Sales tax nexus
The connection between your business and a state that legally obligates you to register, collect, and remit that state’s sales tax — created by physical presence or, since 2018, by economic activity alone.
What sales tax nexus means.
Sales tax nexus is the connection between a business and a state that obliges the business to register for, collect and remit that state’s sales tax. Without nexus in a state you generally have no duty to collect its sales tax; with it, you do.
Nexus comes from a physical presence, such as an office or employees in the state, or, since 2018, from sales alone. In South Dakota v. Wayfair, Inc., decided June 21, 2018, the U.S. Supreme Court upheld a South Dakota law covering sellers that “deliver more than $100,000 of goods or services into the State or engage in 200 or more separate transactions for the delivery of goods or services into the State,” and held that its earlier physical-presence decisions “should be, and now are, overruled.”
Why nexus is a real compliance risk.
Each state sets its own threshold, and states change them. South Dakota’s Department of Revenue now states its remote-seller test in dollars: a license is needed when “Your business’s gross revenue from sales into South Dakota exceeded $100,000.” Other states use their own amounts, some count transactions, and the measuring periods differ, so a growing online seller can cross a threshold without noticing, and uncollected tax can build into a liability.
Mapping where sales may be creating nexus, supporting registrations and setting QuickBooks to charge the right rates is operational work TechBrot does in your books, and we keep the sales-tax records, reconciliations and schedules your tax professional needs to file. The legal determination of nexus is confirmed with your CPA, EA or a sales-tax specialist. TechBrot does not prepare or file tax returns; we work with your CPA or EA.
Sales tax nexus in the books: a worked example.
Illustrative figures, not a client file.
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Sales by ship-to state
Take an online seller that exports the year’s invoices from QuickBooks with their ship-to states. By November, shipments into South Dakota total $112,000 across 160 orders. Under the 2018 law the Court reviewed, 160 orders would not have counted but $112,000 would have; under South Dakota’s current dollar test, the $112,000 alone crosses the line.
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What the books show after registration
Once the seller registers and collects, every South Dakota invoice carries the tax on its own line, the tax posts to a sales-tax liability account rather than to income, and each period’s liability ties to the return your tax professional files and to the payment that clears it.
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Sales before registration
Sales made after the threshold was crossed but before registration are an exposure question. Quantifying them from the books is records work; deciding what to do about them is for your CPA, EA or a sales-tax specialist.
How sales tax nexus goes wrong in QuickBooks.
Collected tax booked as income
Sales tax posted to a sales or income account overstates revenue and hides a liability that belongs to the state.
No ship-to data
Invoices without a ship-to address, or marketplace sales imported as one lump deposit, leave no record of where sales went, so nobody can tell when a threshold was crossed.
A liability that never ties out
Payments to the state recorded as an expense, or adjustments made on the return but never in the books, and the sales-tax liability stops meaning anything.
Collection and records kept right
Setting up collection, keeping the liability reconciled and producing filing-ready schedules is TechBrot’s sales tax compliance service.
Sales tax nexus questions.
What is sales tax nexus?
Sales tax nexus is the connection between your business and a state that legally requires you to register, collect, and remit that state’s sales tax. It is created either by physical presence in the state or, since 2018, by economic activity above the state’s threshold.
What is the difference between physical and economic nexus?
Physical nexus comes from a physical presence in the state, such as an office or employees. Economic nexus comes from sales volume alone: exceeding a state’s threshold even with no physical presence there. A business can have both, in different states.
What did South Dakota v. Wayfair change?
The 2018 Supreme Court decision in South Dakota v. Wayfair allowed states to require out-of-state sellers to collect sales tax based on economic activity alone, overruling the earlier decisions that required a physical presence. It is why online sellers now face sales-tax obligations in many states at once.
What are typical economic nexus thresholds?
There is no single figure. The South Dakota law upheld in Wayfair used $100,000 of sales or 200 separate transactions a year; South Dakota’s Department of Revenue now states its test as gross revenue from sales into the state exceeding $100,000. Other states set their own dollar amounts, decide whether transactions count, measure over different periods and change their rules, so each state is checked on its own revenue department’s site.
Does selling on Amazon or another marketplace create nexus?
It can affect your obligations, and the answer is state by state. States set their own marketplace rules — South Dakota’s Department of Revenue, for example, has required marketplace providers to be licensed since March 1, 2019 — and whether your marketplace sales count toward your own threshold, and what registration you still need, depends on each state’s law. That determination is confirmed with your CPA, EA or a sales-tax specialist.
Does TechBrot determine my nexus or file my sales tax returns?
TechBrot does the operational work — reviewing where sales may be creating nexus, configuring QuickBooks to collect the right rates, and reconciling the sales-tax liability in your books. The legal nexus determination and any required filings are confirmed with your CPA, EA, or a sales-tax specialist. We are an independent firm and do not provide legal or tax advice.
Selling into multiple states?
A QuickBooks ProAdvisor reviews where your sales may be creating nexus and gets your books and collection right — coordinating with your CPA on the filings. Written fixed-fee scope.
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