What is nexus?

Sales tax nexus is when your business business has a connection to a state that obligates you to collect sales tax within that jurisdiction. There are generally two ways that nexus can be established. Typically, a physical presence (i.e. an employee, a warehouse, a storefront) or a significant economic presence. If you meet the requirements for either of these types of nexus in a state, then you are obligated to register for a sales tax license in that state and begin collecting and remitting sales tax.

Activities that could establish a physical sales tax nexus include:

- Employing workers, including yourself, whether they're employees, sales representatives, or contractors, within the state.

- Operating any form of business premises within the state, such as an office, retail space, or even a home office.

- Ownership or rental of storage spaces like warehouses within the state.

- Holding inventory within the state, including goods in third-party fulfillment centers like Amazon FBA warehouses.

- Engaging third-party affiliates who promote your products in exchange for a commission within the state.

Activities that could establish economic nexus include:

- Reaching a specific threshold of sales within the state, which could be defined by either the amount of revenue or the number of transactions, known as economic nexus.

If there's any possibility your business activities might have created a sales tax nexus in any state, it's advisable to consult with that state's tax authority. This step will help you verify your nexus status and understand your obligations regarding sales tax collection in that jurisdiction.

What to do if nexus is established?

If you have nexus in a state, you must collect sales tax from your customers in that state. For help on how to register, you can refer to our various state registration guides.

Once you register in that state, you can begin collecting and remitting sales tax when you ship to those states. If you are a Shopify user, here are our guides on how to turn on sales tax calculations for a new state.

We are adding more content all the time, so if we don’t yet have a state registration guide for your state and you’d like to request it, please shoot us an email at support@breezyfile.com.