Businesses who sell over the internet must pay a lot of attention to far-flung economic tax thresholds – all states with a statewide sales tax and more than a few localities enforce them now – so it’s easy to overlook a more obvious tripwire like physical presence.

The Sales Tax Institute claims that one of the biggest misconceptions in the wake of the Supreme Court’s Wayfair decision is that tax-collection requirements triggered by physical nexus (aka “physical presence”) no longer apply. In fact, physical presence nexus remains the first consideration in whether a business is legally bound to collect and remit states’ taxes.

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Economic nexus obligations kick in after a business tops a set level of sales in terms of quantity or dollar amounts, or both. Physical presence nexus is created when a business has a physical connection with a state or taxing jurisdiction, an easy example, is an office location.

Clear enough. Except that an office isn’t the only activity that creates a physical presence. Having an employee in a state is another common way to establish physical presence nexus.

This wasn’t such a big deal before a world of remote workers became much more common. Prior to 2020, the majority of workers worked at a physical office location, or businesses just had a few remote workers, usually sales or customer service. But now, remote work is much more common, and physical presence is often overlooked when determining whether to hire an employee outside of a state where you have offices.

That’s not all though, there are some activities that create physical presence nexus that are even less obvious. Examples can include:

  • Owning or leasing just one office or having a mailing address;  

States are aggressively trying to collect sales and use taxes from businesses, and it pays to keep every possible trigger in mind. While economic nexus is important to keep up with, make sure you don’t leave out physical nexus – even if you aren’t hitting thresholds according to economic standards, you could still qualify for nexus based on physical standards in states you may not realize.

Contact us to learn about the latest developments in physical nexus sales-tax and what they mean to you and your company.

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Robert Dumas

Written by Robert Dumas

Accountant, consultant and entrepreneur, Robert Dumas began his public accounting career on the tax staff at Arthur Young & Co., followed by a brief stint at Grant Thornton. In 1998, Robert founded Tax Partners, which became the largest sales tax compliance service bureau in the country, and later sold it to Thomson Corporation. Robert founded TaxConnex in 2006 on the principle that the sales tax industry needed more than automation to truly help clients, thus building within TaxConnex a proprietary platform and network of sales tax experts to truly take sales tax off client’s plates.