If you run your own business in the U.S., you must have heard about the term “sales tax nexus” quite frequently.
While the term sales tax nexus has many variations including the simple moniker of “nexus”, all of it simply refers to a business’ connection to a jurisdiction. This determines a business’ affiliation to sales tax laws and how they apply to its everyday services.
Let’s find out more about how this concept works and applies to businesses today.
What is a Sales Tax Nexus?
At its core, a “nexus” refers to a connection between two or more entities. In tax terminology, the term determines a business’ main tax presence within a state.
Determining a nexus is important for local governments, since they cannot impose sales taxes without determining this crucial factor.
At the same time, identifying a nexus is also important for businesses, since it defines their overall approach in calculating sales taxes in compliance with local laws.
How Do You Identify Your Sales Tax Nexus?
Sales tax nexus is determined through more than one factor. Different U.S. states have variable laws to identify sales tax nexus, which makes it difficult to follow a blanket approach to determine this connection.
However, some factors such as business’ physical presence and its degree of operations in a state play a major role in most cases.
Until June 2018, sales tax nexus was heavily dependent on physical presence. However, according to a Supreme Court ruling in South Dakota vs. Wayfair, it was determined that states could have online sellers collect sales taxes on their behalf.
Since then, the main aspects that can determine sales tax nexus include but are not limited to:
- A business’ physical location in a certain state.
- A business’ employee operations in a specific region.
- A business’ revenue and transactions in a particular area.
How Can You Identify Your Sales Tax Nexus?
Nexus identification is easy for businesses with a brick-and-mortar presence within a single city or state. Since they sell their products or services within a single area, their nexus is simply determined by their base of operations.
But determining a nexus is seemingly more difficult for online businesses, which often sell their products and services across the country. Since they serve customers across multiple locations, it is often confusing for them to determine how to calculate their tax laws.
In order to determine your sales tax nexus, the best approach to follow is to refer to state tax laws. Since each U.S. state has its own sales tax outlines, specific and applicable guidelines can only be found through specific resources. This provides you with up to date information on collecting sales tax in states where you offer your services.
Why Is It Important to Get Your Sales Tax Nexus Information?
Determining your sales tax nexus and paying proper taxes is highly crucial in order to run a clean business operation that’s free of any fraudulent or ethically questionable activities. If you evade this important requirement, your business can come under fire by local authorities.
This is why, it is important that you never fall behind on your sales tax calculation. If you need any further information on how to calculate your sales tax nexus or how to follow specific guidelines, don’t hesitate from reaching out to a professional for consultation.