Sales tax nexus refers to the specific connection or presence a business has within a state or jurisdiction, that necessitates collecting and remitting sales tax. Essentially, it represents whether your company has a significant enough presence within a territory that requires tax compliance.
Historically, nexus was straightforward, focusing primarily on physical presence—offices, warehouses, retail outlets, or employees located within a state. However, since the landmark Supreme Court ruling in the case of "South Dakota v. Wayfair, Inc." in 2018, nexus rules expanded significantly. Many states enacted economic nexus rules, basing sales tax obligations on sales volume and transaction count rather than physical presence alone.
Today, even businesses operating solely online must carefully track their sales data. For many retailers, hitting certain revenue or transaction thresholds in a specific state triggers tax nexus. This obligates them to register, collect, and remit sales taxes, impacting their administrative processes and compliance responsibilities.
Determining your sales tax nexus is critical: failure to comply with relevant state tax rules has financial and legal consequences. Businesses are encouraged to regularly audit their nexus status, aligning their tax management practices with current nexus standards.
For detailed guidance, visit the IRS State Government Websites page and check the official state tax pages where you have customers. Additionally, consider consulting professional advice from tax specialists or accounting firms to ensure continuous compliance with evolving nexus standards.
