales reps, remote employees, third-party inventory, or e-commerce growth, and for multi-state buyers whose vendors may already be applying the wrong jurisdiction’s rules on the purchasing side.

The takeaway

Nexus exposure grows alongside the business, quietly and often faster than internal tracking keeps up. A periodic review catches it before a state does.

Freight, Software, and Drop-Shipped Equipment: The Sales Tax Blind Spots

Most sales tax overpayments aren’t the result of a single big mistake. They come from a handful of purchase categories that don’t fit cleanly into a standard taxability matrix, so they get taxed by default instead of reviewed. Three categories account for a disproportionate share of what gets found in a reverse audit: freight charges, software licenses, and drop-shipped equipment.

Freight charges

Whether freight is taxable depends on the state, and on how the charge is structured relative to the sale, separately stated versus bundled into the price, for instance. Vendors frequently default to charging tax on freight regardless of the buyer’s state rules, because it’s simpler than checking each jurisdiction. That default adds up quickly for any business with meaningful shipping volume.

Software licenses

Software taxability varies by delivery method and by state: some states tax software the same as tangible goods, some tax only certain types (like software delivered on physical media versus downloaded or cloud-based), and some exempt custom software entirely. As companies shift more purchasing toward SaaS and cloud tools, this category has become one of the least consistently handled, both by vendors charging the tax and by internal teams reviewing it.

Drop-shipped equipment

Drop-shipping adds a third party to the transaction, a supplier ships directly to the end customer on a business’s behalf, and that third party often doesn’t have visibility into whether the sale should be exempt. Equipment purchased for resale or for a tax-exempt use can still get taxed at the point of shipment if the right exemption certificate isn’t on file with the drop-shipper.

Why these get missed even with a compliance process

Even businesses with an established accounts payable and tax process tend to review taxability at the point of purchase, not retroactively across a multi-year history. Rules shift as products, states, and rates change, so a certificate or taxability determination that was correct three years ago may no longer match current rules, and nothing flags the gap automatically.

What to do about it

A transaction-level review of historical purchase and sales data catches exempt purchases that were taxed in error, and files refund claims for what’s recoverable, typically within a three- to four-year look-back period depending on the state. Going forward, keeping exemption certificates current and applying the right taxability rules at the point of purchase prevents the same categories from resurfacing.

The takeaway

Freight, software, and drop-shipped equipment are the categories worth checking first. They’re common enough, and inconsistent enough across states, that most businesses with meaningful purchasing volume have some amount sitting there unclaimed.