If you admit that the concept of an economic nexus puzzles you, there’s no need to worry as you’ve finally found a step by step guide for business owners on what an economic nexus is, whether you own an economic nexus is and how being deemed an economic nexus can change the way that your business operates. Especially in states in which your business doesn’t have offices, warehouses, or traditional brick and mortar stores.
Economic Nexus: A fool proof guide to understanding what a nexus is
The rise of the economic nexus:
10 years ago only businesses that had a physical premise such as office space, warehouses, or stores in a state would have to pay sales taxes. So if you operated an online business, you would not have to worry about paying sales taxes in any state in which you didn’t have a physical premise in. Which made calculating your sales tax obligations each year a breeze. However, today things are a little more complicated. You see, if a state has reason to believe that your business is making significant sales in their state, they can class your business as a legal nexus. An entity that has a financial investment in their state and they can charge you sales tax. Just like businesses that actually operate brick and mortar businesses in their state. If you want to learn more information about the rise of the economic nexus you can read more.
The first state to start charging out of state businesses sales tax:
If you would like to know the state which first popularized forcing out-of-state businesses to start paying sales tax, the answer is South Dakota. You can probably imagine that businesses across the country, as well as international businesses that operate online, weren’t too thrilled with South Dakota’s groundbreaking decision, which would forever change the way that business is conducted in the US. In fact, many business owners banded together in order to take the state of South Dakota to the Supreme Court in order to have the state’s shocking law reversed. Except the Supreme Court decided to back the state of South Dakota and chose not to overrule the decision. Now almost every state in the country has regulations around what constitutes a sales nexus and how much sales tax each nexus must pay.
As a business owner, no matter whether you’re a domestic business owner in the US or an international business owner, it’s your job to ensure that you’re aware of how much your business generates in sales in each state and whether this classifies your business as a nexus in each state or not. If you are deemed a nexus, take the next step of registering your business as such in each applicable state. Keep in mind that this process isn’t automatic and you’ll have to register with each individual state.
So if you admitted to yourself that you’re not well versed on what a sales tax nexus is and how it can change the way that your business operates, hopefully you now feel more confident about the topic. And if you want to read about the latest business news, click here!