What Creates Sales Tax Nexus

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Of the two types of nexus: sales tax nexus and income tax nexus, the easiest type of nexus to get (without even meaning to) is sales tax nexus.

If you have a business presence such as a sales office or warehouse, you clearly have nexus because you have a physical presence in that state. This all goes back to a pretty famous court case in our circles: the 1992 Quill Corp case. In this case it was determined that physical presence meant nexus. But if there was no physical presence, there was no nexus.

And for years, that was okay. But, if you’re still relying on that old case, or worse yet, your accountant is and hasn’t talked to you about nexus – you could be in a lot of trouble. That’s because the US Supreme Court and Congress has decided to let each state decide how to determine what nexus means.

Your business could be operating exactly the same in two different states and be required to collect sales tax in one, but not the other.

Here are some general rules to follow to determine if you have nexus. You have sales tax nexus if you:

  • Have real or personal property within a state
  • Have any of your sales force in the state
  • Have employees in the state
  • Have inventory in a state, or
  • Make a sale directly in a state

Additionally, some states like Michigan have determined you have nexus in the state if you spend just one day in the state doing some kind of business. Other states like New York, Rhode Island and North Carolina say you’ve got nexus if you have an affiliate who gets a referral fee in their state. Look for more states to jump on this band wagon too.

If you haven’t yet had the nexus conversation with your CPA, don’t wait! Just because you don’t collect the sales tax, doesn’t mean you don’t owe it.


We’re featuring the State Nexus Handbook this week on USTaxAid

We are in the process of adding more information on the new Economic Nexus tests that more and more states are adding. When you purchase the State Nexus Handbook for just $97, you’ll get an alert when the new update is ready and a time sensitive offer to get the new update FOR FREE!

The new updated Nexus Handbook will be offered for sale for $129, and will feature the economic nexus changes. It is designed to be sold as a companion to the State Nexus Handbook.

So, when you go to the State Nexus Handbook and buy now for just $97, you’ll get the $129 update for no extra cost.

One Comment

  1. Howard Cohen says:

    hello. i was wondering if I can ask a tax nexus question. If we plan to sell online a referral certificate that can be used in an other state for the services of an independent contractor would that create a sales tax nexus for us if all we are selling is our assessment and recommendation to a customer online so that they can hook up withn their choice of independent contractor.

    Thank you in advance
    Howard Cohen

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