Sales tax seems simple until your business starts selling outside your home state. At first, you may only have a few customers elsewhere. You ship their orders, collect sales tax where required, and move on.
Then your business grows. Maybe you start selling through Amazon or another marketplace. You hire a remote employee. You use a fulfillment warehouse in another state. Or your online sales suddenly take off.
Those changes can create sales tax nexus. Nexus is the connection between a business and a state that allows the state to require you to register, collect sales tax, and file returns.
That connection isn't always obvious. A business doesn't necessarily need a storefront or office in a state anymore. Economic activity, inventory, employees, and other business activities can all matter. Nexus can make sales tax compliance more complex.
Here are some sales tax nexus triggers small businesses often miss.
1. Your Online Sales Cross a State's Threshold
This is one of the biggest issues for ecommerce businesses. Due to economic nexus, you may have to file sales tax in another state where you do major business (regardless of a physical office front).
The problem is that there isn't one nationwide threshold.
States set their own rules. Some use a $100,000 sales threshold, while others have different thresholds or additional requirements. Rules can also change from year to year.
For a growing business, that means you need to watch sales by state instead of assuming your home-state rules apply everywhere.
That’s why checking your sales once a year isn’t always enough. Businesses selling across state lines should monitor sales throughout the year and pay attention as they get close to relevant thresholds.
State rules can change too. A rule that applied last year may not be the rule that applies today.
2. You Hire a Remote Employee
Remote employees can create another connection that business owners overlook.
Imagine your company is based in Florida, but a customer service employee works from home in Georgia.
To you, that's simply a remote worker.
For Georgia tax purposes, having an employee working there may create a physical presence, depending on the state's rules and the employee's activities.
Before hiring someone in another state, check the sales tax consequences along with income tax and payroll compliance requirements.
3. Your Inventory Is Stored in Another State
Ecommerce sellers run into this one quite often. You may not own a warehouse. Instead, you use a fulfillment company that stores your products and ships orders for you.
That's convenient, but the location of that inventory can matter for e-commerce sales tax. Large fulfillment networks can spread your inventory across several states. You may have products sitting in a state you've never visited and never thought about from a tax perspective.
Physical inventory can create sales tax nexus depending on the state's rules and your specific arrangement. So don't just track where customers are located, track inventory across sales channels too.
4. You Attend Trade Shows or Business Events
A short business trip can sometimes create a sales tax compliance issue. Suppose you run a small company in Ohio and attend a three-day trade show in Illinois.
You don't have an Illinois office. You aren't there permanently. It may feel too temporary to matter.
Depending on what your business does at the event and the state's rules, that activity could contribute to nexus.
The same concern can come up with conventions, festivals, holiday markets, and other events.
Keep a record of where your business sells or promotes products in person. If you're regularly traveling to other states for business, it's worth checking the rules before the event.
5. You Use Sales Representatives or Affiliates
A business doesn't always need its own employee to create a connection with another state. For example, you might have a sales representative who regularly visits customers and solicits orders for your company.
You could also have an affiliate arrangement where another business helps generate sales.
Not every arrangement automatically creates nexus. The important point is that the activity should not be ignored simply because the person isn't on your payroll.
What matters can include what the person does, how regularly they do it, and how closely they're acting on your behalf.
If someone is effectively representing your business in another state, include that relationship in your nexus review.
6. You Open a Pop-Up Shop or Temporary Location
Temporary doesn't always mean irrelevant.
Many small businesses sell through pop-up shops, seasonal markets, festivals, or short-term retail spaces. If you're physically selling in another state, that activity may create a sales tax obligation depending on the circumstances.
This is easy to miss because the business may only be there for a weekend.
7. A Marketplace Collects Sales Tax for You
Selling through Amazon or another marketplace can ease the burden for you. Many states require marketplaces to collect and remit sales tax.
Don't assume that the marketplace handles tax means you're completely finished. Review what the marketplace is actually collecting and reporting, and keep your marketplace records.
8. You Sell Digital Products
Sales tax may also have to be paid on services and other offerings.
Multi-state sales tax compliance must be considered when filing your returns as some services are taxable in one state and not taxable in another.
That makes things more complicated for businesses selling online services or a mix of products and services.
Before deciding that sales tax doesn't apply, figure out how each state classifies what you're selling. Even when a sale isn't taxable, there can still be nexus questions to consider. Bookkeeping for e-commerce businesses can also be complex and must be kept up-to-date for accurate sales tax filing.
10. You Stop Selling in a State
Here's another common mistake. You register for sales tax because you're doing business in a state. Later, your sales slow down or stop.
You might assume that means you can stop filing. Not necessarily.
Depending on the state, you may still need to file returns even when you have no taxable sales. If you're finished doing business there, you may need to formally close the sales tax account.
What Should a Small Business Track?
You don't need a huge tax department to manage this.
At a minimum, keep track of:
- Sales by state
- Taxable and nontaxable sales
- Marketplace sales
- Inventory locations
- Employees working in other states
- Contractors and sales representatives
- Trade shows and temporary selling locations
- Existing sales tax registrations
- Filing deadlines
The goal is to spot a nexus trigger early. Looking only at sales volume doesn't always give you the full picture.
When Should You Use Sales Tax Filing Services?
Handling sales tax yourself may be perfectly reasonable when you sell in one state and your situation is simple.
Things get harder when you're registered in several states.
Now you're dealing with different filing schedules, tax rules, exemptions, registration requirements, and deadlines. Add marketplace sales and changing economic nexus rules, and the administrative work can pile up quickly.
That's where sales tax filing services can help. Some services can calculate tax, monitor nexus, prepare returns, and file them for you. They can also help with small business tax compliance for companies working in just a single state.
Automation can save time, but it doesn't replace good information. If you don't know that your inventory is sitting in another state or that an employee moved, your tax software may not know either.
A Simple Way to Review Your Nexus
Start with the states where your business has a physical presence.
Then look at your sales in every other state and compare them with current economic nexus rules.
After that, check the less obvious connections: inventory, remote employees, contractors, trade shows, temporary locations, sales representatives, and marketplaces.
If you discover that you've already crossed a threshold, don't simply start collecting tax without checking the details. Registration and effective dates matter, and past periods may need attention.
A tax professional who understands multi-state sales tax can help you figure out what needs to be done.
Sales Tax Filing Services With AccountiPro
Sales tax nexus is no longer just about having a storefront in another state. For today's small businesses, especially ecommerce businesses, nexus can come from online sales, remote employees, inventory, trade shows, sales representatives, and other activities that don't always feel like a tax issue.
This complexity can put business owners into stress about correctly filing their sales tax.
With years of experience across several industries and states, we ease the pressure of accurate and timely sales tax filing from your shoulders. If you want to overcome sales tax nexus hurdles, contact us today.
