Last Updat: Aug 24, 2015
Do you have a sales tax nexus with other states? What is a sales tax nexus anyway? It’s confusing, but we’ve got help. Here’s what you ne to know to be sure your business is in compliance.

If you want to incite stress, a tension headache, and maybe a bit of anger, strike up a conversation with fellow small business owners about sales tax. For businesses that sell outside of their home state, it’s a giant nightmare that is nearly impossible to navigate without help.

Before you dive into the maze of twist laws and guidelines, you ne to understand the basics.


Today’s word of the day is nexus. Nexus is simply a connection. Once you establish a nexus with another state, you have to es in accordance with that state’s laws. The bad news: If you establish a nexus with all 50 states, you have to know the tax laws for each of those states and pay appropriate taxes bas on your business activity in each. Or you have to hire a company to take on the task for you.

In more academic terms, nexus is, “maintaining, occupying, or using permanently or temporarily, directly or indirectly or through a subsidiary, an office, place of distribution, sales or sample room or place, ehouse or storage place or other place of business.” How do you create a nexus?

1. Selling Stuff- If you sell a product or service to a client or customer in the state you are locat in—you have a nexus. Some states have tri to claim that you have nexus if you sell anything at all over the to their residents.

2. Physical Presence- Do you have an office in the state?—nexus.

3. An Employee- Do you have an employee in the state even if they don’t have an office?—nexus.

4. ehouse- Are you storing your goods in the state?—nexus

5. Independent Contractor- It doesn’t matter what you call them. If they’re doing work on behalf of your company—nexus.

6. Drop Shipper- Do you work with another company that ships products for your company from that state?—nexus.

7. Trade Show- Did you go to a trade show in that state and make a sale? (or not make a sale?)—you guess it—nexus.

8. Fulfillment- Do you sell products through and they’re ehous in that state?—nexus.

9. Affiliates- Do you have affiliates whom you’ve never met or don’t even know about who are selling your products on their website bas in another state?—that’s nexus.

The Depressing Truth

If you or anybody connect to your business does any activity in another state, you’ve probably creat a nexus. Because states are generally strapp for cash, they’re looking for any and all sources of income. Because of that, they’re cracking down on businesses that have traditionally made sales in multiple states but never paid sales tax.

The other problem is that these laws aren’t creat at the feral level. These are state-level laws and each state is free to do it however they would like. That doesn’t make for an easy task for any business owner.

Even behemoths like are having trouble with compliance. You don’t have to look too hard to stories of leading the charge against what the company calls “heavy hand” state tax laws. Over the , the company has refus to conduct some business activities in certain states and has gone as high as the U.S. Supreme Court trying to block states from requiring customers to pay sales tax on online purchases. In 2013, the Supreme Court refus to hear an appeal against a New York state law requiring state tax on online sales.

RELAT: Amazon and Nexus

What to Do

As a small business owner, you probably don’t have time to navigate the complicat maze of compliance in each state. First, are you getting enough business from other states to justify the cost of compliance? If your business is primarily online, the answer is probably yes but if you’re selling a handful of product in another state, it might be too early in your growth cycle to justify the cost and hassle.

If it does make sense, there are services that can help. One of the most popular with small business owners is Avalara. The company automates sales tax filing for each affect state. Simply sign up, upld your sales data to its platform, and Avalara will generate your sales tax return forms for each state. Another is a free service call TaxCloud. Both services integrate with a number of popular ecommerce shopping carts, and when integrat will automatically calculate the right tax as well as file your returns and remit moneys ow. At this time (summer 2015) TaxCloud is authoriz to file taxes for its clients in about half of the states in the US, but is working to expand that number.

You can get similar services from bookkeeping and tax preparation business as well as other online sources. You can do it yourself but that will require going to each state’s taxation website, figuring out what constitutes a nexus, and ing and preparing the forms.

Bottom Line

Don’t expect things to get easier. States will continue to look for ways to generate revenue. Laws governing nexus will likely get stricter and more complicat leaving quite the headache for small business owners. Sometimes it’s money well spent to hire somebody to tasks like this for you.

© 2015 Attard s, Inc. All Rights Reserv. May not be reproduc, reprint or ristribut without written permission from Attard s, Inc.


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