This article was last updated on April 16, 2022
As a new business owner, you will need to know a little about sales tax nexus if your business sells goods or services over the internet, phone, mail order catalogs, etc.
This guide is going to cover the basic things that you need to know.
What is sales tax nexus?
Sales tax nexus is basically when your company has some sort of presence in a state and therefore must pay taxes on those sales. Remember that each state requires different rules so this guide should be used as a rough guide.
The general rule is that if your company owns a building or rents storage space in a state, you have sales tax nexus and must register to collect sales taxes from the residents of that state.
How do I avoid the sales tax nexus?
Before you register for sales tax make sure that you have a good reason for registering for sales tax in the state since it is time-consuming and costly.
You should avoid nexus by not renting out an office or space in a state where you do not need to be physically present. If your company does business over the phone then using a toll-free number can mean that you do not have sales tax nexus.
How do I register for sales tax?
Each state has different instructions on how to register so read through them carefully.
The most important thing is that your company name must match exactly with the name of the business declared with the government agency responsible for collecting taxes (typically the secretary of state). Also make sure that you get all your information correct like your physical address, your account number, and your contact information.
Why should I register my business in all the states where I do business?
A lot of companies think that it is good enough to just pay sales tax in one state but this is not true. You need to register with every state where you have nexus so they can collect the taxes and file all necessary returns and forms.
For example, let's say that your business is based in California and you have nexus in 45 other states. If you do not register with each state then they can come after you for uncollected sales tax since "they did not know" that you had a store or office there.
How can the state enforce its laws on out-of-state businesses?
There are many ways that states are enforcing their laws which include cross-referencing new business filings with business registrations. They also use methods like driver’s license records, corporation registration methods, and UCC filings to make sure that they get their tax money.
The best way for new entrepreneurs to avoid these difficulties is to know how to register for sales tax.
What if I am not registered for sales tax?
If you are caught selling or buying goods without having paid the normal taxes then your business could be subject to penalties and interest charges. In some states, if you do not comply with their laws, they may start proceedings to shut down your entity.
As a new business owner, you will need to know about sales tax nexus if your company sells goods or services over the internet, phone, mail order catalogs, etc.
The most important thing is that your company name must match exactly with the business entity declared with the government agency responsible for collecting taxes (typically the secretary of state).