Understanding Economic Nexus and Sales Tax

These days, e-commerce is so common that a good majority of people have tried it at least once. There are even so many people who simply use online business platforms to buy most of the things they need at home.

That’s good news to many businesses, even to those that are located overseas. But before online or digital businesses rejoice over the high sales, remember that these could be taxable and might already owe taxes you didn’t know about.

Remote sellers, no matter what you are selling, need to collect taxes and pay up the state once economic nexus is established. This means that even if you don’t have a physical store or employees at a particular state, you might still be liable for these taxes on those sales.

Establishing Economic Nexus

What exactly is economic nexus? A ‘nexus’ in layman’s terms means a ‘connection’ or series that links two or more things. Although you are a remote seller that doesn’t have a physical connection to a particular state, if your sales are substantial enough, then this economic nexus is ‘activated’.

This means that even if there is no physical store in that state, you still have to pay taxes for your sales because a connection has been established between you and that particular state.

Thankfully, the minimum sales to reach sales tax nexus differs from one state to another. It might still be possible for you not to owe taxes as long as the threshold wasn’t surpassed. You can keep track of your sales to check if you are close to reaching the minimum.

Each state determines their own economic standards. This means that one state might have a much lower threshold than the others. Thus, you have to keep track of your sales to see how much you are earning for each state.

But you aren’t expected to memorize the threshold and tax laws being imposed by all the states, of course. There are many different firms and tax services for startups that can help you with sales tax filing and checking the limits or thresholds per state.

Though that can be a daunting task, the good news is that you can also find a summary of economic nexus laws by state from a number of online resources.

Most states actually have a low annual economic threshold of $100,000.00. Most don’t impose transaction thresholds to count the number of transactions, but there are some such as Nevada that have additional requirements, such as an annual transaction threshold of 200 to reach nexus.

A good number of states have a higher threshold of $250,000.00. But there are also the elite ones that require at least $500,000.00 before sellers are required to pay an income or sales tax. These states are California, Massachusetts, New York, Tennessee, and Texas.

Amazingly, Oklahoma has the lowest annual economic threshold at just $10,000.00.

Confused as to how you can successfully file your annual sales tax return with so many of these things to consider? The key is to study and do research. You have to pick the right form and fill this out properly before submitting and filing the return. You also have the option to seek help from the experts at Tax Connex so you don’t have to worry about a thing.