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Sales Tax Nexus

The first step to managing your sales and use tax obligation is understanding where you have nexus.

 

 

Your first step to compliance is tracking where you've established nexus. 

Historically, Sales Tax Nexus represents a physical connection between an out-of-state business and a particular taxing jurisdiction which makes the out-of-state business responsible for collecting and remitting sales tax on their transactions.  Having a physical office or an employee based in a particular state is a clear-cut example of sales tax nexus.  However, there are many more subtle activities that could also trigger sales tax nexus that could represent a risk to your business:

  • Sales reps traveling to another state where they are not based to solicit sales
  • Employees exhibiting at trade shows
  • Service technicians traveling into another state where they are not based to perform service calls
  • An affiliate or agent relationship that supports selling or servicing activities
  • Maintaining inventory in a warehouse (for example with Amazon's FBA program)

But now you must consider if you have physical OR economic nexus to establish nexus in a state or taxing jurisdiction. 

The U.S. Supreme Court ruling in June of 2018 in the case of South Dakota vs. Wayfair, paved the way for states to compel out-of-state businesses to collect and remit sales tax even when they do not have a physical presence. This is often referred to as economic nexus.

Economic nexus is determined by the number of sales made into a state - determined by a sales or revenue threshold. Each state determines its own economic standards and it can be a lot to keep up. Unfortunately standards for economic nexus differ widely from state to state, and have evolved since 2018, so it is important to regularly monitor new sales into states and taxing jurisdictions to determine if you've established nexus.

This can especially be difficult if you are a business based outside of the US. 

TaxConnex® helps you identify the relevant sales tax nexus-creating activities and determine where you have an obligation to collect and remit sales tax, often referred to as sales tax nexus determination. Where we determine you have nexus, we will recommend simple, proactive steps based on your risk quotient to remedy any potential exposure. 

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Contact TaxConnex® Today.

Learn more about the TaxConnex® Difference, and how we help businesses like yours to reduce the stress and anxiety of managing sales tax. 

See What Our Clients Say

 The number one benefit we’ve received from working with TaxConnex is removing our risk with sales tax. As a SaaS platform there are many complications, add to that the 2018 Wayfair decision and things got even more complicated, but we can rely on TaxConnex to help us determine our nexus and comply 

Dinah McQueen
Controller, Profisee

 "We started with TaxConnex when we only had one jurisdiction, but as a result of the Wayfair decision, we’ve grown to 36 states where we have a sales tax obligation. It’s TaxConnex’s ability to grow with us which is very unique to us.”

Mark Kost
Force of Nature

"Sales tax is like opening Pandora’s box and it’s a huge relief to have experienced professionals handle it. We considered automated solutions, but an API connector can’t solve everything. We needed experienced guidance on when sales tax becomes a worry and when to start reporting and collecting from customers."

Mike Kelley
MAXPRO Fitness
 

Sales Tax Nexus FAQs

  • How do I know if my business has sales tax nexus?

    If your business has employees, inventory, offices, or sales (economic) activity above a state's threshold, or other qualifying business activities in a state, you may have sales tax nexus.  Because every state has different rules, a nexus review is often the best way to determine your obligations. 

    Learn more 

  • What happens if I don't identify sales tax nexus?

    If you fail to identify nexus, you may not register or collect sales tax when required by a taxing jurisdiction. This can result in back taxes, penalties, interest, and increase audit exposure once a state determines you have a filing obligation. 

  • Can software determine where I have sales tax nexus?

    Not completely. 
    Software is a great solution for helping track your economic activity and monitor thresholds, but it cannot evaluate every nexus creating activity or interpret state-specific rules. Activities such as remote employees, inventory, acquisitions, or unique business operations often require expert review to accurately determine your obligations. 

  • Does economic nexus apply in every state?

    No. 
    There are 5 states* with no state sales tax obligations - they do not have economic nexus requirements. 
    And within the rest of the states that do have economic nexus standards, the rules can vary greatly state to state. 
    *Alaska does not have a statewide sales tax but does have local jurisdictions that have established economic nexus rules. 

  • Does TaxConnex provide nexus determination services?

    Yes! TaxConnex helps businesses identify where they have sales tax nexus, evaluate potential exposure, and recommend the appropriate next steps to become compliant.