State Income Taxes


Nexus, a connection between a business and the state, must exist for a state to impose income tax. States establish the rules to use when determining how much in-state activity creates a nexus by a business. Often, this tax is based on a company’s net income, though there are exceptions, such as gross receipts and net worth taxes.

Each state has the power to define its income nexus differently. While each state is unique, there are some commonalities in what they require. In each state where you do business, you must consider if you have a physical presence there. Then, check if the state has an economic income nexus and if you meet the thresholds.


The primary criterion for income tax nexus is a physical presence in the state. This includes employees, inventory, property, physical office, warehouse, etc. Historically, states have sought to define more indirect connections – like sales representatives and solicitations – as physical nexus.

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