Sales tax nexus is your business’s economic connection with a particular state or jurisdiction. Before Wayfair vs. South Dakota, businesses typically needed a physical presence in a state to trigger nexus. But there are myriad ways a company can trigger nexus in a state. Knowing what they are can help your company prepare and avoid an audit.
1. Gross Sales Can Trigger Sales Tax Nexus
In many states, your sales or number of transactions trigger sales tax nexus. Typically, a threshold, such as $100,000 in sales or 200 transactions, triggers nexus.
Things can get tricky when you have some customers in a state exempt from paying sales tax, for whatever reason. Some states calculate your sales threshold using gross sales, including exempt sales. Other states use retail sales (without exempt sales) to determine your threshold.
If you have several exempt customers in a state that uses gross sales for its nexus threshold, you may trigger nexus and not even realize it.
2. Remote Employees Can Trigger Sales Tax Nexus
If your company is based in one state and you have at least one employee working from home in another state, that remote employee may be enough to trigger sales tax nexus in that state.
Employees who travel across state lines for work can also trigger nexus, as can independent contractors or affiliates who live in different states.
3. Trade Show and Event Attendance Can Also Trigger Nexus
Trade shows let you spread the word about your store. They can also trigger sale tax nexus.
Some states have stricter rules than others. If your company sends representatives to a trade show in Michigan, even just for a day, that can be enough to establish nexus in that state. You don’t need to make a sale at the show for Nexus to go into effect!
4. Affiliate Ads Can Trigger Nexus
Affiliate marketing is a cost-effective way to market your online store. It’s also a way to establish nexus in some states.
If you work with an affiliate who resides in a different state, and that affiliate successfully refers customers to you through links on their site, that connection can mean your company is on the hook for sales tax in that state.
5. Fulfillment Centers Can Trigger Nexus
Fulfillment centers reduce some of the headaches involved in keeping inventory and shipping products to customers. They can also (you guessed it) establish sales tax nexus in certain states.
Your company can owe sales tax even if you don’t own the warehouse.
The intricacies of Nexus and all its triggers can be enough to make your head spin. TaxCloud ecommerce sales tax software calculates nexus for you and ensures you collect the right sales tax amount from every customer.
Get your free sales tax nexus assessment today and learn about how TaxCloud has you covered.