Do you know what “sales tax nexus” is? Probably not!

Well, it’s a concept that is becoming increasingly important to businesses of all sizes, so it’s important to understand how it works. 

In this post, we’ll discuss what the sales tax nexus is, how it works, and how you can use this knowledge to maximize your revenue while staying compliant with state and federal laws.

What is “Sales Tax Nexus”?

A sales tax nexus is the connection a business has to a state that requires it to collect sales tax. Enterprises must understand activities that can trigger sales tax nexus, as well as sales tax laws by state. 

Activities that Trigger Nexus

When a business has a certain presence or activities in a state, then it should be aware of potential obligations to register and collect sales tax in that state. 

Typical activities that might create nexus for a company include:

• Having a physical location in the state, such as an office, warehouse, or brick-and-mortar store
• Employees or independent contractors who work within the state (for example, salespeople)
• Affiliates in the state who refer customers and receive commission payments or other forms of compensation
• Delivery of items within the state via common carrier (like FedEx or UPS) or employees 
• Attending trade shows or events in the state 
• Inventory stored in-state with a third-party fulfillment warehouse 
• Online activities in the state, including hosting websites or paying for advertisements on websites located in the state 
• Ownership of tangible personal property located in the state (such as rental cars, apartment furniture, etc.) 
• Installation and/or repair services performed within the state 
• Out-of-state telemarketing calls into the state and/or catalogs sent within the state 

Latest Nexus News From Our Expert 

Staying up to date with the latest developments affecting the sales tax nexus is key to staying compliant. Here’s a quick roundup of some of our expert’s advice on key topics related to sales tax nexus:

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• Have a comprehensive understanding of how economic nexus may affect your business. Economic nexus involves a minimum threshold of sales activity in a certain state regardless of physical presence. You may be required to collect sales tax in certain states even if you don’t have a physical location there. 
• Start paying attention to changes in each state's definition of economic nexus. Some states now have lower thresholds than others, which can mean huge impacts for businesses that expand into those states without being aware of new definitions. 
• Finding out whether you need multiple seller's permits or one unified permit across multiple states can save time and energy during the compliance process. 

Where Are You Required To Collect Sales Tax? 

It’s important to understand which states require you to collect sales tax and if any special exemptions apply. A good first step here is to check out each state’s Department of Revenue website in order to gain insight into their specific laws and rules. Each website will have information on whether you need to obtain a license and remit taxes collected from customers in that particular state. 

Economic Nexus 

In 2018, many states began adopting economic nexus laws. This requires sellers making massive sales to register and begin collecting sales tax from customers - regardless of physical presence. 

For instance, let’s say that the limit threshold in your state is $200,000 in a month. So, if you made over that amount, you will be required to collect sales tax as well - otherwise, you could be putting yourself at risk for unnecessary audit exposures… which nobody wants!  

It pays to consult an expert before making any decisions regarding registration with individual states.   

People Also Question

Q. What does it mean to have nexus?

A. Having nexus refers to the connection between a state and a business or individual who is selling goods or providing services within that state. The company or individual has an obligation to register with the state and pay taxes on their sales.

Q. What triggers the tax nexus?

A. ax nexus is triggered when a business has a physical presence in a state such as an office, warehouse, retail location, or other form of physical presence. Additionally, some states also require businesses to pay taxes when they make sales through an online marketplace, have more than a certain number of transactions with customers in the state, or have employees who work within the state.

Q. How do I avoid nexus tax?

A. You can avoid nexus tax by ensuring that you do not have any kind of physical presence in the state in question. If you do not maintain any offices, warehouses, or other locations in the state, then you will not be responsible for paying sales taxes in that state. Furthermore, if you only sell your products through online marketplaces and do not have any employees working in the state, then you will also generally be exempt from sales tax obligations. 

Q. What are nexus rules?

A. Nexus rules are the laws and regulations set by each individual state which determine whether a business must pay sales taxes on transactions within the state. 

Q.  What is a physical presence or nexus? 

A. A physical presence or nexus refers to any kind of physical location that a business may maintain within a particular authority. This includes offices, warehouses, retail stores, employee work locations, and more.

Conclusion

The sales tax nexus is a pretty important concept for businesses of all sizes to understand. Knowing what activities can trigger nexus and staying up-to-date with the latest news is key to ensuring your business remains compliant while maximizing profits.

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