What is nexus?
A business is required to collect and pay taxes in a state where it has nexus. Nexus is created when your business has a sufficient connection to a state, allowing it to require you to collect and remit taxes. Physical presence will always create nexus, so if your business has any of the following in a certain state, you will likely to have nexus there:
- Office, warehouse, showroom
- Employees or representatives
- Inventory stored at a third party warehouse such as Amazon’s
- In-state affiliate
- Temporary physical business activity such as a trade show
Economic nexus
Businesses can also have an economic nexus. Since the Supreme Court’s decision in South Dakota v. Wayfair, generating a certain amount of revenue or completing a certain number of transactions within a state will create nexus. Each state has its own rules for when economic nexus is triggered depending on the amount of revenue generated or the number of transactions that took place.
This article has an up-to-date list of all the economic nexus requirements by state. Whenever your business reaches the threshold shown in the table, nexus is triggered, and your business may be required to collect and remit taxes in that specific state. As economic nexus rules are constantly changing, it’s worth checking out the article often to make sure your business is compliant.
Do I have to collect taxes in all states I do business in?
It depends on which state we are talking about. States with sales tax requirements will want you to collect and remit taxes if you have physical nexus there or if your activities trigger economic nexus. However, not all states collect state sales tax, such as New Hampshire, Oregon, Montana, Alaska, and Delaware (NOMAD states). You will not be required to collect state taxes in these five states.
Delaware and Oregon have transaction tax for a minute portion of transactions. Alaska has local-level sales tax and economic nexus rules at the local level.
How much tax do I need to collect?
If you are using our tax determination software, Global Tax Determination, you don’t need to worry about tax rates because Sovos will calculate the taxes on all of your transactions. However, if you are a Sovos Filing-only customer, click here for the most up-to-date tax rates by state.