What is Sales Tax ‘Nexus’?

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Author: Chris O’Shea, Meridian Global Services

The imposition of sales tax is triggered by ‘Nexus’ (or physical presence) on the retail sale to the end-user or consumer.

Nexus ultimately determines if a seller is obliged to collect sales tax in a particular jurisdiction. For Nexus to occur, a substantial physical presence is required. Examples of physical presence are bricks and mortar such as an office, warehouse or store. Other examples are storing tangible personal property such as inventory, product or stock.

 

Although the definition of Nexus varies by state, employees, agents, sales people, independent contractors or other representatives are considered physical presence. In some states, an employee in that state for just one day constitutes Nexus. In others it can be two to three employees.

 

US Nexus Sales Tax Laws

 

Sellers, whether bricks and mortar or online must charge, collect and remit sales tax on all sales delivered into any state in which they have established Nexus. For all other states where sellers do not have physical presence or Nexus they do not need to charge sales tax. A sales tax registration number is the first step in the sales tax collection and remittance process. A seller cannot charge or collect tax without this number.

 

US Sales tax compliance is a time-sensitive function with state and local mandated filing requirements and deadlines. The tax needs to be reported and remitted to the proper state or local jurisdiction at the right time.

 

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