What is Nexus?

Sales tax nexus occurs when your business has some kind of connection to a state.

  • All states have a slightly different definition of nexus, but most of the time states consider that a “physical presence” or “economic connection” creates nexus. You only have to charge sales tax in the states in which you have a sales tax nexus.

Business activities that create physical sales tax nexus include:

  • Having an office, store, or other location in a state (even a home office)
  • Having an employee, salesperson, contractor, etc. in a state
  • Owning a warehouse or storage facility in a state
  • Storing inventory in a state (I.e. A warehouse)
  • Having a 3rd party affiliate in a state
  • Temporarily doing physical business in a state for a limited amount of time, such as at a trade show or craft fair

Economic nexus laws require that online sellers collect sales tax in that state if certain sales thresholds are met.

  • For example, “If an online seller, even though they don’t have a physical presence in our state, makes more than $X in sales in our state, or conducts more than X number of transactions in our state, then they are required to collect sales tax from buyers in our state.”
  • Each state's economic nexus law varies; Some may require a certain number of transactions or value in sales while others may require both.
  • You can review all of the economic nexus laws here.
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