Introduction:

Overview of Multi-State Tax Laws

When companies operate in multiple states, state and local taxes imposed across jurisdictions can significantly affect profitability and compliance risk. A central challenge for multistate businesses is determining nexus, or the level of connection required before a state may impose tax obligations. Nexus determination remains complex because states apply differing statutory standards and administrative interpretations of what constitutes a taxable business presence. Thibodeau and Bord (2021) emphasize that this lack of uniformity increases uncertainty and compliance costs, particularly for businesses engaged in interstate commerce and digital transactions.

     Several legal doctrines and statutory mechanisms play a critical role in how states assert taxing authority. These include the throwback rule, the Interstate Commerce Act, the Dormant Commerce Clause, the Due Process Clause, and the Commerce Clause of the U.S. Constitution. Collectively, these principles guide both state legislation and judicial review of nexus standards. As Thibodeau and Bord (2021) explain, the U.S. Supreme Court has historically served as the primary arbiter in defining the constitutional limits of state taxing power, balancing state revenue interests against the protection of interstate commerce.

     Historically, Supreme Court decisions such as Complete Auto Transit, Inc. v. Brady (1977) and Quill Corp. v. North Dakota (1992) established foundational nexus requirements, including physical presence and fair apportionment. However, the landmark decision in South Dakota v. Wayfair, Inc. (2018) fundamentally altered the nexus landscape by eliminating the physical presence requirement for sales and use taxes. According to Hellerstein and Hellerstein (2023), Wayfair ushered in the era of economic nexus, allowing states to impose tax obligations based on sales volume or transaction thresholds rather than physical location alone.

     Since Wayfair, states have rapidly expanded economic nexus standards beyond sales and use taxes to include income, franchise, and gross receipts taxes. Pomp (2022) notes that this expansion has increased the importance of constitutional safeguards, particularly the Commerce Clause’s requirement that state taxes not unduly burden interstate commerce. Modern nexus statutes now commonly rely on bright-line thresholds, yet ambiguity remains regarding factor presence, market-based sourcing, and the application of throwback and throwout rules. As a result, multistate businesses must continuously monitor legislative changes, administrative guidance, and evolving case law to ensure compliance.

      In today’s regulatory environment, effective multistate tax planning requires not only an understanding of historical Supreme Court precedent but also awareness of current state-level enforcement trends. As states seek to broaden their tax bases in response to fiscal pressures, nexus standards are likely to continue evolving. Scholars such as Hellerstein and Pomp agree that future litigation will further refine the constitutional boundaries of state taxing authority, making ongoing analysis essential for both tax professionals and policymakers.

Court Case: National Bellas Hess, Inc. v. Department of Revenue of Illinois

      The case of National Bellas Hess, Inc. v. Department of Revenue of Illinois was argued before the United States Supreme Court on February 23, 1967, and decided on May 8, 1967. National Bellas Hess, Inc., a mail-order retailer with its principal place of business in Missouri, challenged Illinois’s requirement that it collect and remit use tax on goods sold to Illinois residents. At issue was whether Illinois could constitutionally impose tax collection obligations on a seller whose business activities within the state were conducted exclusively through mail and common carriers (U.S. Supreme Court Justices, 1967).

      In its decision, the Supreme Court held that the Commerce Clause and the Due Process Clause prohibited Illinois from requiring Bellas Hess to collect use tax. Justice Stewart, writing for the majority, emphasized that the company had no physical presence in Illinois: it maintained no offices, warehouses, sales representatives, telephone listings, or advertising through local media within the state. The Court concluded that imposing a tax collection duty under these circumstances would place an undue burden on interstate commerce (Stewart, 1967).

     The Court noted that Bellas Hess conducted its Illinois-related business by mailing catalogs and promotional flyers to customers throughout the United States, including Illinois. Customers mailed their orders to the company’s Missouri headquarters, and merchandise was delivered via mail or common carrier. These limited contacts, the Court reasoned, were insufficient to establish the “definite link” or “minimum connection” required for state tax jurisdiction under constitutional standards at the time (Stewart, 1967).

      The Bellas Hess decision established the foundational physical presence rule, which required a seller to have a tangible presence in a state before being obligated to collect sales or use taxes. This doctrine governed state sales and use tax nexus for more than two decades and was later reaffirmed in Quill Corp. v. North Dakota (1992). However, modern commerce, particularly the rise of e-commerce, exposed the limitations of this rule. As Hellerstein and Hellerstein (2023) explain, the physical presence standard increasingly constrained states’ ability to tax remote sellers and created competitive disparities between state and out-of-state businesses.

      Ultimately, the Bellas Hess precedent was explicitly overruled in South Dakota v. Wayfair, Inc. (2018), in which the Supreme Court held that physical presence is no longer a constitutional requirement for sales and tax nexus. While no longer controlling law, Bellas Hess remains a historically significant case because it illustrates the evolution of Commerce Clause jurisprudence and provides critical context for understanding today’s economic nexus standards (Pomp, 2022).

Court Case: Complete Auto Transit, Inc. v. Brady

        The case of Complete Auto Transit, Inc. v. Brady was argued before the United States Supreme Court on January 19, 1977, and decided on March 7, 1977. Complete Auto Transit, Inc., a Michigan-based corporation, conducted business activities in Mississippi by transporting automobiles into the state for sale by local distributors. Mississippi imposed a tax on transportation companies for the “privilege of doing business” within the state, and the tax applied equally to entities engaged in both intrastate and interstate commerce (U.S. Supreme Court Justices, 1977).

      Complete Auto challenged the tax, arguing that it violated the Commerce Clause by imposing an unconstitutional burden on interstate commerce. In a unanimous opinion authored by Justice Blackmun, the Supreme Court rejected the formalistic distinction between direct and indirect taxation of interstate commerce that had governed earlier case law. Instead, the Court adopted a more practical framework, emphasizing economic reality over rigid legal classifications (Blackmun, 1977).

     The Court upheld Mississippi’s tax and held that businesses engaged in interstate commerce are not immune from state taxation so long as the tax is fairly structured and constitutionally permissible. Justice Blackmun explained that interstate businesses must pay their fair share of state taxes when they benefit from state-provided services and protections. This ruling marked a significant shift in Commerce Clause jurisprudence by validating state taxes that meet specific constitutional requirements (Blackmun, 1977).

     Most notably, the decision established the four-part test that remains the cornerstone of state tax analysis today. Under the Complete Auto test, a state tax is valid if it: (1) applies to an activity with a substantial nexus to the taxing state; (2) is fairly apportioned to reflect in-state activity; (3) does not discriminate against interstate commerce; and (4) is fairly related to the services provided by the state. These criteria apply unless Congress enacts legislation that explicitly preempts state taxing authority (Hellerstein & Hellerstein, 2023).

     In the modern tax environment, the Complete Auto framework continues to guide courts in evaluating both physical and economic nexus standards, including those upheld in South Dakota v. Wayfair, Inc. (2018). As Pomp (2022) notes, the four-part test has proven adaptable to evolving business models and remains central to determining whether state taxes impose an undue burden on interstate commerce.

Court Case: Quill Corp. v. North Dakota

        The case of Quill Corp. v. North Dakota was argued before the United States Supreme Court on January 22, 1992, and decided on May 26, 1992. Quill Corporation, a mail-order office supply retailer incorporated in Delaware, was assessed use tax collection obligations by the State of North Dakota despite lacking a physical presence within the state. Although Quill conducted substantial business with North Dakota customers through catalogs and mail orders, the company maintained no employees, offices, or property in the state. Its physical facilities were limited to warehouses located in Illinois, California, and Georgia (Todd, 2018).

       The legal dispute centered on whether North Dakota could require Quill to collect and remit use tax without violating constitutional protections. Drawing on precedent established in National Bellas Hess, Inc. v. Department of Revenue of Illinois (1967), the Court examined both Due Process Clause and Commerce Clause considerations. Todd (2018) explains that due process focuses on whether a taxpayer’s contacts with a state are substantial enough to justify the state’s exercise of jurisdiction, emphasizing fundamental fairness in asserting taxing authority. The Court concluded that Quill’s economic and informational contacts with North Dakota satisfied due process requirements, as the company purposefully directed its activities toward residents of the state.

        However, the Supreme Court reached a different conclusion under the Commerce Clause. Justice Stevens, writing for the majority, reaffirmed the “negative” or Dormant Commerce Clause doctrine, which limits states from enacting laws that unduly burden interstate commerce. Todd (2018) notes that under this doctrine, states may not interfere with the structure of the national market by imposing excessive or inconsistent regulatory burdens on out-of-state businesses. The Court distinguished Commerce Clause analysis from due process analysis, emphasizing that Commerce Clause concerns focus on economic uniformity and the prevention of multiple or discriminatory taxation.

        Consistent with Bellas Hess, the Court adopted a bright-line physical presence rule for sales and use tax collection. Justice Stevens reasoned that requiring physical presence provided certainty and predictability for interstate businesses, thereby fostering investment and economic growth. As Howard and Rawlins (2021) explain, the Court viewed this rule as administratively efficient and protective of interstate commerce, even if it resulted in reduced tax revenues for states. As a result, the Court held that North Dakota could not require Quill to collect use tax because it lacked a physical presence in the state.

      Although Quill reaffirmed the physical presence standard in 1992, the Court acknowledged that Congress possessed the authority to alter this framework through federal legislation. This recognition proved significant in later years as e-commerce expanded rapidly. Ultimately, the physical presence rule established in Quill and Bellas Hess was overruled in South Dakota v. Wayfair, Inc. (2018), which adopted an economic nexus standard. Nevertheless, Quill remains a pivotal case in state tax jurisprudence, illustrating the evolving balance between fairness, administrative efficiency, and the constitutional limits of state taxing power (Hellerstein & Hellerstein, 2023).

Court Case: South Dakota v. Wayfair, Inc.

          The case of South Dakota v. Wayfair, Inc. was argued before the United States Supreme Court on April 17, 2018, and decided on June 21, 2018. The State of South Dakota challenged the long-standing physical presence rule established in Quill Corp. v. North Dakota (1992), arguing that modern e-commerce had significantly eroded its sales tax base. Concerned about declining revenues needed to fund public services, the South Dakota Legislature enacted a 2016 statute requiring certain out-of-state sellers to collect and remit sales tax as though they had a physical presence within the state (Howard & Rawlings, 2021).

       The statute applied only to retailers that, on an annual basis, delivered more than $100,000 in goods or services into South Dakota or engaged in 200 or more separate transactions for delivery into the state. Howard and Rawlings (2021) note that these thresholds were intentionally designed to limit the law’s application to sellers with substantial economic activity in the state, thereby reducing compliance burdens on small businesses and strengthening the law’s constitutionality under the Commerce Clause.

South Dakota initiated a declaratory judgment action in state court, seeking confirmation that the statute was constitutional and enforceable against Wayfair, Inc., Overstock.com, and Newegg, Inc. The respondents moved for summary judgment, arguing that the statute was unconstitutional under the controlling precedent of Quill. The trial court ruled in favor of the respondents, and the South Dakota Supreme Court affirmed the decision, concluding that it was bound by Quill’s physical presence rule despite acknowledging its practical shortcomings (Howard & Rawlings, 2021).

        In a landmark decision authored by Justice Kennedy, the U.S. Supreme Court reversed the lower court’s ruling and explicitly overruled both Quill and National Bellas Hess. Justice Kennedy concluded that the physical presence rule was “unsound and incorrect” in the context of the modern digital economy. He emphasized that substantial virtual and economic connections to a state can create sufficient nexus to satisfy the Commerce Clause. According to Kennedy (2018), economic and virtual contacts may be “far more significant than physical presence” in establishing meaningful participation in a state’s market.

       The Court further held that South Dakota’s law satisfied the Complete Auto Transit four-part test by establishing substantial nexus through economic thresholds, avoiding discrimination against interstate commerce, and reasonably relating the tax obligation to state-provided services. As Hellerstein and Hellerstein (2023) explain, Wayfair fundamentally transformed state taxation by authorizing economic nexus standards and enabling states to require remote sellers to collect sales tax without physical presence.

      In the years since Wayfair, nearly all states with a sales tax have adopted economic nexus statutes modeled after South Dakota’s law. Pomp (2022) observes that while Wayfair increased state revenues and reduced competitive disparities between in-state and remote sellers, it also heightened compliance complexity for multistate businesses. Nevertheless, Wayfair stands as one of the most consequential state tax decisions in U.S. history, reshaping the constitutional boundaries of state taxing authority in the digital age.

Current Status

State Budgets and Tax Revenue

        A state’s budget represents an estimate of the revenues it expects to collect during the upcoming fiscal year and serves as the primary financial plan for delivering public services. According to McNichol, Leachman, and Cooper (2023), the largest portion of a state’s budget is the general fund also referred to as the operating budget which finances the core functions of state government. General fund revenues are primarily derived from taxes such as sales taxes, individual income taxes, and corporate income taxes, which collectively form the backbone of state fiscal systems.

      General fund expenditures support essential services, including K–12 and higher education, health care programs such as Medicaid, public safety, transportation, and social services. McNichol et al. (2023) emphasize that because these services are ongoing and demand-driven, states are particularly sensitive to fluctuations in tax revenue. Economic downturns, changes in consumer behavior, and federal policy shifts can all significantly affect revenue stability, making accurate forecasting and sustainable tax structures critical.

       Unlike the federal government, most states are constitutionally or statutorily required to balance their budgets annually or biennially. As Leachman and McNichol (2024) explain, balanced budget requirements prohibit states from using long-term borrowing to finance routine operating expenses, although debt may be issued for capital projects such as infrastructure. When revenues fall short of projections, states must engage in budget rebalancing, which may involve spending cuts, use of reserve funds, or revenue increases.

      Generating additional tax revenue is a common strategy for addressing budget shortfalls, particularly during periods of economic stress. Since the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. (2018), many states have expanded their sales tax bases by adopting economic nexus standards for remote sellers. Pomp (2022) notes that these changes have strengthened state revenue systems by capturing previously untaxed online sales and reducing competitive disparities between in state and out-of-state businesses.

      the current fiscal environment, state revenues have generally stabilized following pandemic-related volatility, but long-term challenges remain. Rising healthcare costs, aging populations, and increased infrastructure needs continue to place pressure on state budgets. As Hellerstein and Hellerstein (2023) observe, modern state tax policy increasingly focuses on broadening tax bases and improving compliance rather than raising tax rates to ensure fiscal sustainability while remaining consistent with constitutional limits on state taxing authority.

State Jurisdiction to Tax (Nexus)

         Court rulings over the past several decades have significantly broadened a state’s jurisdiction to tax businesses operating within—or benefiting from—its economy. Nexus standards have evolved from traditional physical presence requirements to include affiliate nexus and, most notably, economic nexus. This expansion has granted states greater authority to impose tax obligations on businesses that derive economic value from in-state markets, even when those businesses lack a tangible presence. Hellerstein and Hellerstein (2023) explain that modern nexus doctrines reflect a shift away from formalistic physical connections toward a more functional assessment of market participation.

       As nexus laws expand, states are better positioned to capture tax revenue from interstate and digital commerce. Increased jurisdiction to tax often results in higher and more stable revenue streams, particularly in states that rely heavily on sales and use taxes. The U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. (2018) exemplifies this shift by authorizing states to impose tax collection obligations on remote sellers based on economic activity alone. Avalara researchers (2021) note that Wayfair empowered South Dakota to tax remote sales through clearly defined sales and transaction thresholds, thereby strengthening the state’s tax base.

       Following the Wayfair decision, states moved rapidly to adopt economic nexus statutes. According to Avalara (2023), all states with a sales tax now enforce some form of economic nexus for remote sellers, with thresholds commonly set at $100,000 in sales or 200 transactions annually. These laws have significantly reduced the tax advantage previously enjoyed by remote sellers over in-state businesses. Pomp (2022) observes that this shift has improved tax equity and neutrality by ensuring that businesses competing in the same market are subject to similar tax obligations, regardless of physical location.

       Beyond sales and use taxes, states have increasingly applied economic nexus principles to income, franchise, and gross receipts taxes. This broader application has raised new constitutional questions regarding fair apportionment and undue burdens on interstate commerce. As Hellerstein and Hellerstein (2023) explain, while Wayfair confirmed that physical presence is no longer required for substantial nexus, taxes must still satisfy the four-part Complete Auto Transit test to remain constitutional. Consequently, nexus expansion has not eliminated constitutional limits but has redefined how those limits are applied in a modern economy.

      In the current tax environment, state jurisdiction to tax continues to evolve alongside changes in technology and business models. States face the challenge of balancing revenue needs with compliance complexity for multistate businesses. As Leachman and McNichol (2024) note, economic nexus laws have become an essential tool for fiscal sustainability, particularly as consumer spending increasingly shifts toward online platforms. However, ongoing litigation and legislative refinement suggest that nexus standards will remain a dynamic and closely scrutinized area of state tax law.

State Nexus Assessment Forms

        Tax revenues are essential for funding public services such as education, healthcare, infrastructure, and public safety. As McNichol, Leachman, and Cooper (2023) explain, state and local governments rely heavily on tax compliance to maintain fiscal stability. To ensure that businesses contributing to a state’s economy meet their tax obligations, states commonly issue nexus questionnaires—also referred to as nexus assessment forms—to businesses operating across multiple jurisdictions. These questionnaires are designed to evaluate whether a business’s activities establish sufficient nexus to justify tax liability (Russell, 2022).

      Nexus assessment forms typically request detailed information about a company’s physical locations, employees, sales activity, affiliate relationships, and use of third-party representatives within the state. According to Russell (2022), states use these forms both proactively, as part of compliance initiatives, and reactively, during audits or voluntary disclosure programs. The information collected allows tax authorities to determine the type and extent of nexus under applicable state law.

Physical Presence Nexus

       Physical presence nexus exists when a business maintains a tangible connection within a state, such as offices, warehouses, employees, or owned or leased property. Hewitt, Lipkind, and Trevino (2022) explain that physical presence nexus was firmly established in Quill Corp. v. North Dakota (1992), which required a seller to have a physical presence in a state before being obligated to collect sales or use tax. Although Wayfair later eliminated physical presence as a constitutional requirement for sales tax nexus, physical presence remains a sufficient—and often determinative—basis for nexus across all state tax types.

Affiliate Nexus

        Under affiliate nexus laws, an out-of-state business may establish nexus through its relationship with an in-state affiliate. Bruce, Fox, and Luna (2021) define affiliate nexus as arising when related entities, contractors, or representatives perform activities in a state that are attributable to the out-of-state seller. These relationships may include shared branding, common ownership, or in-state representatives acting on behalf of the remote seller. Affiliate nexus statutes were adopted by many states prior to Wayfair as a means of expanding tax jurisdiction without violating the physical presence rule.

Click-Through Nexus

      As e-commerce expanded, states developed click-through nexus laws to address online referral arrangements. Bruce et al. (2021) explain that click-through nexus exists when an out-of-state retailer enters into an agreement with an in-state individual or business that refers customers—typically through a website link—in exchange for a commission or other consideration. If sales generated through these referrals exceed a statutory threshold, the out-of-state retailer is deemed to have nexus for sales and use tax purposes. Although economic nexus has largely overtaken click-through nexus, these laws remain relevant in states that continue to enforce them alongside broader nexus standards.

Economic Nexus

     Economic nexus requires a seller to collect and remit sales tax when its economic activity within a state exceeds specified sales or transaction thresholds, regardless of physical presence. Brennan (2023) notes that each state establishes its own thresholds, most commonly modeled after South Dakota’s $100,000 in sales or 200 transactions standard upheld in South Dakota v. Wayfair, Inc. (2018). Economic nexus laws were enacted to address the growth of online commerce and ensure that remote sellers contribute to state tax systems proportionally to their market participation.

COVID-19 Impact on Nexus

       The COVID-19 pandemic significantly altered traditional nexus considerations as widespread remote work disrupted long-standing assumptions about employee location and physical presence. Glickman (2021) explains that many businesses unexpectedly created nexus in new states when employees began working remotely from their homes. Conversely, some businesses lost nexus where offices closed permanently, or operations ceased in certain jurisdictions. In response, several states issued temporary guidance providing nexus relief during the height of the pandemic.

      As the economy continues to stabilize, many businesses have adopted permanent or hybrid remote work models. According to Glickman (2023), this shift has created ongoing nexus challenges, requiring businesses to continuously monitor employee locations and reassess their state tax obligations. While some pandemic-era relief provisions have expired, the long-term impact of remote work has permanently reshaped nexus analysis and state tax compliance strategies.

Future

       The COVID-19 pandemic presented states and municipalities with unprecedented fiscal challenges that continue to influence tax policy decisions today. Sales and use taxes remain major revenue sources used to fund public education, healthcare, transportation, and other essential services. According to McNichol, Leachman, and Cooper (2023), while state revenues have largely stabilized since the peak of the pandemic, long-term structural risks remain due to shifts in consumer behavior, workforce mobility, and business operations. The permanent closure of tens of thousands of businesses during and after the pandemic eliminated many traditional Nexus connections, reducing the tax base in numerous jurisdictions.

     Although the national economy has shown signs of recovery, the full fiscal impact of the pandemic remains uncertain. Hellerstein and Hellerstein (2023) note that the acceleration of e-commerce and remote work has permanently altered how and where economic activity occurs. As a result, states can no longer rely solely on traditional brick-and-mortar businesses to generate sales tax revenue. This uncertainty has increased pressure on states to modernize tax systems and seek alternative revenue sources.

     Looking forward, states are expected to continue broadening their tax bases rather than significantly increasing tax rates. Avalara researchers (2023) predict that states may expand sales tax applicability to digital goods, streaming services, software-as-a-service (SaaS), and professional services that were historically excluded from taxation. These base-broadening measures allow states to capture revenue from growing sectors of the economy while minimizing political resistance associated with rate increases.

     Additionally, enforcement and compliance mechanisms are likely to become more sophisticated. Pomp (2022) explains that states are increasingly leveraging data analytics, information-sharing agreements, and automated compliance tools to identify noncompliant remote sellers and multistate businesses. As economic nexus laws mature, states may also refine thresholds, reduce exemptions, and harmonize sourcing rules to stabilize revenue streams and reduce administrative complexity.

     In the post-pandemic environment, state tax policy will continue to balance fiscal sustainability with economic competitiveness. While expanded Nexus standards and broader tax bases offer new revenue opportunities, policymakers must also consider the compliance burdens placed on businesses operating across multiple jurisdictions. As McNichol and Leachman emphasize, the future of state taxation will depend on maintaining this balance while adapting to an increasingly digital and mobile economy.

Research Questions

      Changes in nexus standards, particularly the shift from physical presence to economic nexus, have significantly altered the way states collect sales and use taxes. Historically, the Supreme Court’s decisions in Bellas Hess (1967) and Quill v. North Dakota (1992) limited state authority to impose tax obligations on out-of-state sellers unless a physical presence existed (Hellerstein & Hellerstein, 2023). However, the landmark decision in South Dakota v. Wayfair, Inc. (2018) expanded state jurisdiction to include economic nexus, allowing states to require remote sellers to collect and remit taxes based on annual sales thresholds or transaction volumes (Brennan, 2023). This change has broadened the taxable base and created new revenue opportunities, particularly as online and digital commerce continues to grow.

      The COVID-19 pandemic accelerated these changes by altering traditional business operations and employee locations. With widespread remote work and permanent business closures, many states experienced a reduction in physical nexus connections, while e-commerce surged, creating economic nexus in states where sellers had no prior presence (Glickman, 2023; McNichol & Leachman, 2024). States responded by strengthening compliance measures, issuing Nexus questionnaires, and enacting economic nexus laws to capture revenue from remote transactions (Russell, 2022; Avalara, 2023). These measures have allowed states to mitigate losses from traditional business closures and adapt to the new, digitally driven economy.

     Looking forward, nexus expansion and post-pandemic economic shifts suggest a more complex and dynamic state tax environment. States are increasingly broadening their tax bases to include digital goods, services, and other previously untaxed economic activities (Avalara, 2023). At the same time, policymakers must balance the need for revenue with the compliance burden placed on multistate businesses (Pomp, 2022). Future research should explore the effectiveness of economic nexus thresholds, the administrative challenges for both states and businesses, and how these evolving policies influence state revenue stability and economic competitiveness in the long term.

1. How do recent economic nexus laws affect the competitive landscape between state and out-of-state retailers, particularly in digital and e-commerce markets?
2. What are the long-term fiscal implications of permanent remote work trends on state sales tax collections and nexus determinations?
3. How effective are nexus assessment forms and questionnaires in identifying out-of-state sellers that should be subject to state sales tax, and what are the compliance challenges for businesses?
4. How do varying state thresholds for economic nexus influence business behavior, interstate commerce, and tax equity across different industries?
5. In what ways can states leverage data analytics and automation to enforce nexus laws while minimizing administrative costs and legal disputes?
6. What lessons can be learned from the evolution of U.S. nexus standards (Bellas Hess, Quill, Wayfair) for international digital tax policy and cross-border e-commerce regulation?
7. How do hybrid models of taxation, combining physical presence, affiliate, click-through, and economic nexus, impact state revenue stability and fairness in multistate taxation?

Methodology

         This research employs a qualitative research design to examine how changes in nexus standards and post-COVID economic shifts have impacted state sales tax policy, compliance, and revenue. The study primarily relies on a comprehensive literature review of legal cases, tax policy publications, government reports, and scholarly articles. Key Supreme Court decisions, including Bellas Hess v. Department of Revenue of Illinois (1967), Quill Corp. v. North Dakota (1992), and South Dakota v. Wayfair, Inc. (2018), serve as foundational sources for understanding the evolution of nexus standards and the legal reasoning behind state taxation authority (Hellerstein & Hellerstein, 2023). This approach allows the study to trace the historical context of physical presence, affiliate, click-through, and economic nexus rules while exploring their impact on state tax enforcement.

     In addition to case law analysis, the research includes a systematic review of secondary literature. This includes policy analyses, academic studies, and reports from tax authorities and research organizations such as Avalara (2023) and the Center on Budget and Policy Priorities (McNichol & Leachman, 2024). The literature review identifies patterns in state tax policy, highlights challenges in compliance and enforcement, and evaluates how the adoption of economic nexus and other modern nexus standards has influenced state revenue strategies.

     The study also utilizes comparative case studies of selected states, including South Dakota, California, and New York, which have implemented economic nexus and other expanded nexus standards. Through this method, the research examines how each state interprets and enforces nexus rules, the administrative processes used for compliance, and the practical challenges businesses face in meeting these obligations (Avalara, 2023; Pomp, 2022). Comparative analysis allows for identifying best practices and understanding variations in policy implementation across jurisdictions.

     Finally, the research considers the impact of COVID-19 on Nexus determinations and state tax policy. By reviewing articles, government guidance, and expert commentary, the study explores how remote work, business closures, and hybrid employment models have altered traditional concepts of physical presence and nexus footprints (Glickman, 2023). This qualitative approach provides a comprehensive understanding of the interplay between legal precedent, policy adaptation, and economic shifts, offering insights into the current and future landscape of multistate taxation.

Data Collection and Analysis Procedures

       For this research, data collection was conducted using a qualitative, document-based approach. Primary sources include key Supreme Court cases (Bellas Hess v. Department of Revenue of Illinois, 1967; Quill Corp. v. North Dakota, 1992; South Dakota v. Wayfair, Inc., 2018) and related court opinions. These sources provide direct insight into the legal reasoning and evolution of nexus standards and the constitutional limitations on state taxation authority (Hellerstein & Hellerstein, 2023). The cases were examined in detail to identify the types of nexuses recognized by courts, the criteria for state taxation authority, and shifts in legal interpretation over time.

       Secondary sources were collected through a systematic review of scholarly articles, tax policy reports, and government publications. Literature from Avalara (2023), McNichol and Leachman (2024), Glickman (2023), and Pomp (2022) were analyzed to identify trends in state tax policy, enforcement practices, and the practical impact of physical, affiliate, click-through, and economic nexus standards. Policy guidance, white papers, and nexus questionnaires issued by state revenue departments were also reviewed to understand administrative processes, compliance requirements, and the implementation challenges faced by businesses operating across multiple jurisdictions.

      Once collected, the data was analyzed using thematic content analysis. Legal opinions were coded to identify recurring concepts such as physical presence, economic nexus thresholds, and compliance obligations. Similarly, literature and policy documents were analyzed to extract key themes, including the effects of e-commerce, remote work, and COVID-19-related shifts on state tax bases. This process allowed for the identification of patterns and relationships between nexus rules, enforcement strategies, and fiscal outcomes, while maintaining an organized framework for comparing state-level practices.

      Finally, comparative analysis techniques were applied to evaluate differences in nexus interpretation and enforcement among selected states, including South Dakota, California, and New York. By comparing these case studies, the research highlights best practices, variations in administrative approaches, and lessons for policymakers seeking to optimize tax compliance while minimizing burdens on multistate businesses (Avalara, 2023; Pomp, 2022). This rigorous, qualitative approach ensures a comprehensive understanding of the legal, administrative, and economic dimensions of state nexus and multistate taxation.

Conclusion

         The concept of sales tax has evolved significantly since the colonial period. What was once considered a temporary mechanism to support communities during crises, such as the Great Depression, has become a permanent and complex component of state revenue systems (McNichol & Leachman, 2023). Today, businesses face an increasingly intricate landscape of sales and use tax regulations, which vary widely by state and continue to change with evolving economic and legal conditions. The burden to remain compliant is substantial, requiring companies of all sizes to proactively monitor legal developments and adjust their operations to meet nexus requirements and reporting obligations (Avalara, 2024).

      Businesses that have maintained operations through the COVID-19 pandemic must be particularly vigilant. States, facing budget shortfalls and revenue pressures, may target noncompliant businesses for past-due sales and use tax, along with penalties and interest (Glickman, 2023). Proactive compliance strategies—such as conducting nexus assessments, reviewing state-specific rules, and updating accounting systems—can help mitigate financial and legal risk while promoting good standing with tax authorities (Hellerstein & Hellerstein, 2024). Companies that have deferred attention to sales and use tax obligations still have opportunities to correct their positions before states expand audits and enforcement efforts as the economy stabilizes.

       Moreover, the continued expansion of economic and affiliate nexus standards, particularly after the Wayfair, Inc. v. South Dakota decision, means that previously exempt remote sellers may now be subject to state sales tax collection requirements (Avalara, 2024). As digital commerce and remote work become permanent fixtures of the economy, businesses must anticipate additional compliance responsibilities and adjust their internal processes accordingly. States are likely to continue refining nexus laws to capture revenue from online and cross-border transactions, making ongoing monitoring essential for sustainable business operations (McNichol & Leachman, 2025).

     Finally, the evolution of sales tax underscores the broader tension between state revenue needs and business operational freedom. Companies that embrace proactive compliance, leverage technology for tax reporting, and engage in strategic planning for multistate operations are best positioned to navigate this complex regulatory landscape. Failure to adapt not only increases exposure to financial penalties but can also damage reputation and limit market opportunities. In the coming years, the relationship between nexus laws, remote commerce, and state fiscal policy will remain a critical area for both legal and business research, guiding strategies for minimizing risk while supporting economic growth (Glickman, 2024; Hellerstein & Hellerstein, 2025).