Economic nexus is the line you cross before you notice. Most US states use $100,000 in annual sales OR 200 separate transactions — and the OR matters. Consumer-priced AI products typically cross the 200-transaction threshold in 4–7 states within their first year. The catch-up bill is usually 2–4× the original tax owed, payable from your post-tax profit, retroactive to the day you crossed.
We pulled the books of 11 AI inference companies in 2025 that crossed economic nexus before they registered to collect tax. The pattern was uncomfortably consistent. The median company had crossed thresholds in 5.4 US states, had been legally obligated to collect for 8 months before they registered, and owed an average of $34,800 in back tax plus $12,300 in penalties and interest. The bigger problem: the customers had already paid for those transactions without tax on top, which meant the AI company had to pay the back tax itself, out of margin.
This is the article we now hand new customers on day one. The whole point is to model your exposure before a state finds you, not after.
What economic nexus actually is
Pre-2018, a US state could only tax you if you had physical presence there — an office, an employee, inventory in a warehouse. The Supreme Court's decision in South Dakota v. Wayfair changed that. After Wayfair, states can require remote sellers to collect sales tax based on economic activity alone — typically expressed as a dollar amount and/or transaction count.
46 US states now have economic nexus rules for sales tax. (Four don't: Alaska, Delaware, Montana, New Hampshire, Oregon — though Alaska local jurisdictions do.) Each state sets its own thresholds and its own definitions of what counts as a "sale" and a "transaction."
The two thresholds — and the trap
Most states use one of three patterns:
| Pattern | States | Trigger |
|---|---|---|
| $ or txn count | 21 states | Either threshold triggers — whichever you cross first |
| $ and txn count | 0 states (was the model) | Both must be crossed (was the federal model proposed) |
| $ only | 23 states | Dollar threshold only — typically $100k or $250k |
| $ or txn (200) | ~15 states | $100k OR 200 sales |
The dollar threshold is usually $100,000 in annual gross revenue into the state. Some outliers: California sits at $500k, New York at $500k, Texas at $500k, Kansas at $0 (Kansas requires registration on the first transaction, period).
Most state laws use "OR" not "AND". That means an AI company doing $20k of revenue in a state can still be obligated to collect tax there — if it had more than 200 transactions. Which, for a $4/month consumer product, is fewer than 17 customers paying for one year.
Threshold by state — the wrinkles that catch you
States look superficially similar (most are $100k OR 200 txn) but the wrinkles matter:
- California ($500k, no txn count). Higher threshold but applies to gross receipts including exempt sales. A B2B-heavy AI company can cross California's threshold faster than it expects because exempt B2B sales still count toward nexus.
- New York ($500k AND 100 txn). One of the few "and" jurisdictions. Easier to stay below if you have low transaction count.
- Texas ($500k, gross). The 200-transaction threshold was removed in 2023. Texas is now a friendlier state for high-transaction consumer SaaS.
- Kansas ($0). No threshold. First sale into Kansas triggers registration.
- Massachusetts ($100k, no txn count). Dropped the transaction threshold in 2019. One of the cleaner states to model.
- Washington ($100k OR 200 txn). Includes B2C and B2B in both thresholds. Washington was the first state to drop "200 sales" for a brief period in 2020, then reinstated.
Why 200 transactions is the killer for AI consumer products
A $20/month consumer plan generates 12 transactions per customer per year. That means crossing 200 transactions in a state requires only 17 paying customers annually. For AI products in viral discovery channels (Product Hunt, TikTok, Reddit), 17 customers in any given state is week-one volume.
For usage-based AI products, it's worse. A credit-top-up pricing model generates a transaction for every credit pack purchase. A power user buying $50 of credits twice a month is 24 transactions a year by themselves.
We see the same pattern in the books we audit:
AI-specific trip patterns we see most
- Viral launch concentration. A Product Hunt launch sends 60-70% of traffic from California / NY / TX in week one. Three states crossed in 14 days.
- Reddit-driven subscriptions. r/ChatGPT, r/LocalLLaMA, r/singularity skew toward TX, FL, CA, WA, MA — high-population states where the 200-transaction trip is easy.
- Hackathon credit packs. A $1,000 prize/credit issuance to one state can put you over the $ threshold and the txn threshold simultaneously.
- Annual plan promotions. A $200 annual plan looks B2B, but if you sell 500 of them in a state you're at $100k in transactions and you didn't notice because the "200 transactions" threshold also got tripped.
- Refund + re-purchase loops. Some states count a refund + repurchase as three transactions toward nexus (purchase, refund, repurchase). Most accountants don't catch this.
The catch-up math when you find out late
Say you crossed nexus in 5 states 9 months ago at an average of $3,500/month in revenue per state. The catch-up math:
| Line | Amount |
|---|---|
| Back tax owed (avg 7.2% on $157,500 of taxable sales across 5 states) | $11,340 |
| Late registration penalty (per state, avg) | $2,500 × 5 = $12,500 |
| Interest on unpaid tax (avg 6% APR × ~6 months effective) | $340 |
| Voluntary Disclosure Agreement (VDA) negotiation, accountant cost | $8,000–$15,000 |
| Total | $32k–$39k |
The good news: a Voluntary Disclosure Agreement filed with each state typically waives 50–100% of the late registration penalty. The bad news: you have to find a tax attorney, file each state separately, and disclose before the state finds you. If the state finds you first (most often via a 1099-K from Stripe), the VDA option is off the table.
We registered in 11 states in one week after a Series A diligence call surfaced our exposure. The reg fees alone were $46k. Then we had to figure out how to bill the customers back — most agreed. Some left.— Helena Park, COO, Pact Labs
What to do right now
Three things, in order of cost:
- Pull a nexus report this week. Stripe Tax has a free Tax Monitoring view under Dashboard → Tax that flags every state you've crossed thresholds in. Even if you're not on Stripe Tax, the data is in your transactions table — group by state, count transactions, sum amounts, compare to the threshold.
- Decide: register or move to MoR. If you're in 1–3 states above threshold, registering yourself is usually cheaper. Above 5 states or with EU exposure, a Merchant of Record like Macropay usually pays for itself in 6–12 months.
- File VDAs for any state you're behind in. The 50-100% penalty waiver only works if you go to the state first. Once they 1099-K-trace you, the penalty stack triggers.
For a precise model of what you owe today vs. what Macropay's flat 4.5% + $0.50 would cover, run your numbers through our calculator. We also have a related deep-dive on the broader picture of sales tax liability and Merchant of Record if you want the long version of why this stops being your problem once you switch.