What is sales tax nexus?

In the USA, "Nexus" refers to the relationship a business has with a jurisdiction that mandates it to register for collecting and remitting sales and use tax. This occurs at various levels, including state, city, county, local, or parish. Nexus can be established through either physical presence or economic activity.

Physical Nexus: when your business has physical presence in that jurisdiction. This could mean one of the following:

• An office (home office included), store, or other brick-and-mortar establishment

• Employee(s), salesperson(s), contractor(s), etc.

• Ownership of a storage facility or warehouse

• Inventory storage refers to holding inventory or goods for sale in a state, where the inventory is kept in a warehouse managed by a third-party logistics company. 

• Any interim physical business for a restricted amount of time (pop-up shop, trade show)

• Third-party affiliate, also known as click-through nexus 

Economic Nexus: when your business surpasses a specific number of sales and/or transactions.

• Determined by volume of sales, either by dollar amount or number of transactions

• Some thresholds range from $100,000 USD to $500,000 USD in sales. Note: Please take into account these thresholds may fluctuate over time depending on the state, even so the number of transactions are typically around 200, where applicable.

• Certain states do not have a transactional threshold

States with economic sales thresholds but no transactional thresholds:

The economic nexus thresholds will vary by jurisdiction. If you have nexus in any given state or jurisdiction, to comply with state law, you must register for tax purposes in that state. You can check our knowledge base for registrations, where you will find articles to keep informed on the process, and, of course, Taxually can assist you with your registrations!

FAQ

When does my nexus start date begin?

For all intents and purposes, the states consider you to have nexus in their state as soon as you have any nexus causing activities that take place in said state.

If you are in the process of your sales tax registration and need help determining your nexus start date, we would recommend consulting with your CPA or tax consultant for further guidance!

What if I no longer have sales tax nexus in a state?

Once you no longer qualify for sales tax nexus in a state, you should notify the state as soon as possible and they will instruct you on the next steps. Some states have pretty simple procedures like notifying them on your last return.

Please keep in mind that, even if you move your business from one state to another, there is a possibility that you will have continued nexus in the state you moved from. This concept is known as trailing nexus.