Expanding into new states can create tax obligations that businesses may not anticipate.
As businesses grow across the United States, understanding sales and use tax, state nexus, registration requirements, and filing obligations becomes increasingly important.
A business may have tax responsibilities in a state even when it does not have a traditional physical location there.
For growing businesses, identifying potential state obligations early can help reduce compliance risks and unexpected tax liabilities.
What Is State Tax Nexus?
Nexus generally refers to a sufficient connection between a business and a state that may create tax or registration obligations.
Nexus can arise through different types of business activities, including:
- Physical presence
- Employees
- Contractors
- Inventory
- Property
- Sales activity
- Economic activity
- Remote employees
- Certain marketplace or third-party activities
The specific rules and thresholds can vary by state and tax type.
Key Areas of a Sales & Use Tax and Nexus Review
- Physical Nexus
- Economic Nexus
- Sales & Transaction Thresholds
- Employee & Contractor Activity
- Inventory & Property
- Customer Locations
- State Registration Requirements
- Sales Tax Collection Obligations
- Use Tax Considerations
- Filing & Reporting Requirements
- Exemption Certificates
- Marketplace Facilitator Rules
- Historical Exposure
- Voluntary Disclosure Opportunities
Common Sales & Use Tax Challenges for Growing Businesses
- Expanding sales into new states
- Uncertainty about nexus thresholds
- Failure to monitor state-by-state sales activity
- Missing state registrations
- Incorrect sales tax collection
- Incomplete exemption documentation
- Use tax obligations being overlooked
- Multiple state filing requirements
- Historical periods with potential exposure
- Changes in business operations or workforce
When Should a Business Consider a Nexus Study?
A nexus review may be appropriate when:
- Your business is selling into multiple states
- Revenue is growing rapidly
- You have customers across the U.S.
- Employees or contractors are working remotely
- Your business has inventory or property in multiple states
- You are entering new markets
- Your business has recently acquired another company
- You have never conducted a state nexus review
- You are concerned about historical sales tax exposure
- Your state filing obligations are becoming difficult to manage
Sales Tax vs. Use Tax
Sales tax and use tax are closely related but serve different purposes.
Sales Tax generally applies to taxable sales made to customers.
Use Tax may apply when taxable goods or services are purchased without the appropriate sales tax being collected.
Businesses should consider both when evaluating their overall state and local tax compliance.
Why a Nexus Study Matters
A structured nexus review can help businesses:
- Identify states where obligations may exist
- Understand potential registration requirements
- Evaluate sales tax collection responsibilities
- Identify potential historical exposure
- Improve state tax compliance
- Reduce the risk of unexpected assessments and penalties
- Develop a more proactive state tax strategy
How VM Business Services Can Help
VM Business Services supports businesses with state tax compliance, sales & use tax, nexus analysis, tax preparation, and broader accounting and tax services.
Our team can help businesses evaluate their state footprint, identify potential tax obligations, and develop an appropriate compliance approach based on their business activities.
We can also support ongoing state compliance requirements, helping businesses maintain visibility as their operations and sales footprint change.
Expanding Into Multiple States?
If your business is selling across state lines or expanding its workforce and operations, now may be the right time to review your state tax obligations.
Let’s discuss your Sales & Use Tax and nexus requirements.
Key Takeaway
Growing across the U.S. can create growing state tax responsibilities.
Understanding where your business has nexus and what obligations may arise can help you stay compliant, manage potential exposure, and avoid unnecessary surprises.
Know your nexus. Understand your obligations. Stay compliant.
