How to tell if you have sales tax nexus in another state?

This is the fourth in a series titled Ask My Accountant, where Baldwin CPAs Elevate team is breaking down your top questions. Follow the series to get answers to your key questions. If you have a question that you would like answered, leave it in a comment below!

Sales tax nexus is the connection your business has with a state that can require you to register, collect, and remit that state’s sale tax. You can have nexus in a state even if your business has no office, employees, or physical location there.

The key to determine whether your business has crossed the state’s economic or physical presence threshold, and whether your products or services are taxable there.

There are 5 ways to tell if you have sales tax nexus

1. You sell to the customers in the state (economic nexus)
   Many states require out-of-state sellers to collect sales tax once their sales into the state exceed a specified threshold. Common thresholds are $100,000 in sales, although rules differ.
2. You have a physical presence in the state
   This can include:
   An office, store, warehouse, or other business location. Inventory stored in a third-party fulfillment center. Employees or sales representatives working in the state. In-person sales, installations, repairs, or other business activities. Physical presence can create nexus even when sales are below the state's economic threshold. 
3. You use affiliates or representatives in the state
   Certain relationships with in-state businesses, contractors, referral partners, or other representatives may create nexus under affiliate or click-through nexus laws.
4. You sell through marketplaces or multiple channels
   Selling through Amazon, Etsy, Walmart Marketplace, or your own website can affect your analysis. Marketplaces often collect tax on marketplace-facilitated sales, but marketplace collection does not automatically eliminate your nexus or registration obligations.
5. You have other taxable business activities there
   Depending on state law, activities such as leasing tangible property, providing taxable services, or conducting certain installations or repair work may trigger obligations.
   Sales tax nexus is different from income tax nexus. Having nexus for one tax does not automatically mean you have nexus for the other.

This article was written by Tamara Henderson. Tamara is a Payroll Specialist II with Baldwin CPAs. For more information on the support Baldwin CPAs can provide you, contact tamara.henderson@baldwincpas.com.