The place to find business sales tax information

— as well as solutions, services and jobs!

Nexus: The Basis For All Sales Tax Discussions

author photo of Jeff Meigs

As my first contribution to the SALES TAX NEXUS blog, I thought I would start with some basic sales tax nexus concepts.  I don’t plan to provide an in-depth legal analysis of these concepts but rather a more practical, business perspective.

First of all, sales tax nexus is the basis for all sales tax discussions.  Without sales tax nexus, a business has no further concern from a sales tax perspective.  In this context, in its simplest definition, nexus is a physical connection between a state and a business that enables a state to subject that business to its sales tax laws.  The connection has to be “substantial” and that’s where the problem arises.  “Substantial” is generally left to interpretation and is rarely clearly defined.

There are a few unique situations where the rules are black and white.  For example, Michigan references two days of solicitation over a twelve month period as substantial enough for them to apply their sales tax laws to a business.  Other states, like California, have specific statutes outlined for trade show activity.  In the case of California, it’s 16 days of trade show attendance/exhibition before a business reaches the sales tax nexus threshold (so long as you have less than $100,000 in sales attributed to the trade show activities).

A common mistake made in defining whether a business has substantial presence or not for sale tax purposes is the application of income tax nexus rules to sales tax nexus.  The rules are somewhat different.  Sales tax nexus can exist without income tax nexus but not vice versa.  The threshold for sales tax nexus is lower than that of income tax nexus.  A key contributor to sales tax nexus is the act of solicitation.  The Michigan and California examples above relate to solicitation.  As another example, solicitation could be in the form of a Georgia based/resident sales rep for a North Carolina based company who travels into Florida in the pursuit of new sales.  Depending on the frequency and duration of the visits to Florida, these activities could trigger Florida sales tax nexus for the North Carolina based company even in the absence of any other connection to Florida.  These simple solicitation activities are not likely to meet the income tax nexus threshold but, depending on the state and frequency will likely lead to sales tax nexus.

A business is best advised to clearly understand their sales tax nexus footprint and what activities could cause that footprint to expand in the future.  Due to the interpretative nature of sales tax nexus, it’s often advisable for a small or mid-sized business to seek professional advice.  With a firm grasp on sales tax nexus, a business can then determine their compliance strategies in terms of collecting and remitting sales tax.

In future blog entries, I’ll take a closer look at some of the sales tax nexus related laws that are currently being debated including click-through and affiliate nexus – both of which have application to e-commerce transactions.

Note: Jeff Meigs is no longer accepting new comments nor questions. Use the Site's SEARCH bar to locate other helpful information.

Other recent “Sales Tax Nexus” posts by Jeff Meigs:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.

Comments

8 Responses to Nexus: The Basis For All Sales Tax Discussions

  • Posted by Cindy on March 26, 2014 5:35am:

    Does anyone know what exemption documentation that is needed to avoid nexus with the state of California? Is a sales tax exemption certificate enough or is more needed?

    • Posted by Author photo of Susan JaegerSusan Jaeger on December 5, 2014 7:12am:

      Cindy - apologies for the slow response. Unfortunately the comment feature for this blogger is no longer active. You may want to consider several other active blog categories which are a good fit for your question:
      Andy Johnson and Michael Fleming of Peisner Johnson & Company have just taken over our Exemption Certificate Mgmt blog. If you would like to post an Exemptions Certificate related question – feel free to submit through the comment section in the newest/latest post(s) listed on this linked page.
      http://www.salestaxsupport.com/blogs/sales-use-tax/author/mikefleming/
      Alternately, we also have the following:
      CALIFORNIA STATE blog hosted by Monika Miles See - http://www.salestaxsupport.com/blogs/state/california-ca/
      SALES TAX NEXUS blog hosted by Jerry Donnini of Moffa, Gainor & Sutton - See http://www.salestaxsupport.com/blogs/sales-use-tax/author/jerrydonnini/
      And finally - Don't forget to review the very helpful NEXUS & OVERVIEW section (with content provided by leading tax publisher CCH) - which explains that issue on a state-by-state basis. See http://www.salestaxsupport.com/sales-tax-information/states-sales-tax-by-state/CA-California/tax-nexus
      Thanks!
      SalesTaxSupport.com

  • Posted by Penny on April 3, 2013 5:11am:

    Solid Information on Sales and Income tax nexus. Looking forward to hearing more on these topics. How does "doing business within a state" as an out-of-state retailer relate to Nexus?

    • Posted by Author photo of Jeff MeigsJeff Meigs on April 4, 2013 12:48am:

      It’s hard to describe the potential relationship without having context of a specific state or a specific example. As a hypothetical example, I can have a business based in Texas and fly through Georgia on a connecting flight to New York. While in Georgia, I may take a call from the Hartsfield Jackson International Airport and while on the call I might convince a company to buy my services. I may be “conducting business” in Georgia, but the sole activity of connecting through the airport in Atlanta may not be significant enough for me to say I have a physical presence in the state for sales tax purposes. So I typically view “doing business” and sales tax nexus as different. If you’d like to be more specific in your question, I might be able to provide you a more appropriate response.

      • Posted by Kathy on February 26, 2014 11:22pm:

        The question concerns sales tax exemption certificates. We are a manufacturer & wholesale distributor - no retail business. We sell Nationally & Internationally mainly North America. Our business is located in Texas. We require all customers to provide a sales tax ID # and sign a tax exemption statement. Are we required to have a tax exemption certificate from each customer for their State or only from our Texas customers?

        • Posted by Author photo of Susan JaegerSusan Jaeger on March 3, 2014 4:57am:

          Kathy - Thanks for your question. Per the response forwarded by Jeff Meigs ..."It depends entirely on your nexus footprint. When you have nexus in a state into which you sell/ship product, you would be required to obtain the necessary exemption documentation for that destination state. If you don’t have nexus anywhere other than Texas, then you would only need to obtain a Texas exemption certificate from only your Texas customers."

  • Posted by AZANE on August 6, 2012 3:49am:

    A nice high-level discussion of sales tax nexus. I look forward to your next article, Jeff !

  • Posted by Dave on July 30, 2012 11:39pm:

    Jeff, good information on a complex topic. Post more!

Disclaimer:

Access to any portion of SalesTaxSupport.com is contingent upon your acceptance of our Terms of Use. This Web Site and content provided by STS Publishing, LLC and its third party content providers, including, but not limited to information, documents, forms, comments, advice and opinions, is for informational purposes only, and is not a substitute for professional advice, nor does the use of this Web Site constitute a professional-client relationship. The Web-Site also includes advertisements, directory listings, job postings and links to third party web sites, all of which are provided for your convenience only and in no way constitute a referral, endorsement, or warranty by SalesTaxSupport.com of any product or service provided by such third parties. All content is provided “as is” with no guarantee regarding accuracy, suitability, or timeliness. Your reliance on any content accessed on or through the Web Site, or on any product or service provider is strictly at your own risk.