By NuVine Advisory | September 2025

In today’s startup world, hiring isn’t limited by geography. Remote work allows founders to build the best teams regardless of where people live. But along with this flexibility comes a hidden challenge many startups underestimate: state tax nexus.

What is “Nexus”?

“Nexus” is the legal term for a sufficient connection between your business and a state that creates tax obligations there. Traditionally, nexus was based on physical presence (like having an office or warehouse). But now, states also apply economic nexus rules that can trigger taxes even without a physical footprint.

How Remote Teams Create Nexus

When your employees or contractors work remotely in a different state, they may establish nexus for your startup in that state. Here’s how:

• Payroll & Withholding: If an employee works in another state, you may need to register for payroll taxes there and withhold the correct state income tax.
• Corporate Income Taxes: Having employees or significant sales in a state can create income tax obligations, even if you don’t have an office.
• Sales Tax: Economic nexus thresholds (often $100,000 in sales or 200 transactions annually) may require you to collect and remit sales tax in states where you do business.
• Franchise or Gross Receipts Taxes: Some states (like Texas or Washington) levy taxes simply because you’re “doing business” there.

Common Mistakes Startups Make

1. Ignoring Remote Workers’ Locations.
   Founders may forget that even one employee in a state like New York or California can trigger registration and filing requirements.
2. Assuming Independent Contractors Don’t Matter.
   While contractors usually don’t create payroll tax obligations, in some states their presence may still establish nexus for income or sales tax.
3. Not Monitoring Sales Thresholds.
   eCommerce or SaaS startups often cross state sales thresholds without realizing it, creating unexpected sales tax liabilities.
4. Using a “One-Size-Fits-All” Approach.
   Each state has different rules. A strategy that works in Texas may not apply in New Jersey.

How to Manage State Tax Nexus

• Track Your Team: Keep a record of where employees and contractors are located.
• Register Early: Proactively register for payroll and income tax accounts when nexus is established.
• Use Technology: Consider payroll software and sales tax automation tools that can handle multi-state compliance.
• Consult Advisors: State tax rules are complex and evolving. A proactive review can save penalties later.

Final Takeaway

For startups, remote teams are an asset—but they can also expose your company to unexpected multi-state tax obligations. By understanding nexus and planning ahead, you can stay compliant, avoid surprises, and focus on scaling your business.