What Is Economic Nexus, And Why Does It Matter for Your Business.
If your business sells across state lines, you need to know about economic nexus. Many owners think they only collect sales tax in states with a physical location, but that’s no longer true in most states.
What Is Economic Nexus?
Economic nexus links your business to a state based on sales, not physical presence.
This means your business may be required to:
- Register for a sales tax permit.
- Collect sales tax from customers.
- File sales tax returns
…even if you do not have:
- An office
- A warehouse
- Employees
- A storefront
in that state.
How Does Economic Nexus Work?
Most states set economic nexus thresholds based on:
- Total sales revenue
- Number of transactions
- Or both
A common threshold is:
- $100,000 in sales
OR - 200 separate transactions
Once your business exceeds a state’s threshold, you may be legally required to register and begin collecting sales tax.
Why Businesses Need to Pay Attention
Failing to comply with economic nexus laws can lead to:
- Penalties
- Interest charges
- Back taxes owed
- State tax audits
Many businesses don’t realize they have nexus obligations until they receive notices from state tax agencies.
States Frequently Update Nexus Rules
Economic nexus requirements can change over time, including:
- Threshold amounts
- Filing requirements
- Marketplace facilitator laws
- Registration rules
That’s why it’s important to regularly review your sales activity in every state where you do business.
How Davis Davis & Harmon LLC – Sales Tax Experts Can Help
Davis Davis & Harmon LLC helps businesses:
- Determine where they have nexus.
- Register for sales tax permits.
- Stay compliant with multi-state sales tax laws.
- Manage ongoing filing requirements.
- Reduce audit risk
Need Help Understanding Your Nexus Obligations?
Contact Davis Davis & Harmon LLC to discuss your sales tax compliance needs.
About Davis Davis & Harmon LLC – Sales Tax Experts: Headquartered in Dallas, Texas, Davis Davis & Harmon LLC – Sales Tax Experts specializes in sales/use tax refund recovery and audit defense. Our team of consultants is comprised of former Big 4 sales tax consultants and state sales tax auditors. Each of our consultants has 15 to 20 years of experience, providing our clients with access to a highly specialized team of sales/use tax professionals. At Davis Davis & Harmon, LLC, we are committed to maintaining the highest standards in our talent pool. We work hard to meet our clients’ needs by ensuring that you view our firm as an extension of your company and a member of your team.