Sales Tax Nexus

What is sales tax nexus?
Sales tax nexus occurs when your business has some kind of connection to a state. All states have a slightly different definition of nexus, but most of the time states consider that a “physical presence” or “economic connection” creates nexus.

Physical presence can mean a number of things, including:

  • Having an office
  • Having an employee
  • Having a warehouse
  • Having an affiliate
  • Storing inventory
  • Economic nexus – Making a certain amount of sales in a state (either a certain dollar amount or a certain number of transactions)
  • Temporarily doing physical business in a state for a limited amount of time, such as at a trade show or craft fair

What happens if I have sales tax nexus?
If you have sales tax nexus in a state, then you must collect sales tax from buyers in that state.

This means you must determine the sales tax rate in that state, plus any local sales tax that might apply. For example, the sales tax rate in Beverly Hills (90210) is 9%. That includes a California state rate of 6.5%, plus a Los Angeles County rate of 1% and a district rate of 1.5%.

Understading Location based taxes:
Origin-based sales tax states are fairly simple. If you are based in an origin-based state, you charge the amount of state and local sales tax effective at your business’ location to everyone who you ship taxable items to in that state. So your location would be your office, warehouse, place where your inventory is stored, etc.

Destination-based sales tax states are trickier. If you have sales tax nexus in a destination-based state, you must calculate the sales tax rate effective where your buyer is located. This means you would charge multiple sales tax rates within a state.

Not to mention, some states are different based on whether you live there (home state nexus) or you are considered a “remote seller.”


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