The Basics of Nexus Rules
Economic Nexus
Thresholds
Each state sets its own thresholds for economic nexus, typically a combination of:
- Sales amount: This could be anywhere from $50,000 to $500,000 in annual sales within the state.
- Number of transactions: Some states also have a minimum number of transactions, ranging from 100 to 200 sales per year.
- Some states consider a combination of both sales amount and transaction count.
Exempt Sales
Be aware that some states may include exempt sales (like certain food items or services) towards your economic nexus threshold.
Click-through Nexus
A few states have “click-through nexus” laws. This means that if you have an affiliate in the state that directs customers to your website and facilitates sales, you might have economic nexus even without exceeding the sales/transaction thresholds.
Affiliate Nexus
Physical Presence
If your business has an affiliate with a physical presence in a state (like a warehouse, store, or even an employee), you may be subject to sales tax collection requirements even if you don’t have your own physical presence in that state.
Tax Types
While economic nexus primarily applies to sales tax, affiliate nexus can also trigger obligations for other taxes a state imposes, like income tax.
Additional Considerations
Registration
Once you have economic nexus in a state, you’ll need to register with the state’s Department of Revenue and start collecting and remitting sales tax.
Retroactive Liability
Some states may have a look-back period, meaning you might be liable for uncollected sales tax for past sales if you exceeded the thresholds.
Complexity
Nexus rules can be complex and vary significantly from state to state. Consulting a tax professional or using software specifically designed for sales tax compliance can be helpful.
Resources & More Information
Nexus Accountant by State Guide: This guide offers a more in-depth explanation of economic nexus with state-specific details.
