What Is Nexus?

• Nexus for a nonresident seller is a link or connection to a particular state. State nexus definitions vary but in general, you establish nexus in another state if you have a frequent or continuous "physical presence" in that state. The definition of physical presence varies from state to state, but in general states consider you to have a physical presence if you have an office, store, warehouse or other business location in the state or have agents or employees in that state performing business activities on your behalf, such as selling, consulting or repairing products. You also may have nexus if you own, rent or lease property to customers in that state.
  
  

Nexus Expands

• Some states have a broader definition of nexus, including delivering products in the state using your own company vehicles, participating in a trade show in the state or establishing a business account with a bank or insurance company in the state. A recent trend is state laws that expand the nexus concept to include out-of-state sellers with in-state affiliates that refer people to the out-of-state seller via a click-through button on the affiliate's website in return for compensation from the seller. Some sellers as a result have terminated click-through agreements with out-of-state affiliates.
  
  

Doing Business

• In addition to having a link (nexus) with a particular state, a seller must also be "doing business" in that state in order to be liable for collecting sales taxes. States have varying definitions of the term "doing business," but in general, you are doing business in a state if you regularly or systematically solicit customers in the state through agents, employees, independent contractors, distribution of catalogs or advertising.
  
  

Nexus Enforcement

• If you establish nexus in a state, you are obligated to register with the state, collect sales taxes and file sales tax returns. If you inadvertently established nexus but failed to register and collect sales tax, the penalties can be severe. Most states have a statute of limitations of three to six years for collecting back sales taxes. If you established nexus but never registered or filed a sales tax return, however, the state can collect sales taxes on all your sales to state customers, going back to the date the state says you established nexus, plus penalties and interest.