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.