Getting sales tax compliance right is important. The first step is understanding where your business has nexus, or where you need to collect and remit sales and use tax. Nexus is ever-changing and it can be confusing for even savvy professionals.
Once your business has nexus with a state or local jurisdiction such as a county or city, you must adhere to that taxing authority’s rules including collecting and remitting sales and use tax on products and services you sell. Use tax responsibilities come into play when taxable products or services are purchased without sales tax. The buyer must pay use tax to the jurisdiction where the item is used or stored. Read our 5 steps to managing sales tax guide to better understand your sales tax obligations and how to stay compliant.
Unfortunately, you can’t just figure out where you have nexus today and forget about it — you have to closely monitor changes to nexus. Many activities can trigger new tax collection obligations for your business, especially now that every state has passed laws targeting remote sales and use tax revenue and online marketplace sales.
It’s been a while since the 2018 U.S. Supreme Court decision, South Dakota v. Wayfair, Inc., led to economic nexus laws in every state with sales tax. Many companies still have a lot to understand about nexus and how it’s established from state to state. According to a 2023 survey by Censuswide, about 55% of respondents can explain all their online sales tax obligations to someone outside their organization. More than 71% of respondents agree or strongly agree that online sales tax requirements including economic nexus and marketplace facilitator laws are complex and confusing.
This guide mainly focuses on U.S. sales and use tax nexus. But a business may also have excise tax nexus or income tax nexus. The factors that trigger these obligations are different. For example, a company can have an obligation to collect and remit sales tax in a state where it has no income tax liability. Confounding, but true. And while sales tax is typically paid directly by consumers, excise tax is generally paid by businesses on sales and sales-related activities on certain products like alcohol, gas, or tobacco. Like sales tax, compliance rules for excise nexus can vary by state.
We know understanding nexus can be tough, which is why we’ve developed this quick reference to help. Throughout this guide we outline what nexus is, what may trigger nexus, and how to keep up with your nexus obligations.