What the Heck is Sales Tax Nexus?

Rick Bromund
By Rick Bromund

As a business owner, the questions of when to register and collect sales tax can be complicated to say the least. We’re here to make it less complicated. Here’s how the tax regulations in your state can determine when and how your company may have nexus. 

What is sales tax nexus?

Sales tax nexus is the connection between a seller and a jurisdiction (usually a state), that requires a seller to register to collect and pay sales tax. There are different types of nexus, but the most common are physical and economic.

 A physical nexus is the physical connection between your business and its responsibility to collect sales tax in a state. Examples of physical nexus include: 

  • Having a physical location such as an office, home office, or warehouse
  • The location of your employees outside your state (including remote employees)
  • Being temporarily located in a location for business purposes

Economic nexus is the economic connection between your business and its responsibility to collect sales tax in a state. Typically it’s based on either sales in a state ($ amount), and/or number of transactions in a state. 45 states and the District of Columbia have sales tax, and currently all but Missouri have economic nexus rules. 

What Businesses are affected by sales tax nexus? 

Short answer… everyone. You may live in a state that does not have a sales tax requirement, like Montana - if that’s the case, while your transactions within the state are not subject to sales tax, if you go to a trade show in Texas, you now meet physical nexus requirements for Texas. Additionally, if you’re an online seller with an ecommerce storefront selling goods to multiple states, and you meet the threshold for sales dollars and/or transactions, you may have to deal with economic nexus.

What this means for you

It’s important to not only be aware if you trigger any type of nexus, but also when. While some states, such as North Carolina, will give you 60 days to register and collect once you hit the threshold, other states like California require immediate registration once the threshold is met. Knowing exactly when to register for sales tax is the key to minimizing potential fines, like failure to file fees, penalties, and interest. 

Here’s Where it Gets More Complicated: Every State is Different

Each state may handle their nexus standards in differing ways. One state may say a trade show attendance from an out of state seller triggers physical nexus.  Another state, like Alabama, has economic requirements that a business having $250,000 or more in sales to the state triggers economic nexus. In Washington D.C., the threshold is $100,000 in sales into the district OR 200 transactions. Some states even have specific nexus rules for sales made through marketplaces, like Amazon. So, you can see how important it is to know the nexus rules for the state you’re doing business in.

Bottom Line

As you continue to grow your company it’s important to be aware of the additional tax obligations that growth comes with. If your business increases in a state that you previously didn’t have a sales tax nexus in, give your state tax collector a call. This extra step could save you time, money, and frustration during an audit.

Still confused? Have questions? Contact us


Need help managing your tax deadlines, notices & more? We’ve got you covered. Try us for free.

Rick Bromund
By Rick Bromund
Rick Bromund heads the tax research team at ComplYant, a technology platform offering business owners and entrepreneurs a simple way to manage tax rules and requirements. Rick is an experienced professional in the tax industry and has previously held positions at Fortune 500 companies as well as one of the big 4 accounting firms

Related posts

Young businesswoman walks down the street near palm trees in LA

All things business: LA edition

The first step to starting a business can be the hardest. So take a small one. One at a time. Here's short checklist to guide you through some basic yet critical steps and help you begin. 
Wooden blocks spell out "LLC" on a table with pencils, paperclips, and notebooks nearby

Choosing a business structure: Is an LLC the best choice?

If you’re forming a business, then you need to choose a structure for your business. The structure you choose will have implications on your tax obligations, investment opportunities, filing requirements, and more. Read this article to discover if an LLC is right for you.
Digital creator holds up a handbag to her camera to create content for her social media channel

Tax filing answers: Digital creators, freelancers, and gig workers

Small business owners and those who are self-employed have a different approach to tax season than those who only have W2 income. Here are answers to a couple of questions that may get you stumped.