In simple terms, nexus means “a connection.” It’s the connection you have with where you do business.That might be where you sell, where you have salespeople, where you source materials… More specifically, it’s what triggers your obligation to pay transactional tax in a given jurisdiction. And it’s rarely simple. There are MANY ways nexus can be triggered, some obvious and some you’d never guess, and what creates nexus varies depending on the jurisdiction.
Almost every business has some kind of tax obligation, whether it be sales tax, seller’s use tax, or an exemption certificate to prove a transaction was exempt from sales tax. You’re likely already paying taxes in your state and local jurisdictions as a result of business location. But what happens when you sell into another state? Do you have to collect sales tax? How much? Who do you remit to?
Each state determines their own unique nexus rules and each jurisdiction determines their own rates. Determining how those rules apply to a business is critical and complex. Once you know where you have nexus, you are required to calculate, collect, report and remit that tax each and every time you make a transaction in that jurisdiction…for each and every jurisdiction.
You already know that you have to remit sales tax where your business is actually located (because the fact that you’re there gives you nexus). But there are several reasons why nexus would be triggered outside of your physical location:
1.The business has stores in multiple states or has employees who work in other states. In this case, you will more than likely have sales tax obligations in each location.
2. You sell online. Many states have already passed online sales tax legislation, which requires you to collect sales tax if you do business in that state.
3. You’re part of a supply chain. Businesses who are part of a supply chain may have a single physical location, but could be sourcing products or raw materials from vendors in other states and/or other countries that they don’t sell into. For instance, if your physical location is in Illinois and you sell into Michigan, but you source materials from Georgia, you may have nexus in Georgia.
These are only 3 of MANY scenariosnexus might be triggered for your business.And the truth is, that’s just barely touching the tip of the iceberg when it comes to sales tax compliance. Outside of nexus there’s a myriad of other reasons why you still have transactional tax obligations, even if you don’t owe sales tax.
So what’s the first step in achieving compliance? Join Avalara, trusted tax partner of e2b teknologies, for a live webinar that’s all about tax obligations, what you didn’t know, and what you might think you owe.
The Game of Nexus – Know Where You Owe
June 12, 2014
1:00pm EST / 10:00am PST