As a business owner, understanding sales tax rules probably isn’t your favorite part of the job, but knowing what nexus is (and how it applies to you) can help you avoid costly penalties and audits.
Let’s break it down.
What Is Nexus?
In the world of sales tax, nexus means a connection between your business and a state that’s significant enough for that state to require you to collect and remit sales tax on your sales there.
If you’re making sales across state lines — whether you’re selling physical products, offering digital services, or running a remote team — nexus is a term you need to understand.
Types of Nexus
There are two main types of sales tax nexus: physical nexus and economic nexus.
1️⃣ Physical Nexus
Physical nexus is what it sounds like: if you have a physical presence in a state, you likely have nexus there. This could mean:
- Having an office, store, or showroom
- Storing inventory in a warehouse
- Employing staff or contractors in that state
- Attending trade shows or events
Even a temporary or part-time presence can create a physical nexus.
2️⃣ Economic Nexus
After the 2018 South Dakota v. Wayfair Supreme Court ruling, states were given the green light to enforce sales tax on businesses without a physical presence, as long as they exceed certain sales thresholds.
This is known as ethe conomic nexus. Most states have set rules like:
- $100,000 or more in sales in the state in a year
- OR 200+ individual transactions in a year
Once you cross that line, the state expects you to collect and remit sales tax, even if you’ve never set foot there.
⚠ Tip: Each state sets its thresholds, so it’s crucial to review where your customers are and how much you’re selling into each state.
What Happens If You Have Nexus?
If you have nexus in a state (physical or economic), you’re responsible for:
✅ Registering with that state’s tax authority
✅ Collecting sales tax at the correct rate (often based on your customer’s location)
✅ Filing sales tax returns on schedule
✅ Remitting the tax you collected
Failing to comply can lead to penalties, interest, and audits, and no business owner wants that kind of headache.
What Should You Do Next?
📌 Review your sales data: Check where you’re making sales and how much.
📌 Compare your sales to state nexus thresholds: Each state posts this information, or you can use tools like TaxJar or Avalara.
📌 Register where needed: If you’ve triggered Nexus, act quickly to stay compliant.
📌 Get help: A bookkeeping or tax professional (like my team at Affordable Bookkeeping and Payroll!) can monitor your sales activity and handle sales tax reporting so you stay ahead of the rules.
Need Help?
Sales tax compliance can feel overwhelming, but you don’t have to tackle it alone. If you want help reviewing your nexus obligations or managing sales tax filings, reach out!
📞 Call us at 310-534-5577
📧 Email: contact@abandp.com
