Sales tax nexus and registration: when to register and how to start collecting

Nexus is a connection between your business and a state that lets the state require you to collect its sales tax. Physical nexus comes from having an office, warehouse, inventory, or employees there. Economic nexus comes from the volume of your sales into a state, even if you have no physical presence.

Since a Supreme Court decision in 2018, states have been free to require remote sellers to collect tax. Many states use a threshold based on sales dollars, transactions, or both. The numbers differ by state and change, so check each state's department of revenue.

Most states have marketplace facilitator laws. When you sell through a large marketplace, the marketplace often collects and remits the sales tax for those sales. You still need to track them, because they may count toward your thresholds in some states and may need to be reported on a return. Direct sales on your own site are your responsibility.

Each quarter, run sales by state and compare them with each state's threshold. Include marketplace sales if the state counts them. When you approach a threshold, plan to register. Do not wait for a notice. If you have already crossed one, talk to a tax professional about registering and the back period.

Apply for a sales tax permit with the state's tax agency, usually online. You will need your legal name, EIN, address, the date you began making sales, and a description of what you sell. Register before you start collecting, since collecting without a permit is a problem in most states.

Set up your invoicing or checkout system to charge the right rate for the customer's location. Set the filing frequency the state assigns, and file even in periods with no sales if the state requires it. Reconcile collections to your returns every period. Keep a list of the states where you are registered with the account numbers and due dates.