In this state sales and income tax nexus guide, you will discover what exactly state tax nexus is and how location as well as online sales play a role in your small business taxes.

00:00 Introduction
00:20 What Is State Tax Nexus?
00:48 How to check where you have physical nexus
02:13 Online sales tax explained
03:16 Conclusion

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Additional Resources

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Hey, it's Scott Orn at Kruze Consulting and today I'm answering the question, what is state tax nexus? This is a question we get a lot.

A lot of our clients have people, employees, going through all out the country, and they're selling throughout the country. So this is a really important issue for people. So the basic of tax nexus is the relationship between a taxing authority and a business. And the way it goes is a business has to have tax nexus before it can be taxed. And so there's a couple different types of thresholds to establishing tax nexus. But the basic idea is you must have a prominent presence in a state. And so there's a couple ways for you to check and see if your company has tax nexus in a state. Kind of the simplest way is just to see if you have a state registration to do business in a given state. And the reason for that is, you will actually, when you start conducting business in a state, typically you have to register. And so that's kind of a nice little shortcut.

And by the way, the state knows you registered with them. So they're more likely to check on you and make sure you're filing the right sales tax and tax returns, things like that. So that's the first really kind of shortcut way. The more established way is to evaluate whether you have employees, or assets or property in a state. That's basically like anyone who's really working in a state, you're gonna start triggering tax nexus. So for example, if you're a startup, and you have a W2 employee working in a state, and that W2 employee is renting office space, you are definitely gonna start triggering tax nexus in that state. That is, that's pretty clear cut. It's a little tougher to determine sometimes if there's just like a computer or some very small amount of assets in a state. But generally speaking, most of our clients are really kind of people businesses.

Now, in the modern day, there's a lot of, you know, business conducted over the internet in the form of ecommerce sales, or software sales or service sales. And so the states a few years ago, felt like they're missing out. And so they brought, there was a big Supreme Court case called Wayfair versus South Dakota, and the Supreme Court ruled in favor of South Dakota. And that gave states the ability to tax businesses, even if they didn't have a physical presence in the state. So all sudden, online sales, online software sales, online diagnostic or some forms of biotech stuff, all of a sudden became taxable, if they pass a certain threshold. A lot of times that threshold is right around $100,000. And not all states are collecting this type of sales tax.

But if you're doing business across the United States, and you have some states where you're getting close to that $100,000 threshold, it's getting very, very likely that you've actually created tax nexus, you'll have to file sales tax returns, and you'll probably have to file a state tax return. So I hope that helps. The big picture on tax nexus is that if you're doing business in a state
physically with employees, property, assets things like that you're pretty sure you've triggered tax nexus. And if you're doing business in the sense that you're selling a lot of goods or services over $100,000 usually. You've also probably triggered tax nexus. But we can do a study for you. We can help you out. We can parse this figure out if you really have triggered nexus and we can take care of all the forms you need to file. Thanks so much, bye.

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