Sales Tax and Nexus: What LLC Owners Need to Know
If you sell products or certain services, you may need to collect sales tax. Nexus determines which states you have obligations in.
What Is Nexus?
Nexus is a connection to a state that requires you to collect and remit sales tax there. Think of it as a tax obligation trigger.
There are two types:
- Physical nexus: Based on physical presence in the state
- Economic nexus: Based on sales volume to the state
If you have nexus in a state with sales tax, you must register for a sales tax permit, collect tax from customers, and remit it to the state.
Five states have no state-level sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. You don't need to collect sales tax for sales to customers in these states (though Alaska allows local sales taxes).
Physical Nexus
Physical nexus is triggered by having a physical presence in a state. Common triggers include:
- Office or place of business
- Warehouse or inventory storage
- Employees working in the state
- Sales representatives
- Attending trade shows (in some states)
FBA and Inventory
If you use Amazon FBA or similar fulfillment services, you may have nexus in every state where your inventory is stored. Amazon distributes inventory across its warehouse network, which can create nexus in many states.
FBA sellers often have nexus in 20+ states due to inventory distribution. Check where Amazon stores your inventory and register accordingly.
Economic Nexus
The 2018 Supreme Court ruling in South Dakota v. Wayfair established that states can require online sellers to collect sales tax based on sales volume alone, even without physical presence.
Economic nexus is triggered when you exceed a state's sales threshold. Most states use:
- $100,000 in sales to the state, OR
- 200 transactions with customers in the state
Some states only use the dollar threshold. Thresholds are typically measured over a 12-month period.
State Economic Nexus Thresholds
| State | Sales Threshold | Transaction Threshold |
|---|---|---|
| California | $500,000 | None |
| Texas | $500,000 | None |
| New York | $500,000 | 100 transactions |
| Florida | $100,000 | None |
| Most Other States | $100,000 | 200 transactions |
Thresholds change frequently. Verify current thresholds with each state.
Staying Compliant
1. Determine Where You Have Nexus
Review your physical presence and sales by state. Tools like TaxJar or Avalara can help identify where you've crossed thresholds.
2. Register for Sales Tax Permits
Register with each state where you have nexus. Most states offer online registration. Don't collect sales tax without a permit.
3. Collect the Correct Amount
Sales tax rates vary by location. You collect tax based on the customer's location (destination-based), not yours. Software can calculate the correct rate automatically.
4. File and Remit on Time
Filing frequency depends on your sales volume: monthly, quarterly, or annually. Set up reminders or use software that handles filings.
Tools That Help
- TaxJar: Sales tax automation and filing
- Avalara: Enterprise-level sales tax compliance
- Shopify Tax: Built-in sales tax for Shopify stores
Sales tax compliance can be complex. If you're selling across many states, investing in automation software saves time and reduces errors.
Frequently Asked Questions
Frequently Asked Questions
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