Sales tax nexus is the legal term used to describe the significant presence in a state that allows that state to require the business to collect and remit sales tax. Sales tax nexus thresholds vary from state to state. Generally, they include having a physical presence in the state, such as having a retail store or warehouse or having employees or contractors working in the state. Additionally, some states have laws that create sales tax nexus for out-of-state businesses based on economic activity, such as making sales through an online marketplace or shipping products into the state.
Business owners need to be aware of sales tax nexus because if they meet the threshold for any given state, they must register with the state and collect and remit sales tax on behalf of their customers. Failing to do so can result in significant penalties, including back taxes, interest, and fines. Companies like TaxConnex that offer sales tax support services can help you navigate the intricacies of sales tax nexus.
What is Sales Tax Nexus
Sales tax nexus is the term used to describe the connection between a business and a state that allows that state to tax the sale of goods or services. Companies can create this connection in several ways, including but not limited to having a physical presence in the state, conducting business through an affiliate in the state, or selling products online to customers in the state.
Why It Exists
Sales tax nexus exists because states want to ensure that businesses operating within their borders pay their fair share of taxes. When a company has sales tax nexus in a state, it must collect and remit sales tax on behalf of its customers. This allows the state to collect revenue on the sale of goods and services within its borders, which helps fund state programs and services.
What Triggers It
Many things can trigger sales tax nexus, including but not limited to having a physical presence in the state, conducting business through an affiliate in the state, or selling products online to customers in the state.
The most common way to trigger sales tax nexus is by having a physical presence in the state. This can be in the form of a retail store, office, warehouse, or other property types. Additionally, having employees or contractors working in the state can also create nexus.
Some states have laws that create sales tax nexus for out-of-state businesses based on economic activity, such as making sales through an affiliate or shipping products into the state.
Another way to trigger sales tax nexus is by selling products online to customers in the state. This is often referred to as a “click-through” nexus because it is created when a customer clicks on a link on an out-of-state website and purchases from the website.
Each state has its specific laws regarding sales tax nexus, so it’s essential to be familiar with the requirements of the conditions in which you do business. Here are some of the obligations all companies have to remain compliant with the sales tax nexus:
Register With The State:
To collect and remit sales tax, you must first register with the state where you have nexus. Companies can usually do this online through the state’s department of revenue website.
Obtain a Sales Tax Permit:
Once you are registered with the state, you must obtain a sales tax permit. This permit allows you to collect sales tax from your customers and remit it to the state.
File Returns and Makes Payments:
As a business, you must file regular sales tax returns and make payments to the state. Returns typically need to be filed monthly, quarterly, or annual, depending on the form.
To comply with sales tax laws, you must keep detailed records of all sales and purchases. These records can help you file your returns and make payments.
Comply with Special Requirements:
Some states have additional requirements that businesses must meet to comply with sales tax nexus laws. For example, some states require companies to provide customer invoices for sales tax information.
Failure to comply with these obligations can result in penalties and interest being assessed by the state. To avoid these penalties, it is essential to stay up-to-date on the latest sales tax nexus laws and requirements.