There is no federal sales tax in the United States. Sales and use taxes are imposed by states and, in many places, by cities, counties and special districts. That means a business selling to customers in several states may have different obligations in each one. The word you will hear for the connection that creates those obligations is nexus.

What nexus means

Nexus is the level of connection with a state that allows the state to require a business to register, collect and remit its sales tax. Each state defines it in its own law and guidance. Historically nexus was mostly about physical presence, such as an office, warehouse, employees or inventory in the state. Today most states also apply rules based on the volume of sales into the state, often called economic nexus. The thresholds and the details differ by state and change over time.

Because the rules belong to each state, the authoritative source is always the state revenue agency. Our state guides quote and link each state's official site, for example the Texas page links to the Comptroller's sales tax permit information.

Activities that commonly raise the question

  • Opening an office, store or warehouse in a new state
  • Hiring an employee who works from another state
  • Storing inventory at a third-party fulfilment centre
  • Selling a growing volume online to customers in a state
  • Sending staff to install or service products on site

None of these automatically creates an obligation everywhere, but each is a reason to check the rules in that state.

Marketplaces

Many states require large online marketplaces to collect and remit sales tax on sales made through them. Sales through your own website may still be your responsibility. Record marketplace sales and your own-store sales separately so you can see both.

Records that help you assess nexus

  • Sales by destination state, by month, split by channel
  • Locations of employees, contractors and inventory
  • Dates you started activities in each state
  • Exemption certificates collected from customers who buy for resale or are exempt

Good bookkeeping makes this a report rather than a research project. Keep sales tax collected out of revenue, as a liability by state, and reconcile it to returns.

What happens if you register

Once registered, a state will assign a filing frequency and you will file returns and remit tax collected. Registering also means keeping records the state can audit. The SBA's pay taxes guide reminds owners that federal, state and local tax obligations all need to be handled, including final returns for income tax and sales tax when a business closes.

Key terms

  • Use tax: a tax on taxable items used in a state when sales tax was not charged at purchase.
  • Economic nexus: a connection with a state based on sales volume or transactions rather than physical presence.
  • Marketplace facilitator: a platform that collects and remits sales tax on behalf of sellers for sales made through it, where a state requires it.
  • Resale certificate: a document a buyer gives a seller to purchase goods for resale without paying sales tax.
  • Filing frequency: how often a state requires you to file returns, which it usually assigns when you register.

Getting advice

Nexus decisions can have years of consequences, so it is worth getting advice from a sales tax professional when you start selling into new states. Our role is to keep the records that make that review quick. See our tax services and ecommerce bookkeeping.