What is Sales Tax Nexus?
A sales tax nexus is the minimum presence or connection between your company and a state that must exist before a state can impose any tax liability and reporting requirements upon your company. Once you reach nexus in a state, you must register to collect and remit sales tax there.
It can be surprisingly easy to trigger sales tax nexus without realizing it. Even minimal activities, such as an occasional visit by an employee or independent contractor, can establish a nexus in a state. Some states may require you to pay sales tax simply for attending a trade show.
Types of Sales Tax Nexus
Sales tax nexus can be triggered in a variety of ways, including:
Physical Nexus
Physical nexus is when a business has a physical presence in a state. Examples of physical nexus include having an office, store, warehouse/inventory (including goods sold through big online businesses such as Amazon), or employees within the state.
Economic Nexus
Economic nexus is reached based on the economic activity within a state even if the business has no physical presence there. Examples of economic nexus include meeting a certain sales threshold (e.g., $100,000 in sales) or a specific number of transactions (e.g., 200 transactions). It’s important to note that many states have enforced economic nexus standards because of the Supreme Court’s South Dakota v. Wayfair decision.
Affiliate Nexus
Affiliate nexus is when a business is affiliated with another entity in a state, such as a subsidiary, sister company, or an entity under common ownership.
Note: Alaska, Delaware, Montana, New Hampshire, and Oregon are the only states that do not charge a sales tax, however cities can chose to charge sales tax on certain products/services.
How Economic Nexus Varies by State
Economic nexus thresholds differ in each of the other 45 states and Washington, D.C., however. These thresholds are typically based on the dollar amount of your sales, the number of transactions, or a combination of both.
Below are examples of states that are more complicated than others when it comes to filing sales and use tax returns. These are often states with the highest populations plus the highest sales tax revenue.
- California and Texas both have nexus thresholds of $500,000.
- New York has a threshold of $500,000 and 100 transactions.
Why Sales Tax Nexus Matters
Failure to comply with sales tax nexus laws can result in significant penalties, including fines and back taxes owed plus any interest accrued on those amounts – these financial consequences can cripple any business if not dealt with properly. Businesses may also face long-term challenges such as damaged reputations, loss of customer trust, and difficulties in securing financing or investment, which hinder the ability to grow and succeed in the future.
For growing and expanding businesses, understanding sales tax nexus is critical as different states have varying nexus thresholds and regulations, meaning that what works in one state may not apply in another. Properly managing nexus ensures that a business stays compliant and avoids unexpected tax liabilities as it expands.
Our Sales Tax Nexus Services
Nexus Analysis & Strategic Planning:
The business tax consultants at TMTY can identify the states where a nexus exists, both currently and historically. We can also assess your historical exposure to give you a clear picture of your contingent liabilities and the necessary steps to ensure that your company is compliant.
Nexus Compliance Support & Monitoring:
We ensure you are compliant in every state where a nexus exists by assisting with state registrations, and we stay up to date with state law changes to ensure continued compliance.
Penalty Relief
We help businesses that have failed to comply with states’ nexus laws minimize their current penalties (fines, back taxes owed, and interest on unpaid taxes) through voluntary disclosure agreements (VDAs).
Reverse Audits
At TMTY, we provide you with reverse audits that assess:
-
- Sales Tax Exemptions
- Other Tax Exemptions
- Tax Credits
- Tax Incentives
These are available not only in your home state, but also in other states where you have established a sales tax nexus.
Consulting & Ongoing Support:
Continuous monitoring of state law changes and proactive adjustments to business practices.
Why Choose TMTY for Your Business?
Choosing TMTY for your business means partnering with a team of experts you can trust. We understand the ins and outs of nexus laws across all states and will ensure your business stays compliant and ahead of regulatory changes, minimizing the risk of audits, penalties, and interest.
Whether you’re expanding into new markets, managing eCommerce sales, or trying to correct existing tax issues, TMTY can take care of all your sales tax needs – our ultimate goal is saving our clients’ valuable time and money!
CONTACT US
