For sales tax, think of nexus as connections between businesses and states that determine where, when and why sales taxes need to be collected.
Nexus is used by 48 states and, in most instances, it can be established if the business has:
a physical location in the state,
employees living and/or working in the state,
property or inventory in the state,
customers in the state,
rewards for click-through referrals,
affiliates with nexus within the state and
met the minimum revenue level to begin collecting sales tax.
That sounds pretty straightforward. Unfortunately, like anything sales tax, it’s not. The complexity of nexus is created in two ways:
Sales tax is governed by each state separately with local rates assessed on top of state fees, creating thousands of different tax rates for businesses to understand that are also constantly evolving, and
In today’s technology-heavy and complex economic world, there are many different types of nexus for each business to adhere to when determining sales tax requirements.
Much of the added focus on sales tax nexus stems from a June 2018 Supreme Court ruling in the case of S. Dakota v. Wayfair, where the court determined that states have the right to collect sales tax from online transactions based on sales or transaction volume, not physical location, referred to as economic nexus. The majority of states enforce economic nexus.
Do you have nexus?
We can help you understand where you’re required to pay sales tax due to economic nexus with our Nexus Tracker.