Accounting technology / Glossary / Sales tax nexus

What is sales tax nexus?

Definition

Sales tax nexus is the connection between a seller and a US state that obliges the seller to register for, collect and file that state's sales tax. It comes from physical presence, such as staff, offices or stock in the state, or from sales into the state above a threshold, most commonly $100,000 a year.

Also calledeconomic nexustax nexus

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Landmark case: South Dakota v. Wayfair, 2018
Most common threshold: $100,000 of sales a year
Country: United States

How sales tax nexus works

Until 2018 a state could make a seller collect its sales tax only if the seller had a physical presence there. On 21 June 2018 the US Supreme Court's decision in South Dakota v. Wayfair upheld South Dakota's economic nexus law, which covered sellers with more than $100,000 of sales or 200 transactions into the state a year, and states followed with their own rules. Thresholds and what counts toward them differ by state, and several have dropped the transaction count; South Dakota did so from 1 July 2023. A business selling across states has to track sales by state, register once it crosses a threshold and decide which products are taxable where. Avalara, Anrok, Kintsugi, Zamp, Numeral and Sphere monitor exposure and handle registration and filing.

Common questions

What creates sales tax nexus?+

Physical presence, such as employees, offices, warehouses or stock held in a state, or economic nexus, where sales into the state exceed its threshold. How sales are counted, for example through marketplaces, depends on the state.

What happens once a business has nexus in a state?+

It must register with the state's tax department, collect sales tax on taxable sales to customers there, file returns on the schedule the state sets and keep exemption certificates for tax-exempt customers.

Do software and SaaS companies have sales tax nexus?+

They can. Economic nexus applies to remote sellers of software too, and taxability varies: some states tax SaaS and digital products, others exempt them, so exposure has to be checked state by state.