Do you have a sales tax nexus?
"Nexus" refers to having a significant presence in a state that requires your business to collect and pay sales tax. Understanding your nexus is essential for staying compliant and avoiding potentially costly penalties.
How You Might Create Nexus:
- Physical location: Having an office, store or warehouse in a state creates nexus. For example, if your business operates a retail shop in Illinois you must collect Illinois sales tax.
- Employees or contractors: Employing staff or hiring contractors who work in a state can trigger nexus. For instance, having a remote employee in California means you likely have nexus there.
- Economic nexus: Even without a physical presence, selling above a certain threshold (often $100,000 in sales or 200 transactions annually) into a state creates nexus. South Dakota’s standard upheld by the Supreme Court has been adopted by many states.
What To Do If You Have Nexus:
- Register for a sales tax permit: Visit the state’s department of revenue website and apply before collecting sales tax.
- Collect and remit sales tax: Start charging sales tax on taxable transactions and remit it according to the state’s filing schedule.
- File sales tax returns: Keep up with monthly, quarterly or annual filings depending on your sales volume.
Examples of Nexus Thresholds:
- Wisconsin: $100,000 in annual sales or 200 transactions
- Texas: $500,000 in annual sales
- New York: $500,000 in sales and 100 transactions
- Florida: $100,000 in annual remote sales
Final Thought:
Identifying where your business has nexus and complying with sales tax laws helps protect your company from audits, fines and legal issues. Check each state’s department of revenue website or use trusted tax software to find current thresholds. When in doubt, consult a tax professional.
