For tax purposes, nexus is defined as: the minimum connection or link necessary, which allows a state to tax you or force you to collect taxes on its behalf. This minimum link can vary from state to state as well as from tax to tax. Some nexus creating activities are obvious, others less so.
Six nexus-creating activities for sales and use tax include:
- Ownership of real property or personal property, such as warehouses, offices, machinery, equipment, etc.
- Leasing of real property or personal property, like warehouses, offices, machinery, equipment, etc.
- Maintaining of an inventory, whether consigned, stored, or carried by sales representatives.
- Travel of employees into a state to conduct sales, training, deliveries, installations, repairs, etc.
- Use of independent sales or manufacturer’s reps, even if they are not exclusive.
- Use of sub-contractors for repairs, maintenance, installations, etc.
How Can I Determine if I Have Nexus?
The best way to determine if you have nexus is by making a list of all your activities in each state and then reviewing the states’ guidance for whether or not you have nexus on a tax by tax basis. If this task seems daunting, you may consider organizing your list into manageable groups, such as the top five revenue-producing states, and so on. Or you may prefer to outsource the process. Take our nexus test and let it help you determine whether or not you may have nexus in the states where you do business!