Nexus means connection. If you have a connection with a state according to their state rules, you will likely have a sales tax or income tax connection as well. That means you owe tax.
There are a lot of things that can trigger nexus with a state, including, but not limited to:
- Employees in another state
- Putting on a seminar or trade show in another state
- Hosting your website in another state
- Leasing property in another state
- Having your inventory in another state
- Using remote software
If you have nexus and fail to collect sales tax when you make a sale, you are still responsible for the tax. In other words, if you made $100,000 worth of sales and failed to collect the sales tax (say 8%), you have to write a check to the state for $8,000, plus penalties, fines and interest.
As if that isn’t bad enough, we’re starting to hear that some states are considering getting more aggressive at determining trailing nexus. What that means is that if you have done something to trigger nexus in one year, it may mean you have nexus forever with that state.
Currently, 35 states say that if you have done something to trigger nexus, that you will then have nexus for the entire year in that state.
Seminar Promoter Finds Out About Nexus the Hard Way
Traveling and seminars speakers/promoters just go hand in hand. Most seminar guys know that you need to collect sales tax when you sell products in the back of the room. Some try to get around it by just taking orders and then sending later. But, most states are still going to say that means you have to collect and pay sales tax.
And, of course, you’ve got to watch out for income tax nexus. If you make a certain dollar amount of sales when you’re out doing seminars or trade shows, it might cross the threshold and you suddenly need to start paying income tax in that state.
But there is even one more issue, the trailing nexus. For example, if you’ve sold in the back of the room at a seminar in any one of the 35 states that have trailing nexus issues, then you have to collect and pay sales tax on all sales that year. Based on the law as written, that includes sales that had already occurred. The answer here is to plan ahead. If you’re going to have a triggering event in one of these states, then make sure you collect and pay sales tax all year long.
Indiana even says that the nexus continues on year after year, once it is triggered.
The states that do not enforce trailing nexus at all are Mississippi, New Jersey, New York City (but the state does), Texas and Vermont.
Plan ahead for nexus. It’s the only way to avoid some serious tax surprises.