Economic Nexus in States without Sales Tax
When the Supreme Court decided on the South Dakota v. Wayfair, Inc. case, it pushed almost every state to adopt or adjust economic nexus standards. However, the decision did not necessarily impact states without sales tax, such as New Hampshire. There are states that do not have any economic nexus laws in place such as Delaware, Florida, Missouri, Montana, New Hampshire, and Oregon.
Out of the six states, Delaware, Montana, New Hampshire, and Oregon do not have sales tax. In addition to that, Alaska also does not have sales tax as well. However, some localities in Alaska enforce economic nexus.
Establishing Nexus in a State
What establishes nexus in a state?
When nexus is established, a business must register to collect or pay taxes in the state. Unfortunately, no universally shared definition of nexus exists, so the rules vary across the 50 states. And states regularly change their rules for what determines nexus. Because of those variabilities, business owners must research each state’s rules individually and keep up with any changes.
Generally, a business will be considered to have nexus when it has a physical presence or reaches a certain sales threshold in the state.
Many business activities can create nexus; two of the most common are:
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Physical presence in a state. Historically, nexus was established when taxpayers had a physical presence in a state. If they owned or rented a building or had employees working in the state, they had a physical presence.
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It makes a specified number of sales transactions, e.g., 200 or more, into the state.
Income Tax Nexus
What triggers income tax nexus?
What establishes nexus in a state? When nexus is established, a business must register to collect or pay taxes in the state. Unfortunately, no universally shared definition of nexus exists, so the rules vary across the 50 states. And states regularly change their rules for what determines nexus. Because of those variabilities, business owners must research each state’s rules individually and keep up with any changes.
What do you mean by income tax nexus? Nexus is the qualifying criteria for a seller to be required to collect and pay taxes on sales in a state. So, income tax nexus is the way states charge businesses tax on their income. Each state has the power to define their income nexus in a different way.