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Establishing sales tax nexus

by Chuck June 17, 2011

Basic rules about establishing nexus

How do you know whether your business has established sales tax nexus in a given state? There are no uniform, across-the-board set of laws that apply across all states. While each state has its own specific laws, in general, nexus might be considered to be established if any of the following apply:

Your company has a physical location or property (tangible or intangible) in that state
Your company participates in a trade show or is otherwise generating sales in that state – even (in some states) for just one day
Your company engages in a substantial amount of advertising in that state, or your employees engage in regular business solicitations there

Additionally, some states are beginning to determine that sales tax nexus has been established when a retailer enters into a revenue-sharing agreement with an individual located in such a state who places a link on his or her Web site back to the retailer’s site. Depending on the state, an established threshold dollar amount in the retailer’s gross receipts (often $10,000) may need be reached before a retailer is affected.

When its “click-through nexus” bill goes into effect July 1, Illinois will join the growing number of states with such laws on the books and those that are contemplating them. Texas and Vermont are just two out of about a dozen states that have introduced click-through nexus legislation this year, with more certainly on the way.

These laws are still relatively new, with growing pains sure to come. A legal challenge to New York state’s 2008 click-through nexus law by online retailers Amazon.com and Overstock.com was unsuccessful, but may change the future of sales tax nexus if the case returns to the state supreme court.

In the face of so many different laws and an ever-evolving taxation landscape, how can you know if your business is affected by a state’s click-through nexus laws? In general, be aware of the activities in which your company and its agents engage, and where. Keep track of and monitor any sales, advertising and/or business solicitations that take place outside of your company’s home state. Above all, if you think you may have a nexus in another state, contact that state’s department of taxation/department of revenue to confirm and find out what is the next step.