If your business is headquartered in one state, and you sell products across other state borders, are you required to pay taxes in the recipients’ state? The answer depends largely on whether you have what is referred to as a “nexus,” meaning an establishment in the recipients’ state. What is a nexus and constitutes an establishment?
Any of the following might create a nexus in a given state:
+ A temporary or permanent office;
+ A warehouse;
+ A storage locker; or
+ A sales representative based in that state.
The rules have a lot of subtleties and each state may have slightly different interpretations of how the rules work, further complicating the issue. For example, New Jersey, which does a lot of cross-border business with New York and Pennsylvania. It says any of the following may create nexus:
+ Selling, leasing, or renting tangible personal property or specified digital products or services;
+ Maintaining an office, distribution house, showroom, warehouse, service enterprise (e.g., a restaurant, entertainment center, business center), or other place of business; and
+ Having employees, independent contractors, agents, or other representatives (including salespersons, consultants, customer representatives, service or repair technicians, instructors, delivery persons, and independent representatives or solicitors acting as agents of the business) working in the state.
Of course, regulatory changes and court cases can change this interpretation at any time. Indeed, the New York State Department of Taxation and Finance issues more opinion letters on sales tax issues than on all other state taxes combined.
With 45 states imposing a sales tax, it is essential you communicate with your CPA to ensure you are in compliance.