What is sales tax nexus?
The word “nexus” originates from Latin, meaning to bind, join, or tie. Since ancient Roman times, it has evolved to signify “a connected series or group.” Sounds friendly, right?
However, for online sellers, the term “sales tax nexus” can be daunting. It binds your energy, makes you facepalm, and ties you to spreadsheets and tax tables as you navigate sales tax compliance.
If you’re baffled by the concept of sales tax nexus, we’re here to help.
Define: nexus
Sales tax nexus occurs when your business has a connection to a state. Each state defines nexus differently, but generally, it involves either a physical presence or an economic connection. You are only required to charge sales tax in states where you have nexus.
Activities that create sales tax nexus include:
- Maintaining an office, store, or other physical location in a state (including a home office)
- Employing staff, salespeople, contractors, etc., in a state
- Owning a warehouse or storage facility in a state
- Storing inventory in a state, such as in Amazon FBA warehouses or third-party fulfillment centers
- Having third-party affiliates in a state
- Temporarily conducting business in a state for a limited period, such as at a trade show or craft fair
- Economic nexus: Making a certain amount of sales in a state (either a specific dollar amount or number of transactions)
If you suspect you may have sales tax nexus in a state, you should contact that state’s taxing authority to determine your obligations regarding sales tax.
What happens if I have sales tax nexus?
If your business has sales tax nexus in a state, you are required to collect sales tax from buyers in that state.
This involves determining the applicable sales tax rate in that state, including any local sales taxes. For example, currently, the sales tax rate in Beverly Hills (90210) is 9%. This includes a California state rate of 6.5%, a Los Angeles County rate of 1%, and a district rate of 1.5%.
Sales tax rates can vary significantly between different localities. To find your specific sales tax rate, consult your state’s taxing authority or use tools like our Sales Tax Calculator.
Origin-based sales tax states are straightforward. If your business operates in an origin-based state, you charge all customers the sales tax rate applicable at your business location, where your office, warehouse, or inventory is based.
Destination-based sales tax states are more complex. In these states, if you have sales tax nexus, you must calculate and charge the sales tax rate based on where your buyer is located. This often means applying multiple sales tax rates within the same state.
Additionally, some states differentiate between having nexus due to your physical presence (home state nexus) and being considered a “remote seller.”
While many online sales platforms assist with calculating sales tax, it remains your responsibility to ensure accurate tax charges.
For further insights, explore the Startxpress Help Center and Blog. If you have questions or need support, reach out anytime at support@startxpress.io!
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