Sales tax nexus means business presence in the state requiring company to register, collect and remit sales tax. Factors determining sales tax nexus are different from income tax nexus and vary by state. Most common factors are physical location, resident employees and property in the state. Such factors as gross receipts, traveling salesman or technicians, subcontractors and affiliates in the states may trigger nexus as well.

Many businesses do not understand the danger of nexus and simply ignore or undermine the risks involved. States are always looking for more revenue and search for non-compliant businesses via reviewing income tax returns, secretary of state documents (e.g. certificates of authority) , county and city documents (e.g. property and DBA records), sending our questionnaires, expecting trucks at weight stations, etc.

Once non-complier is discovered state would often assess sales tax on all sales for the past years plus penalties and interest. For example, if you sold just $100,000 worth of product and average tax rate is 7% you would owe around $10,000 of tax, penalty and interest to the state of the money you never charged or collected from a customer. Now what if you had $10 million worth of product sold…

If you find this a bit disturbing it may now be a time to review your risks state by state and take proactive steps to eliminate them. We can help with identifying nexus creating activities and determine whether you are responsible to collect tax in particular jurisdiction. Then we will advise on some careful step you company should take to address prior periods uncollected and how to become compliant without triggering a lot of attention from the state.

You can request our sales tax nexus checklist here

Please also see articles: Nexus. What States Do to Find You.

Navigating Nexus for Multistate Businesses.

Nexus: It's all about Physical Presence. Or is it?