What does the term "economic nexus" refer to in corporate taxation?

The term "economic nexus" refers to the concept in corporate taxation that establishes a corporation's tax obligation based on its economic presence within a state, rather than just its physical presence. This standard acknowledges that companies can create significant impacts on local economies through activities such as sales and marketing, even if they do not maintain a physical office or facility in that state.

With this understanding, a corporation can be subject to tax in a state where it conducts business activities that generate revenue, regardless of whether it has a physical location there. This shift toward economic nexus has been particularly important as e-commerce and remote business operations have expanded, leading states to reassess how they collect taxes from businesses.

The focus on economic presence rather than merely physical presence means that corporations must consider their overall activity in a state, including factors like sales revenue or customer presence, to determine if they meet the criteria for tax obligations.