Online or off, you’re going to need to charge consumers for your goods with sales tax in mind. That said, each state’s sales tax nexus is different.
What Is a Sales Tax Nexus?
A sales nexus, in general, is defined as the legal connection between a merchant and the state in which they operate. This connection requires the merchant to apply for a license to register their business with the state and to then collect and pay back sales taxes on the income they generate. It’s worth mentioning that the amount of sales tax your business is required to collect can be impacted by county or district sales taxes as well, and that complying with these is an important part of meeting sales tax nexus guidelines.
To make things more complicated, changing legal and economic conditions has prompted states to develop new ways of measure sales tax nexus viability, and some states now define their nexus as an ‘economic’ nexus, based on transaction and sales volume, regardless of physical presence in the state. While legal jargon isn’t easy for anyone to parse, you’ll still need to work within the guidelines provided to you by your state to determine whether or not you need to be paying sales taxes, and whether or not you can currently, legally sell goods, subscriptions, or other professional services in a given state.
Sales Tax Nexus: Economic & Physical
An important consideration here is the relatively recent South Dakota vs. Wayfair Supreme Court ruling, which overturns the 1992 Quill vs. North Dakota decision. While you don’t need to know all of the specifics to do business online, the critical part of the decision is that businesses that have more than 200 transactions or more than $100,000 of sales in a given state are required to collect and remit taxes in those states.
Startup tax considerations can be complicated as is, but this distinction has special significance for companies with a large online presence, with distributed teams, or for anyone who sells anything nationwide. Depending on the state, if your business attends a trade show, has salespeople in state, provides services, stores goods, or has independent contractors in state, may be required to collect and remit sales tax, even if the volume or specifics of your sales might not trigger the nexus otherwise.
Some states abide by state nexus rules, while others rely on their economic nexus to dictate the legalities of a business’s operations for them. By making an effort to understand your state’s sales tax nexus, you do more than ensure your compliance with state and federal legislation.
Changing Sales Tax Nexus Considerations
The Wayfair decision is very recent, and many rules are still in flux, and some states are still adjusting their tax conditions. It’s probably worth your companies’ time to retain the services of a financial planner and expert to make sure you’re staying on top of things -- it’s a lot for anyone to consider.
There are other elements to keep in mind as well, like the Streamlined Sales Use and Tax Agreement, which is a voluntary agreement among some states to make sales tax collection and administration easier, and potential legislative changes to sales tax systems, like the Marketplace Fairness Act and the Remote Transactions Parity Act, which, if passed, will have special significance for online service providers and retailers.
In the meantime, review the list below for a brief rundown of how taxes work in a given state.
Sales Tax Nexus by State
- Alabama – businesses that makes over $100,000 in a year must charge consumers sales taxes
- Arizona – employees, owners,and independent contractors within the state must charge consumers sales taxes.
- Arkansas – businesses will only have to issue sales taxes against consumers if they have an income of over $100,000 in sales or over 200 transactions within the state.
- California – business owners must utilize state sales tax if they have a physical location, employees, affiliates, and/or presence at a trade show
- Colorado – you have to charge sales taxes in Colorado if you have a physical place of business and/or independent contractors or representatives soliciting your business
- Connecticut – you’re within the Connecticut sales tax nexus if you have a physical place of business, in-state employees, a warehouse, delivery management, independent contractors, and compliance with the state’s economic nexus
- Florida – if your own business property, have in-state employees on staff, or provide taxable services (rentals or otherwise) , then you charge sales taxes
- Georgia – if you have a physical place of business, in-state employees, a warehouse, delivery management, independent contractors, and compliance with the state’s economic nexus, you charge sales tax
- Hawaii – vendors who make more than $100,000 annually or who issue over 200 in-state transactions are required to file general excise tax returns within the state
- Idaho – if you have an office, stock of goods, and salespeople on staff, then you operate within Idaho’s sales tax nexus
- Illinois – if you have physical business property, in-state employees, and third party business affiliates, you operate within Illinois’s sales tax nexus
- Indiana – if you have Indiana inventories, tangible property, in-state employees, and operate within the state’s economic nexus, you need to collect sales tax from consumers in Indiana
- Iowa – if you employee a construction contractor, regularly deliver goods to consumers, operate within the state’s economic nexus, or possess physical business property and employees on-staff, you charge sales taxes
- Kansas – if you operate out of a physical space, employ other people, retain goods in a warehouse, attend craft shows, or utilize non-residential contractors, you need to charge sales taxes
- Kentucky – businesses that operate out of a physical, in-state storefront, employ other people, retain goods in a warehouse, or complete services within the state of Kentucky need to charge sales taxes.
- Louisiana – businesses with over $100,000 in sales or more than 200 transactions must charge sales taxes.
- Maine – if you operate a storefront, employ other people, and comply with the state’s economic nexus, you charge sales taxes.
- Maryland – if you operate out of a physical space, employ other people, retain goods in a warehouse, or deliver goods, you charge sales taxes.
- Massachusetts – if you operate out of a physical space, employ other people, retain goods in a warehouse, or deliver goods, you charge sales taxes.
- Michigan – if you “sell tangible personal property to a consumer,” you charge consumers sales taxes.
- Minnesota – if you make over $10,000 in a year while in a commission engagement with a solicitor, or comply with standard business owning operations, you must charge sales taxes.
- Mississippi – you only need to own a storefront and employ other people to charge sales taxes.
- Missouri – if you operate out of a physical space, employ other people, retain goods in a warehouse, or deliver goods, you charge sales taxes.
- Nebraska – if you operate out of a physical space, employ other people, retain goods in a warehouse, or deliver goods, you charge sales taxes.
- Nevada – if you operate out of a physical space, employ other people, retain goods in a warehouse, or deliver goods, you charge sales taxes.
- New Jersey – if you operate out of a physical space, employ other people, retain goods in a warehouse, or deliver goods, you charge sales taxes.
- New Mexico – New Mexico requires some businesses to charge sales taxes based on their population size.
- New York – if you operate out of a physical space, employ other people, retain goods in a warehouse, or deliver goods, you charge sales taxes.
- North Carolina – if you operate out of a physical space, employ other people, retain goods in a warehouse, or deliver goods, you charge sales taxes.
- North Dakota – if you operate out of a physical space, employ other people, retain goods in a warehouse, or deliver goods, you charge sales taxes.
- Ohio – if you make more than $500,000 in sales every year while retaining a physical storefront, you charge sales taxes.
- Oklahoma – you charge Oklahoma sales taxes if you retain a physical business space, employ other people, keep goods in a warehouse, and deliver via taxpayer-funded vehicles.
- Pennsylvania – if you operate out of a physical space, employ other people, retain goods in a warehouse, or deliver goods, you charge sales taxes.
- Rhode Island - if you operate out of a physical space, employ other people, retain goods in a warehouse, or deliver goods, you charge sales taxes.
- South Carolina – if you operate out of a physical space, employ other people, retain goods in a warehouse, or deliver goods, you charge sales taxes.
- South Dakota – businesses with over $100,000 in sales or more than 200 transactions must charge sales taxes.
- Tennessee – if you have corporate presence in Tennessee, along with a physical property and operation within the state’s economic nexus, you must charge consumers sales taxes.
- Texas – Texas’s code Sec. 151.107 describes the individuals who are required to charge consumers sales taxes, listing them as those who are “engaged in business.”
- Utah – businesses with over $100,000 in sales or more than 200 transactions must charge sales taxes.
- Vermont – all business affiliates must operate under the 2018 economic nexus law.
- Virginia – “dealers” must charge sales taxes.
- Washington – any business that makes over $100,000 a year must operate within Washington state’s sale tax nexus. However, as of March 2019, there is no 200 transaction cap placed on businesses operating within this state.
- Washington D.C. - anyone “engaging in business in the District” must charge sales taxes.
- West Virginia – “retailers” must charge sales taxes.
- Wisconsin – businesses with over $100,000 in sales or more than 200 transactions must charge sales taxes.
- Wyoming – “vendors” in Wyoming are expected to operate within the state’s sales tax nexus and to abide by the 2017 economic nexus law.
