In the business world, it’s important to understand the tax laws of the states in which you do business. You don’t want to be surprised by new laws and end up incurring unexpected costs. If you operate a business in the United States, you should be familiar with the concept of the sales tax nexus and sales tax exemption guide.
To make it simple, the sales tax nexus is the connection a business has to a state that triggers the requirement to collect and remit sales tax. In this blog post, we’re about to dive into what sales tax nexus is and how your business can be exempt from it.
First things first, let’s define what sales tax nexus is. In short, the sales tax nexus is the connection between a business and a state that requires the business to collect and remit sales tax on behalf of its customers.
It is a term used to describe the connection between a business and a state or states in which the business has established certain taxable activities. Nexus is created when the degree of activity rises to a level that establishes a certain level of connection with the taxing authority.
To be considered taxable, a business must have a significant presence in the state. Sales tax nexus is determined by whether or not a business has a “substantial economic presence” in a state. This includes factors such as:
- Are you making sales in the state?
- Do you have employees or property in the state?
- Do you have an office or warehouse in the state?
- Are you using independent contractors in the state?
- Do you have sales representatives in the state?
If your business meets any of these criteria, it’s likely that you have sales tax nexus in that state.
There are two types of nexus:
- Physical nexus: This is established when a business has a physical presence in a state, such as a store, office, or warehouse.
- Nexus by solicitation: This is created when a business solicits sales in a state without having a physical presence there. This includes activities such as advertising, telemarketing, and shipping goods into the state.
Now that we’ve defined what sales tax nexus is, let’s take a look at some of the exemptions from it; these include:
- Out-of-state businesses that don’t have any physical presence in the state: If your business is based in another state and doesn’t have any physical presence in the state, you are exempt from sales tax nexus.
- Businesses with less than $10,000 in annual sales in the state: If your business doesn’t have a significant presence in the state, you are exempt from sales tax nexus.
- Sales of tangible personal property that is shipped or delivered into the state: If you sell goods to customers in a state and those goods are shipped or delivered to the customer within that state, you are exempt from sales tax nexus.
- Sales of goods that are considered to be used for personal use (e.g. clothing, food, art, etc.)
- Sales of goods that are considered to be used for resale (e.g. equipment, inventory, etc.).
- Sales of goods that are considered to be used for manufacturing or research and development.
- Services that are considered to be performed outside of the state.
- Sales of digital goods and services.
- Transactions that are considered to be interstate commerce.
How to Stay Up-To-Date on Changes to Sales Tax Nexus Laws
The best way to stay up-to-date on changes to sales tax nexus laws is to subscribe to an online service that will notify you of any changes. Alternatively, you can contact your state’s Department of Revenue or Taxation and ask about the latest laws that are in effect.
How Sales Tax Nexus Services Help Your Business
Sales Tax Nexus Services can help your business stay compliant with sales tax nexus laws and regulations by providing you with a comprehensive list of activities that create nexus in each state. So, don’t wait until you get audited to find out that you have sales tax nexus in a state – use a Sales Tax Nexus Service to make sure that you’re always in compliance.
Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide, tax, legal or financial advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.