Economic nexus vs physical nexus: which one matters more for my foreign-owned LLC?

Since you have no physical presence in the U.S., physical nexus is not an issue. Your concern is economic nexus — whether your sales volume in each state crosses that state's threshold.

Economic nexus thresholds typically require $100,000 in sales or 200 transactions per year in a state. You need to track your sales by state and determine which states you have crossed the threshold in.

With customers in 35 states, you likely cross the threshold in your top-performing states but not in all 35. Focus on states where your sales or transaction count is approaching the threshold.

Whether SaaS (Software as a Service) is subject to sales tax depends entirely on the state. There is no national standard:

- States that tax SaaS: Connecticut, Hawaii, Iowa, Massachusetts, Mississippi, New Mexico, New York, Ohio, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Washington, West Virginia, and others - States that do not tax SaaS: California, Colorado, Florida, Georgia, Illinois, Missouri, Nevada, Virginia, and others - States where it's unclear or depends on specific circumstances: Several states have evolving guidance

This means even if you have economic nexus in 15 states, you may only need to collect sales tax in the subset of those states that actually tax SaaS. The intersection of (states where you have nexus) AND (states that tax SaaS) determines your collection obligation.

Step 1: Generate a sales report by state for the current and prior calendar year Step 2: Identify states where sales exceed $100,000 or transactions exceed 200 (check each state's specific threshold) Step 3: For each state with economic nexus, determine whether SaaS is taxable in that state Step 4: Register for sales tax in states where you have nexus AND SaaS is taxable Step 5: Configure your billing system to collect the correct sales tax rate Step 6: File returns in each registered state according to their schedule

This is a significant compliance undertaking, which is why many SaaS businesses use automated tax compliance tools from the start.

Economic nexus for income tax is separate from sales tax nexus. Many states assert income tax nexus based on having significant sales in the state.

For a foreign-owned LLC with no U.S. physical presence, income tax nexus may be limited. However, states like New York, California, and Massachusetts are aggressive about asserting nexus over digital businesses with significant in-state customers.

As a practical matter, most foreign-owned SaaS LLCs focus on sales tax compliance first (because the penalties for not collecting sales tax are severe and state-level audits are increasingly targeting digital businesses) and address income tax nexus on a case-by-case basis.

Unlike sellers on Amazon or Etsy, SaaS businesses typically sell directly to customers through their own platform. This means marketplace facilitator laws do not apply — you are responsible for all sales tax collection and remittance.

If you sell SaaS through a reseller or distribution platform, the tax obligations may differ. Some states treat the reseller as the responsible party, while others look to the underlying software provider.

For direct SaaS sales, you bear the full compliance burden, making automated sales tax tools particularly valuable.