Blog Article

Tax Nexus Explained: What It Is and Whether It Applies to You

Most owners assume their state tax obligations stop at the state line, but selling into other states can create new ones with no warning, and the rules vary everywhere. This post explains how nexus works, what actually triggers it, and the easiest way to stay ahead of it.

Thank you for joining us today. My name is Jenn Shaw and I am with All Accounting LLC. I am the founder and owner. We typically are working with companies that are 500,000 to $10 million in revenue. They need a little extra help in understanding what's going on with their numbers. And that's what we do here every Friday to help you understand what's going on because we believe that when you know your numbers, you really own your future. So today, let's talk about Nexus. What is it? How does it apply to you? And we're just going to dive right in.

All right. So, we have nexus and that's just basically a fancy tax word saying connected to different states. And there are different ways in which you can get triggered for nexus. It really depends on what your business is doing, how it is working with the different states and the things you sell, the employees that you have. So the first thing really is it's a physical presence. So we definitely have nexus in the state in which you are working specifically. So we are in Washington state, we have nexus in Washington.

Now if we sell our services other places and we have a physical location, it totally depends on what you're selling. Is it a physical product? Is it a service in which you do need to be taxed? So there are just a conglomeration of things in which nexus can happen. There can also be an economic activity. So if each state has different thresholds and we'll talk about that here in a little bit. You have marketplace activity. Marketplace is big companies. If you're selling a product on Amazon or Etsy or Shopify, they actually handle a lot or all of the collection and remittance of taxes. So, it is a little bit of a plug-and-play situation, which can be nice. And then you have other things like payroll taxes, local taxes, state income tax. So, it's all about taxes. And nexus is again the connection in between your business and the state in which you are working and there's all these different check boxes that you must go through to see if you qualify.

Best habits to know if you are getting this is keeping track of things on a regular basis. So having a spreadsheet at first. Spreadsheets are wonderful. It's low-key. If you're doing, you know, 2 million in revenue, you may not be hitting Nexus right away with people, but monitoring it on a regular basis so that you can make sure that you're staying compliant. So, what does that mean? So, a lot of states have the economic nexus of if you sell anywhere between $100,000 or $500,000 in gross revenue, then you've reached nexus with them. Or it could also be that you have 200 transactions in that state. So if you have a lot of transactions, let's say you do 1,000 transactions in a state, but you only are reaching $50,000 in revenue, you haven't really reached Nexus in that. There's a lot of nuances in it. There are software that can help you understand and monitor it yourself if you want to pay for that service. Your accountant if they are helping you file your sales tax in your service in your original state having them look at those things and make sure that you're in compliance cuz that's the biggest thing we just don't want surprises in which we are going back months later and be like oh my gosh we reach now we have all this interest and fees and we're out of compliance we want to keep track of it on a regular basis so that you're building those habits.

That wraps up today for Nexus. This it's really about setting up the foundation and ensuring that you are staying compliant with your federal taxes, with your state taxes, and now with other state taxes that you may or may not be hitting as well. If you want a deeper dive into what is specifically happening for you, please reach out to us, help at All Accounting LLC, and we'll see you next Friday. Enjoy your week. See you soon.

Tax nexus is the connection between your business and a state that requires you to collect or pay that state's taxes. You create it through physical presence, economic activity like sales over a state's threshold, or selling through an online marketplace. If you sell across state lines, nexus probably applies to you.

What is tax nexus?

Nexus is a tax term for being connected to a state. Once your business has nexus in a state, that state can require you to register, collect sales tax, or file returns there. You always have nexus in the state where you operate. All Accounting is based in Washington, so we have nexus in Washington. The real question for a growing business is whether you have created nexus somewhere else without realizing it.

What triggers nexus in another state?

Several kinds of activity can create nexus, and which ones apply depends on what you sell and how you operate. These are the common triggers.

Physical presence

A location, employees, or inventory in a state generally gives you nexus there. Whether a given sale is taxable still depends on what you sell. A physical product is often taxable, while some services are not.

Economic activity

Many states set a sales threshold. Cross it and you have economic nexus even with no office or staff in that state. The dollar and transaction figures vary by state, covered in the next section.

Marketplace sales

If you sell on Amazon, Etsy, or Shopify, the marketplace usually collects and remits sales tax for you. That part can be close to plug-and-play, but you still need to know where your sales are landing so you can see your full exposure.

Other taxes

Nexus is not only about sales tax. Payroll taxes, local taxes, and state income tax can each create obligations once you have a connection to a state.

What are the economic nexus thresholds?

Most states set economic nexus at a dollar amount of gross sales, a transaction count, or both. Common thresholds run from $100,000 to $500,000 in gross revenue into a state, or around 200 separate transactions. The detail that trips people up is that a high transaction count alone may not create nexus if your revenue is low. For example, 1,000 sales into a state but only $50,000 in revenue may fall under that state's threshold. Every state writes its own rules, so check each one where you sell.

How do you stay on top of nexus?

Track your sales by state on a regular schedule so nothing sneaks up on you. A simple approach that works:

Start with a spreadsheet. List each state, your gross sales into it, and your transaction count.
Update it on a set cadence. Monthly is plenty for most businesses.
Compare each state against its threshold. At lower revenue you may be nowhere near nexus, but you will see it coming.
Move to sales-tax software once you sell into many states and the spreadsheet gets unwieldy.
Loop in your accountant, especially the one already filing your home-state sales tax, to confirm you are in the clear.

The goal is no surprises. Finding out months later that you crossed a threshold can mean back taxes plus interest and penalties. Steady monitoring keeps you compliant and keeps the cost down. If you already reconcile your books each month, adding a by-state sales check is a small extra step.

Key takeaways

Nexus is the connection that makes your business responsible for another state's taxes.
Physical presence, economic activity, and marketplace sales are the main triggers.
Economic thresholds vary by state, often $100,000 to $500,000 in sales or about 200 transactions.
A spreadsheet updated monthly is enough to start tracking your exposure.
Catching nexus early avoids back taxes, interest, and penalties.

Frequently asked questions

Do I have nexus in my home state?

‍Yes. You always have nexus where your business physically operates. All Accounting is in Washington, so Washington is automatic for us, and your home state is automatic for you.

Does selling on Amazon or Etsy create nexus I have to manage?

‍The marketplace usually collects and remits sales tax on those sales for you. You still want to track where your customers are, because sales outside the marketplace can count toward a state's threshold.

How many transactions trigger economic nexus?

‍Around 200 transactions into a state is a common trigger, but it depends on the state and often pairs with a revenue figure. A high transaction count with low revenue does not always reach nexus.

What happens if I miss a nexus threshold?

‍You can owe back sales tax plus interest and penalties for the period you should have been collecting. That is why regular monitoring matters.

Do I need software to track nexus?

‍Not at first. A spreadsheet reviewed monthly works for most smaller businesses. Software helps once you sell into many states.

Ready to find out where you stand?

We can map your sales by state and tell you where you need to register and collect. Reach out at help@allaccountingllc.com or book a call with All Accounting for hands-on sales tax and compliance support. New videos every Friday, because when you know your numbers, you own your future.