Sales Tax 101 States

Sales Tax Nexus Checklist for eCommerce Sellers

by Mark Faggiano

Sales Tax Nexus

We talk a lot at TaxJar about complying with sales tax laws in states where you have sales tax nexus. But we realize that determining exactly where you have nexus is easier said than done. So we thought we’d offer up this sales tax nexus refresher as well as a handy checklist to help you figure out where you have sales tax nexus!

A Sales Tax Nexus Refresher

A seller who has “significant presence” in a state is said to have sales tax nexus. This is just a fancy way of saying that the seller has to collect sales tax from buyers in that state where they have some sort of connection.

One Supreme Court case provided much of the backbone for our current understanding of nexus.

Quill vs. North Dakota (1992) – This case, which referred to mail order companies at the time, determined that a company had to have some sort of “physical presence” in a state before they could be asked to comply with sales tax. This case has been used by states to maintain that companies who have an office, employee, salesperson, warehouse or even an affiliate in their state have nexus and thus should charge sales tax to buyers in that state.

For a whole lot more in-depth information about nexus, check out our Sales Tax Nexus Defined post. But now to the fun part…

Sales Tax Nexus Checklist for Online Sellers

sales tax nexus checklist eCommerce

To figure out where you have nexus, you need to take a long look at your business and where your business activities are located. To make things a little easier, we created this checklist.

Here are some questions to ask yourself if you think you might have sales tax nexus in a state:

  • Do I live in this state and operate my business from home? _____
  • Do I operate my business in this state? ______
  • Do I have an employee in this state? _____
  • Do I have an affiliate in state?
  • Do I have a sales representative, independent contractor or other agent for my company in state? _____
  • Do I store my products in state? _____
  • Are my products distributed from a distribution center in this state? _____
  • Did I attend a craft fair, exhibition or trade show in this state? _____
  • Do I work with a drop shipper located in this state? _____

Did you answer yes to any of these questions? Then you may have sales tax nexus in that state.

If you have specific questions about whether or not you have sales tax nexus in a state, contact a reputable accounting professional or you state’s department of revenue for clarification. You can also find out more about each state’s sales tax rules here.

Facts about Nexus for Amazon FBA Sellers

FBA sellers and other eCommerce sellers who use 3rd party fulfillment services often have complex sales tax liability. Rather than having nexus in just the state where their home office is located, they may have nexus in multiple states.

Storing inventory in an Amazon fulfillment center gives you sales tax nexus in that state… but having inventory pass through an Amazon sortation center does not!

Visit our list of Amazon Fulfillment Centers to find out where you potentially have sales tax nexus

To find out where Amazon is storing your products right now, either pull this inventory report through Amazon Seller Central or login to your TaxJar account and look for the brown Amazon badges next to the various Amazon FBA warehouse states on your dashboard. Click here for more about using the Amazon badge feature to pinpoint nexus.

Do you have questions about sales tax nexus? Start the conversation in the comments!

  • Gareth

    If I operate a customer referral program in my store that offers (for example) a $5 reward to customers who refer a friend who ultimately purchases, would that lead to a sales tax nexus in the referrer’s state? Looking at some of the State rules they refer to ‘indirect remuneration’, and I wonder if a customer referral program counts…?

    • Here’s what we have about 3rd party affiliates. As usual with sales tax, all states are slightly different.

      http://taxjar.wpengine.com/click-through-nexus/

      • Gareth

        Thanks TaxJar. My question really was whether a customer, referring a friend in exchange for a future discount, counts as an affiliate.

        • Oh I understand. Unfortunately, that’s a question for a CPA. I’m willing to bet every state is different in that regard, too, and it likely falls under some kind of “affiliate nexus” rule.

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