Do you know what the sales tax nexus is? If not, don’t worry – you’re not alone. A lot of business owners don’t know about this vital concept. Sales tax nexus is a legal term that refers to the connection between a business and a state that allows the company to be required to collect and remit sales taxes on transactions in that state. In other words, if your business has a sales tax nexus in a state, you are required to collect and pay sales taxes on purchases made by customers in that state. In this article, we will discuss the physical and economic nexus threshold and why it is vital to businesses.
What Is the Sales Tax Nexus, And Why Should You Care?
Sales tax nexus is the term used to describe the relationship between a seller and a state that requires the seller to collect and remit sales tax. Nexus generally arises when a seller has a physical presence in a state. Still, it can also be created by other factors such as having an affiliate in a state or shipping goods into a state.
Why should you care about the sales tax nexus? Because if you have nexus in a state, you must collect and remit sales tax on all taxable transactions made in that state. This can be a significant burden for businesses, small businesses, so it’s essential to understand how nexus is created and how to avoid it if possible.
If you are selling goods or services online, it’s crucial to be aware of the sales tax nexus because you may have an economic nexus in multiple states. This is since the internet has made it easier for businesses to reach customers all over the country. So, if you are selling goods or services online, you need to be aware of the sales tax laws in each state in which you have nexus.
What Are The Thresholds For Each State In The US For Sales Tax Nexus Purposes?
The thresholds for creating a sales tax nexus vary from state to state, but there are two general types of nexus: physical and economic.
Physical presence nexus can be created by having an office, warehouse, or retail store in a state, having employees or agents working in a state, or having property in a state.
Economic nexus can be created by meeting a certain sales threshold in a state. This is often called the “$100,000 rule” because many states have adopted this as their economic nexus threshold. That means that if your business has $100,000 or more in sales in a form, you have an economic nexus and must collect and remit sales tax in that state.
However, it’s important to note that not all states have adopted the $100,000 rule. Some states have lower thresholds, and some don’t have an economic nexus threshold. So, it’s essential to check the laws in each state in which you do business to see what the nexus thresholds are.
How Can You Determine If Your Business Has Sales Tax Nexus In A Particular State?
There are a few different ways to determine if your business has a sales tax nexus in a particular state. The first way is to check the laws in that state. Each state has its own sales tax laws, and you can usually find them online or by contacting the state tax agency.
Another way to determine if you have nexus in a state is to look at your sales in that state. If you have more than the nexus threshold in sales, then you probably have nexus. However, it’s always best to check with the state tax agency to be sure.
Are There Any Exceptions To The Sales Tax Nexus Rules That Apply To Your Business?
A few exceptions to the sales tax nexus rules may apply to your business. One exception is if you are selling exempt items. Some states don’t require companies to collect and remit sales tax on exempt entities, such as food or prescription drugs.
Another exception is if you are selling services that are not subject to sales tax. For example, many states exempt professional services from sales tax, such as legal or accounting services.
Finally, some states have what’s called a de minimis rule. This rule says that businesses only have to collect and remit sales tax on transactions above a certain amount. The threshold for this rule varies from state to state, but it is typically around $100.
Final Thoughts
The sales tax nexus is an important concept for businesses to understand because it can significantly impact your business. Nexus is created when a company meets certain thresholds, such as having an office in a state or making a certain amount of sales in a state. There are some exceptions to the nexus rules, such as selling exempt items or services, but generally speaking, if you have nexus in a state, you must collect and remit sales tax.
If you are selling goods or services online, it’s especially important to be aware of the sales tax nexus because you may have an economic nexus in multiple states. This is since the internet has made it easier for businesses to reach customers all over the country. So, if you are selling goods or services online, check the nexus rules in each state to see if you are required to collect and remit sales tax.
