Sales and use taxes are state-specific taxes that are paid to the Department of Revenue in particular states. Typically, you will need to pay sales tax if you sell tangible products in a state. One important concept of sales tax is that of a “sales tax nexus.”
We’ll explore what a sales tax nexus is, when you’re likely to have one and if having a registered agent in a state means you also have a sales tax nexus.
What Is Nexus?
A sales tax nexus is a connection between a business and a taxing entity, such as a state. Without this connection, a state cannot impose sales taxes on a business.
The definition of what creates a sales tax nexus does differ between states, and rules can change on a fairly frequent basis. That said, there are some fairly common principles that most states will use to determine if you have a nexus there.
It’s also important to note that a state can unilaterally impose a sales tax nexus on you if they determine you meet particular criteria. Here are some factors that states may use to decide if you have nexus:
Owning or using property in a state to conduct or support your business. This might include an office, a warehouse, a sales center, storage or other real estate used for business purposes.
Having employees, contractors or other representatives acting in the state on your behalf, whether on a temporary or permanent basis.
Selling a certain amount of product or conducting a certain number of transactions. Although these thresholds do vary, many states have adopted a sales threshold of at least $100,000 or a transaction threshold of at least 200 sales.
It’s also important to understand that some business offerings will be taxable, and others may not be. For example, selling tangible property is likely to be subject to sales tax, whereas, in some states, selling services may not be.
These provisions typically apply if you have a physical presence in a state. However, it’s also important to understand economic sales tax nexus.
Economic Sales Tax Nexus
States can also impose sales taxes if you sell remotely. For example, if you’re an online ecommerce retailer in a particular state, and you meet the revenue or transaction thresholds, it’s likely you will need to collect sales tax and pay it to that state.
Which States Don't Have Statewide Sales Taxes?
Some states do not have statewide sales and use taxes. They are: Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon. Many localities in Alaska do impose local sales taxes.
All other states do impose sales and use taxes, and you will need to understand if you have a sales tax nexus obligation.
What Are My Sales Tax Nexus Obligations?
Typically, if you have a sales tax nexus in a particular state, you will be required to collect sales tax for all taxable transactions that sell into that state.
You will then pay sales tax to the state’s Department of Revenue. You will also need to file regular sales tax return forms that declare your transactions and revenue, and the sales tax you owe.
Does a Registered Agent Create a Sales Tax Nexus in a State?
Typically, just having a registered agent in a state is not enough, by itself, to create a sales tax nexus. But, the reason that you have a registered agent is often because you want to do business in a specific state and have a Foreign Qualification or Certificate of Authority to do so.
If you’re conducting business in a state, then it’s likely your business activities will create a sales tax nexus:
If you have employees, contractors or representatives that work in the state
If you have property that’s used for business purposes in the state
If you meet minimum transaction or revenue requirements
Getting a Registered Agent
A registered agent is an entity or person that can accept formal correspondence from official bodies on behalf of your business. For example, a registered agent may receive tax documents, legal filings, requests for information, annual report requests or other demands.
Incfile provides a complete Registered Agent service across all 50 states, and if you form a business through Incfile, the first year of the Registered Agent service is free.
Understanding your sales tax nexus and how a registered agent plays a part is important to the proper running and compliance of your business. Reach out to Incfile to get help with your business taxes or any other aspect of running your business.
Paul is a freelance writer, small business owner, and British expat exploring the U.S. When he’s not politely apologizing, he enjoys hats, hockey, Earl Grey Tea, mountains, and dogs.