Selling on the Internet? Beware of Nexus

This post is in: Business

If you’re selling on the Internet and through mail order, the one big issue that you’re going to have to deal with in the coming months will be nexus.

Nexus means connection. If you have certain types of connection to a state, you have nexus. If you have nexus in that state, you may be responsible for collecting and paying sales tax and even paying state income tax in that state.

Okay, so let’s break it down. What does it take to have nexus? I wish I could give you an easy answer, but when it comes to sales tax nexus information, there are 50 different versions. Or at least it seems like it. For the most part, states require some kind of physical presence inside their state to have nexus. That would mean that there is an office, fulfillment or employees inside that state. But some states are creating new rules.

For example, most states say if you work for a few days or weeks, you don’t have nexus. So, if you fly to Chicago to do a two day seminar, you don’t have nexus. Texas and Hawaii are very aggressive, though, claiming you have nexus if you work just one day in the state.

California is another aggressive state, with new rules stating that if an owner lives in the state, there are any independent contractors in the state or if 25% of all sales or more are made in the state, that California has nexus.

Once you have nexus, you’re responsible for sales tax and possibly income tax for that state. Sales tax adds another wrinkle because what’s taxable in one state is not taxable in another. Don’t assume that you know the laws. It will take some research each time you add nexus to another state.

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