State Tax Nexus Guide: When You Owe Taxes in Multiple States (2024)

In an era of remote work, digital nomads, and multi-state business operations, understanding state tax nexus has never been more critical—or more confusing. "Nexus" is the legal term for the connection between you (or your business) and a state that gives that state the right to tax you.

Get it wrong, and you could face double taxation, penalties, interest, and the nightmare of filing tax returns in multiple states. Get it right, and you can structure your affairs to minimize state tax liability legally while staying fully compliant.

The complexity has exploded in recent years. The Supreme Court's 2018 Wayfair decision fundamentally changed economic nexus rules for businesses. The COVID-19 pandemic forced millions of employees to work remotely, creating unprecedented multi-state tax situations. And states, desperate for revenue, have become increasingly aggressive in enforcing nexus laws.

Whether you're a remote worker, freelancer, business owner, or someone who splits time between states, this comprehensive guide will help you understand when you owe state taxes, which states can tax you, how to avoid double taxation, and the specific rules that apply to your situation in 2024.

Table of Contents

1. What is State Tax Nexus?
2. Physical Nexus vs. Economic Nexus
3. Personal Income Tax Nexus: The 183-Day Rule
4. Remote Work and State Taxes
5. Convenience of the Employer Rule
6. Business Nexus: Sales Tax and Income Tax
7. State-by-State Nexus Comparison
8. Avoiding Double Taxation
9. Record-Keeping Requirements
10. Common Multi-State Tax Mistakes

What is State Tax Nexus?

Nexus is the connection between a taxpayer and a state that gives the state the authority to impose taxes.

Federal Constitutional Limits

The U.S. Constitution places limits on when states can tax:

Due Process Clause: Requires "minimum contacts" with the state Commerce Clause: Prohibits states from unduly burdening interstate commerce

States can only tax individuals and businesses with sufficient nexus to satisfy these constitutional requirements.

Two Types of State Taxes with Nexus Requirements

1. Personal Income Tax

• Applies to individuals
• Based on residency or source of income
• 43 states + D.C. have personal income tax

2. Business Taxes

• Sales tax: Tax on retail sales (nexus determines collection obligation)
• Corporate income tax: Tax on business profits allocated to the state
• Franchise tax: Tax for the privilege of doing business

Why Nexus Matters

For individuals:

• Determines which states can tax your income
• Affects whether you must file returns in multiple states
• Impacts your total tax burden

For businesses:

• Determines sales tax collection obligations
• Affects where you pay corporate income tax
• Influences business structure decisions

Example: Personal nexus

• You live in California (resident)
• You work remotely for a New York company
• You spend summers in Florida

Questions nexus rules answer:

• Does California tax all your income? (Yes, as resident)
• Does New York tax your income? (Depends on NY's rules)
• Does Florida tax you? (No income tax in FL)

Physical Nexus vs. Economic Nexus

States establish nexus based on two main theories: physical presence and economic activity.

Physical Nexus

Definition: Nexus created by physical presence in the state

Examples of physical nexus:

For individuals:

• Living in the state (domicile/residency)
• Owning property in the state
• Spending significant time in the state (183+ days)
• Receiving income from state sources

For businesses:

• Office, warehouse, or retail location
• Employees working in the state
• Inventory stored in the state
• Owning or leasing property
• Regular business activities (trade shows, meetings, sales visits)

Traditional rule: Physical presence was required for nexus (Quill Corp. v. North Dakota, 1992)

Economic Nexus

Definition: Nexus created by economic activity in the state, even without physical presence

Supreme Court change: South Dakota v. Wayfair (2018) overturned Quill, allowing states to impose nexus based on economic activity alone

Common economic nexus thresholds:

• $100,000 in sales to state customers
• 200+ transactions with state customers
• Varies by state (some have higher or lower thresholds)

Economic nexus applies to:

• Sales tax collection obligations
• Corporate income tax (in many states)
• Gross receipts taxes

Example: Online business

• Your LLC is based in Delaware
• No physical presence in California
• $500,000 in sales to California customers
• Result: Economic nexus in California → Sales tax collection obligation + potential income tax

Affiliate Nexus

Some states impose nexus based on relationships with in-state affiliates.

"Click-through" nexus:

• Out-of-state seller pays commission to in-state affiliate
• Affiliate refers customers (via website links)
• State claims this creates nexus

Example:

• Your online store is in Texas
• You pay a California blogger 10% commission on referral sales
• California may assert you have nexus via the affiliate relationship

Marketplace Facilitator Laws

States increasingly require marketplace platforms (Amazon, eBay, Etsy) to collect sales tax on behalf of sellers.

How it works:

• Amazon has nexus in all states with sales tax
• Amazon collects and remits tax on behalf of third-party sellers
• Sellers: May not need to register/collect separately (burden shifts to Amazon)

If you sell on marketplaces: Check whether the platform handles sales tax collection for your sales.

Personal Income Tax Nexus: The 183-Day Rule

For individuals, the most critical nexus question is: Are you a resident?

Resident vs. Non-Resident

Resident: Generally taxed on all income (worldwide), regardless of source

Non-resident: Taxed only on state-source income (income earned in or from the state)

Part-year resident: Taxed as resident for part of year, non-resident for the rest

The 183-Day Rule

Most states use a 183-day test to determine residency (at least half the year).

General rule: If you spend 183 or more days in a state during the tax year, you're considered a resident for tax purposes.

What counts as a "day":

• Any part of a day typically counts as a full day
• Day of arrival and departure both count
• Exceptions vary by state

Example:

• You live in Texas (no state income tax)
• You buy a vacation home in California
• You spend 190 days per year in California
• Result: California resident → all income taxed by California

Domicile vs. Statutory Residency

States use two concepts to determine residency:

1. Domicile (legal residence)

• Your permanent home
• The place you intend to return to
• You can only have one domicile
• Factors: voter registration, driver's license, where you own property, where family lives

2. Statutory residency

• Created by spending too much time in a state (183+ days)
• Can exist even if you're domiciled elsewhere
• Creates tax obligations

Problem: You can be a resident of one state by domicile AND another state by statutory residency → Double taxation risk

Establishing or Changing Domicile

To change your domicile (for example, moving from New York to Florida for tax purposes), take these steps:

Physical move:

1. Spend majority of time in new state (183+ days)
2. Spend less than 183 days in old state

Establish connections to new state: 3. Buy or rent primary residence 4. Change driver's license 5. Register to vote 6. Register vehicles 7. Open local bank accounts 8. Join local organizations (church, clubs, gym) 9. Establish doctors, dentists, other professionals 10. File "Declaration of Domicile" (if state offers it)

Sever connections to old state: 11. Sell or reduce interest in property 12. Close unnecessary bank accounts 13. Resign from local organizations 14. Change estate planning documents

Document everything: Keep detailed records showing your intent to change domicile and your days in each state.

State-Specific Residency Rules

Not all states use the 183-day test. Some variations:

California:

• Uses domicile test primarily
• Also has 9-month presumption rule
• Very aggressive in auditing claimed non-residents

New York:

• 183-day test PLUS "permanent place of abode"
• Must have both to be statutory resident
• Aggressive enforcement

Florida, Texas, Nevada, Washington, Wyoming:

• No state income tax
• Popular destinations for establishing domicile

Pennsylvania:

• Uses domicile test
• No day-count statutory residency rule

Part-Year Residency

If you move between states during the year:

Allocation:

• Income earned while a resident: Taxed by that state
• Income earned while a non-resident: Taxed based on source rules

Example:

• January-June: Live in Illinois (resident)
• July-December: Move to Florida (resident)
• Salary: $120,000 ($60,000 earned in each period)

Tax filing:

• Illinois part-year resident return: Tax on $60,000 + any IL-source income earned after move
• Florida: No state income tax return

Remote Work and State Taxes

The rise of remote work has created complex multi-state tax situations for millions of workers.

The Basic Question

If you live in State A and work remotely for an employer in State B, which state(s) tax your income?

Answer: It depends on each state's rules.

General Remote Work Taxation Principles

State of residence:

• Always taxes all your income (you're a resident)
• This is universal

State of employer's location:

• Typically does NOT tax you (you're not physically working there)
• Exception: States with "convenience of the employer" rule (see below)

State(s) where you physically work:

• May tax income earned while physically present
• Depends on state's minimum day thresholds

Simple Remote Work Example

Scenario:

• You live in Colorado (resident)
• You work 100% remotely for a Texas company
• You never travel to Texas for work

Tax treatment:

• Colorado: Taxes all your income (you're a resident)
• Texas: No state income tax (nothing owed)
• Result: File only Colorado return

Complex Remote Work Example

Scenario:

• You live in New Jersey (resident)
• You work remotely for a New York company
• Your employer's office is in New York
• You occasionally go to the NY office (20 days/year)

Tax treatment:

• New Jersey: Taxes all your income (you're a resident)
• New York: Taxes all your income under "convenience of the employer" rule (see below)
• Result: Double taxation problem → Need to claim credit

Temporary vs. Permanent Remote Work

Temporary work location (less than 1 year):

• Generally taxed by state of tax home (permanent work location)

Permanent remote work:

• Taxed by state where you physically perform the work

COVID temporary rules: Many states created temporary exceptions during the pandemic (most have expired by 2024).

Working Remotely from Multiple States

Digital nomad scenario:

• You live in Oregon (resident)
• You work remotely while traveling
• 30 days in California, 20 days in Arizona, 40 days in Colorado

Tax treatment:

• Oregon: Taxes all income (resident state)
• California: May tax income for days worked there if you exceed threshold
• Arizona: May tax income for days worked there
• Colorado: May tax income for days worked there

Thresholds vary: Some states don't tax non-residents unless they work in the state for a minimum number of days (often 30-90 days).

State Day-Count Thresholds for Non-Residents

Many states have de minimis thresholds before they tax non-residents:

Examples:

• New York: No threshold (even 1 day can create tax obligation)
• California: No specific threshold, but enforcement is rare for very short periods
• Pennsylvania: No tax unless you work in PA for employer with PA presence
• Minnesota: No threshold
• Illinois: 30 working days threshold (proposed, not enacted as of 2024)

Practical impact: If you work remotely from a state for only a few days, enforcement is unlikely, but technically you may owe tax.

Employer Withholding Complications

Where does your employer withhold taxes?

Common approaches:

• Withhold for state where employee works (most common for remote workers)
• Withhold for state where company is located (incorrect if you work elsewhere)
• Withhold for multiple states (if you work in several)

Your responsibility: Verify your employer is withholding correctly. If not, you'll owe at year-end.

If employer withholds for wrong state:

• File non-resident return in that state to claim refund
• File resident return in correct state
• May need to pay additional tax if resident state has higher rates

Convenience of the Employer Rule

A handful of states have "convenience of the employer" rules that can tax remote workers even when they never set foot in the state.

What is the Convenience Rule?

Definition: If you work remotely for your own convenience (not employer's necessity), the state where your employer is located can tax your income as if you worked there.

States with this rule (as of 2024):

• New York (most aggressive)
• Arkansas
• Connecticut (limited application)
• Delaware
• Nebraska
• Pennsylvania (limited application)

How the New York Rule Works

New York is the most significant because of its large employment market.

NY rule: If you work remotely from outside New York for a New York employer, New York presumes you're working remotely for your convenience and taxes your wages as New York-source income.

Exceptions (employer necessity):

• Employer has no NY office where you could work
• Employer requires you to work from home (written policy)
• Nature of work requires remote location (e.g., on-site client work)

Burden of proof: On the taxpayer to prove employer necessity

Convenience Rule Example

Sarah:

• Lives in Connecticut (resident)
• Works remotely for investment bank in New York City
• Bank has large NYC office where she could work
• She works from home for personal convenience (shorter commute, lifestyle)

Tax treatment:

• Connecticut: Taxes all income (resident)
• New York: Taxes her wages under convenience rule (as if she worked in NY)
• Result: Double taxation → Sarah must claim credit on CT return for taxes paid to NY

If Sarah could prove employer necessity:

• Employer requires remote work (written policy)
• New York wouldn't tax the income
• Only Connecticut would tax

Reciprocal Agreements Exception

Some states have agreements to prevent convenience rule double taxation:

New Jersey - New York agreement:

• New Jersey residents working for NY employers can pay NY tax, but NJ doesn't tax
• Or they can pay NJ tax only (if they prove they worked entirely from NJ)
• This avoids double taxation

How to Challenge Convenience Rule

If you're subject to convenience rule taxation, you can fight it by proving:

1. Employer necessity: Employer required you to work remotely (get written confirmation)
2. Bona fide employer office: Employer set up a legitimate office in your state for you
3. Nature of employment: Your role inherently requires remote work (e.g., field sales, on-site consulting)

Documentation needed:

• Written employer policy requiring remote work
• Employer letter explaining necessity
• Evidence of employer office in your state (if applicable)
• Contract terms requiring remote work location

States Without Convenience Rule

Most states use a physical presence standard: they only tax income for work physically performed in their state.

Example:

• You live in Florida
• Work remotely for a California company
• Never travel to California

California: Does NOT tax your income (you're not physically working in CA, and CA has no convenience rule)

Business Nexus: Sales Tax and Income Tax

If you own a business, nexus rules determine where you must collect sales tax and pay income tax.

Sales Tax Nexus

Pre-Wayfair (before 2018): Physical presence required Post-Wayfair (2018-present): Economic nexus allowed

Economic Nexus Thresholds (Sales Tax)

Most states now impose sales tax collection obligations based on economic activity:

Common thresholds:

• $100,000 in annual sales to state residents
• OR 200+ transactions with state residents
• Some states use one or both thresholds

If you exceed the threshold: You must register for sales tax permit and collect tax on sales to customers in that state.

State-Specific Sales Tax Nexus Examples

California:

• Threshold: $500,000 in sales
• No transaction count threshold

Texas:

• Threshold: $500,000 in sales
• No transaction count threshold

New York:

• Threshold: $500,000 in sales AND 100+ transactions

Florida:

• Threshold: $100,000 in sales
• No transaction count threshold

Wyoming:

• Threshold: $100,000 in sales OR 200+ transactions

Sales Tax Registration Process

If you have nexus:

1. Register for sales tax permit in each state
2. Collect sales tax on taxable sales
3. File periodic returns (monthly, quarterly, or annually)
4. Remit collected taxes to the state

Tools to help:

• TaxJar: Automated sales tax calculation and filing
• Avalara: Enterprise-level sales tax compliance
• Shopify, Square: Built-in sales tax collection

Corporate Income Tax Nexus

Public Law 86-272: Federal law limiting state taxation of out-of-state businesses

Protection: If your only activity in a state is soliciting orders for tangible personal property (which are approved and fulfilled from outside the state), the state cannot impose income tax.

Limitations:

• Only applies to tangible goods (not services, digital products, or real estate)
• Protection is narrow (any additional activities beyond solicitation can create nexus)

Examples of activities that create income tax nexus:

• Maintaining an office or warehouse
• Having employees working in the state
• Providing services in the state
• Owning/leasing property
• Performing installation, training, or technical support

State Corporate Income Tax Thresholds

Some states have adopted economic nexus for corporate income tax:

California:

• $610,395 in sales (2024)
• $61,040 in property
• $61,040 in payroll
• Exceeding any one creates nexus

Massachusetts:

• $500,000 in sales

Ohio:

• $500,000 in sales (commercial activity tax)

Washington:

• $100,000 in receipts (business & occupation tax)

Pass-Through Entity Taxes

Many states now impose entity-level taxes on LLCs and partnerships (pass-through entities):

States with pass-through entity tax (PTET):

• California
• New York
• Connecticut
• And 30+ others

Purpose: Workaround for $10,000 SALT deduction cap

• Entity pays state tax (deductible for federal purposes)
• Owners get credit on their personal returns

Nexus implications: If your LLC has nexus in a state with PTET, consider whether to make the election.

State-by-State Nexus Comparison

Here's a reference table for major states' nexus rules.

No Income Tax States

These states have no personal income tax (easiest for individuals):

| State | Personal Income Tax | Sales Tax | Notes | |-------|-------------------|-----------|-------| | Alaska | None | None (state level) | Some local sales taxes | | Florida | None | Yes | Popular for domicile change | | Nevada | None | Yes | No corporate income tax either | | New Hampshire | None | Yes (meals & lodging) | Taxes interest & dividends only | | South Dakota | None | Yes | | | Tennessee | None | Yes | Eliminated interest/dividend tax in 2021 | | Texas | None | Yes | Franchise tax on businesses | | Washington | None | Yes | Capital gains tax on high earners (2022+) | | Wyoming | None | Yes | Very business-friendly |

High-Tax States (Aggressive Enforcement)

These states have high taxes and actively pursue nexus:

California:

• Top rate: 13.3%
• Aggressive residency audits
• Economic nexus: $500,000 sales
• Taxes on worldwide income for residents

New York:

• Top rate: 10.9% (state + NYC)
• Convenience of employer rule
• Economic nexus: $500,000 sales + 100 transactions
• Strict residency enforcement

New Jersey:

• Top rate: 10.75%
• Exit tax on high earners leaving state
• Economic nexus: $100,000 sales

Massachusetts:

• Rate: 5% (9% on income over $1M as of 2024)
• Economic nexus: $500,000 sales
• Aggressive on remote workers

Reciprocal Agreement States

Some states have reciprocal agreements to prevent double taxation of wages:

Reciprocal agreements (employee works in one state, lives in another):

| Home State | Work State | Agreement | |-----------|-----------|-----------| | Illinois | Iowa, Kentucky, Michigan, Wisconsin | No work-state tax | | Indiana | Kentucky, Michigan, Ohio, Pennsylvania, Wisconsin | No work-state tax | | Maryland | D.C., Pennsylvania, Virginia, West Virginia | No work-state tax | | Minnesota | Michigan, North Dakota | No work-state tax | | New Jersey | Pennsylvania | No work-state tax | | Pennsylvania | Indiana, Maryland, New Jersey, Ohio, Virginia, West Virginia | No work-state tax | | Virginia | D.C., Kentucky, Maryland, Pennsylvania, West Virginia | No work-state tax | | Wisconsin | Illinois, Indiana, Kentucky, Michigan | No work-state tax |

How it works:

• You live in State A
• You work in State B
• Reciprocal agreement exists
• You only pay tax to State A (your home state)

Application required: Must file form with employer to stop withholding for work state.

State Residency Rules Summary

| State | Residency Test | Days for Statutory Residency | Convenience Rule | |-------|---------------|----------------------------|-----------------| | California | Domicile or 9+ months | 9 months (approx. 270 days) | No | | New York | Domicile or 183 days + abode | 183 days | Yes | | Florida | Domicile | N/A (no income tax) | N/A | | Texas | Domicile | N/A (no income tax) | N/A | | Illinois | Domicile | N/A (no day count rule) | No | | New Jersey | Domicile | N/A (no day count rule) | No | | Pennsylvania | Domicile | N/A (no day count rule) | Yes (limited) | | Massachusetts | Domicile or 183 days | 183 days | No | | Connecticut | Domicile or 183 days | 183 days | Yes (limited) |

Avoiding Double Taxation

When multiple states tax the same income, you need strategies to avoid paying twice.

Credit for Taxes Paid to Other States

Resident state credit: If you're a resident of one state but pay tax to another state on income earned there, your resident state generally provides a credit.

How it works:

1. File non-resident return in the state where you earned income (pay tax there)
2. File resident return in your home state (report all income)
3. Claim credit on resident return for taxes paid to other state
4. Net result: Pay the higher of the two states' tax rates

Example:

• You live in Oregon (resident)
• You earned $50,000 in California (worked there 90 days)
• California tax on $50,000: $3,000
• Oregon tax on $50,000: $4,000
• Oregon gives credit for $3,000 paid to California
• You owe Oregon: $4,000 - $3,000 = $1,000
• Total tax paid: $3,000 (CA) + $1,000 (OR) = $4,000 (same as if all income was Oregon-only)

Limitation on Credit

Credit is limited to the lesser of:

• Tax paid to other state
• Tax your resident state would impose on that same income

Example:

• You live in New York (high tax state)
• You earned $50,000 in Florida (no income tax)
• Florida tax: $0
• New York tax on $50,000: $3,000
• Credit for Florida taxes: $0
• You owe New York: $3,000 (no benefit from earning in no-tax state)

Takeaway: Earning income in a no-tax or low-tax state doesn't help if you're a resident of a high-tax state.

Reciprocal Agreements

As mentioned earlier, reciprocal agreements prevent double taxation on wage income:

If your home and work states have a reciprocal agreement:

• File Form W-4 exemption with employer (stop withholding for work state)
• Pay tax only to home state
• Simpler than filing multiple returns and claiming credits

Allocating Income Between States

If you move mid-year or earn income in multiple states, allocation determines what income each state can tax.

Wage allocation:

• Based on days worked in each state
• Some states use other methods (pay period allocation)

Example:

• Total wages: $120,000
• Worked 200 days in State A, 65 days in State B
• State A income: $120,000 × (200/265) = $90,566
• State B income: $120,000 × (65/265) = $29,434

Business income allocation:

• States use apportionment formulas (typically based on sales, property, payroll)
• UDITPA (Uniform Division of Income for Tax Purposes Act) provides standard approach
• Many states use single-sales-factor apportionment (based on sales location only)

Strategic Domicile Planning

If you can choose where to establish domicile, consider:

No-income-tax states:

• Florida, Texas, Nevada, Wyoming, Washington, Tennessee, South Dakota, Alaska, New Hampshire

Low-income-tax states:

• North Dakota (2.9% top rate)
• Pennsylvania (3.07% flat rate)
• Indiana (3.15% flat rate)

High earners: Moving from California (13.3%) to Florida (0%) can save $133,000 per $1M in income.

Requirements: Must genuinely establish domicile (not just claim it for tax purposes).

Record-Keeping Requirements

Proving where you lived and worked requires meticulous records.

Day-Count Tracking

Track every day you spend in each state:

Information to log:

• Date
• State(s) you were in
• Purpose (work, personal, travel)
• Nights slept (location)

Tools:

• Spreadsheet: Simple daily log
• Calendar apps: Google Calendar with locations
• GPS tracking: Automatic location history (Google Timeline, etc.)
• Apps: TaxDay, MileIQ, TripLog (designed for multi-state tracking)

Evidence:

• Credit card statements (showing location of charges)
• Hotel receipts
• Flight itineraries
• Cell phone location data
• E-ZPass/toll records

Domicile Evidence

To prove domicile change:

Checklist:

• [ ] Driver's license (new state)
• [ ] Vehicle registration (new state)
• [ ] Voter registration (new state)
• [ ] Bank accounts (local branch)
• [ ] Primary residence (own or rent)
• [ ] Utility bills (showing occupancy)
• [ ] Medical professionals (new state)
• [ ] Dentist (new state)
• [ ] Gym membership
• [ ] Religious institution
• [ ] Social organizations/clubs
• [ ] Estate planning documents (executed in new state, showing new domicile)
• [ ] Declaration of domicile (if state offers)
• [ ] Prior state home sold or rented
• [ ] Professional licenses updated

Document timeline: Keep dated proof of each change.

Remote Work Documentation

If you work remotely, document:

Employer policies:

• Remote work agreement
• Letter stating employer requires/allows remote work
• Policy manual excerpts

Work location:

• Home office address
• Days worked from each location
• Travel to employer's office (days, purpose)

Income allocation:

• Timesheets or calendar showing work location
• Income apportionment calculations
• Employer withholding information

Business Nexus Records

For business owners, track:

Sales by state:

• Customer addresses
• Sale amounts
• Transaction count
• Marketplace facilitator sales (separate)

Physical presence:

• Offices, warehouses, facilities (addresses, lease dates)
• Employee locations (addresses, days worked by state)
• Inventory locations
• Contractors/agents by state

Tax registrations:

• Sales tax permits (by state)
• Income tax registrations
• Foreign qualification (LLC/corp registration in other states)

Audit Risk

States that frequently audit:

• California (especially domicile changes to no-tax states)
• New York (especially convenience rule situations)
• New Jersey (high earners)

Red flags:

• Claiming domicile change to no-tax state
• High income (>$500,000)
• Property in multiple states
• Incomplete day-count records

Best practice: Keep records for at least 6-7 years (beyond statute of limitations).

Common Multi-State Tax Mistakes

Avoid these frequent errors that lead to tax problems.

Mistake 1: Assuming No Tax if No Withholding

Error: "My employer doesn't withhold for State X, so I don't owe tax there."

Reality: Your employer's withholding doesn't determine your tax obligation. You're responsible for filing all required returns.

Solution: Determine your own nexus and file accordingly.

Mistake 2: Not Filing Non-Resident Returns

Error: You're a resident of State A but earned income in State B. You file only your State A resident return.

Reality: You must file a non-resident return in State B to report the income earned there, then claim a credit on your State A return.

Solution: File both returns and claim credit to avoid double taxation.

Mistake 3: Using Wrong Residency Test

Error: "I spent only 150 days in California, so I'm not a resident."

Reality: California uses domicile test primarily. If California is your permanent home (domicile), you're a resident regardless of days spent there.

Solution: Understand the specific test your state uses (domicile vs. 183-day rule).

Mistake 4: Not Tracking Days

Error: Rough estimate of days in each state

Reality: In an audit, you must prove your day count. Rough estimates are rejected.

Solution: Keep contemporaneous daily logs with supporting evidence.

Mistake 5: Ignoring Convenience of Employer Rule

Error: Working remotely from Connecticut for NY employer, assuming only CT taxes apply

Reality: New York taxes your income under convenience rule unless you prove employer necessity.

Solution: Understand convenience rule states and plan accordingly (get employer documentation or consider employer location when accepting jobs).

Mistake 6: Not Claiming Resident Credit

Error: Paying tax to two states on the same income without claiming credit

Reality: Your resident state provides a credit for taxes paid to other states.

Solution: Complete credit calculation on resident state return.

Mistake 7: Business Economic Nexus Ignorance

Error: Selling online, not collecting sales tax in states where you have economic nexus

Reality: States actively enforce economic nexus. You can face penalties, interest, and retroactive tax bills.

Solution: Monitor sales by state and register when you exceed thresholds.

Mistake 8: Incomplete Domicile Change

Error: Moving to Florida but keeping driver's license, voter registration, and most ties in New York

Reality: New York can successfully argue you never changed domicile and tax all your income.

Solution: Thoroughly sever ties with old state and establish ties with new state.

Mistake 9: Not Filing Part-Year Returns

Error: Moving mid-year and filing only in new state

Reality: You're a part-year resident of both states and must file part-year returns in both.

Solution: File part-year resident returns allocating income correctly.

Mistake 10: Thinking Reciprocal Agreement is Automatic

Error: Working in a reciprocal state but not filing exemption form with employer

Reality: Employer continues withholding for work state. You must file returns to get refund.

Solution: File reciprocal agreement exemption form with employer to stop withholding at the source.

Conclusion

State tax nexus is complex, but understanding the rules helps you navigate multi-state tax obligations legally and efficiently. The rise of remote work has made this knowledge essential for millions of Americans who no longer work exclusively in their home state.

Key takeaways:

1. Nexus determines taxing authority: States can only tax you if you have sufficient connection (nexus)
2. Residency is critical: Residents are taxed on all income; non-residents only on state-source income
3. 183-day rule: Most states use 183+ days to establish statutory residency
4. Domicile vs. statutory residency: Understand both concepts and prove domicile changes thoroughly
5. Remote work creates nexus: Working from a state generally creates nexus, subject to thresholds
6. Convenience rule states: New York, Arkansas, Delaware, Nebraska, Connecticut, Pennsylvania can tax remote workers even without physical presence
7. Claim credits: Use resident state credits to avoid double taxation
8. Reciprocal agreements: Simplify wage taxation for workers in border states
9. Business economic nexus: $100,000-$500,000 in sales typically creates sales tax collection obligation
10. Track everything: Maintain detailed day counts, domicile evidence, and work location records

The most important action you can take is to keep detailed records. States are aggressive in auditing high earners and those who claim domicile changes. Documentation protects you and proves your compliance.

If you have complex multi-state situations—working remotely for an out-of-state employer, owning property in multiple states, running a business with nexus in several states, or planning a domicile change—consider consulting a multi-state tax professional. The tax savings and penalty avoidance can far exceed the cost of expert advice.

How Chedr Can Help

Multi-state tax compliance is one of the most complex areas of tax law. Chedr's AI-powered platform helps you navigate state nexus issues, track days automatically, and ensure you file correctly in every state where you have obligations.

Chedr's multi-state tax features:

• Automatic day tracking: Syncs with your calendar and location data to track days in each state
• Nexus determination: Analyzes your activities and alerts you when you create nexus in new states
• Residency analysis: Evaluates whether you meet residency thresholds in multiple states
• Remote work optimization: Identifies convenience rule issues and calculates multi-state tax liability
• Credit calculations: Automatically calculates resident credits for taxes paid to other states
• Part-year return support: Handles income allocation for mid-year moves
• Business nexus monitoring: Tracks sales tax and income tax nexus for your business across all states
• Domicile change checklist: Guides you through proper domicile change procedures
• Audit documentation: Maintains records needed to defend your positions in state audits

Stop worrying about whether you're filing in the right states. Let Chedr analyze your situation and handle multi-state compliance automatically. Start your free trial today →

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Disclaimer: This article is for informational purposes only and does not constitute tax or legal advice. State tax nexus rules are complex, vary significantly by state, and change frequently. Multi-state taxation involves potential double taxation, penalties for non-compliance, and audit risks. The convenience of the employer rule, economic nexus thresholds, and residency tests differ by state and are subject to change through legislation and court decisions. This guide provides general information and may not address all situations or recent changes. Please consult with a qualified multi-state tax professional or attorney regarding your specific circumstances before making domicile changes, filing multi-state returns, or making business nexus decisions. Some states have enacted temporary COVID-19 rules that may affect remote work taxation; consult current guidance for your specific states.