While many finance teams are now familiar with the concept of economic nexus, there’s a growing need to understand the details behind when and where nexus is triggered; plus what happens next.
If you’re unsure how thresholds, registration dates, and sales definitions affect your obligations, or how to track then our Nexus Checker can help you decode the rules.
Understanding key economic nexus triggers
There are four key considerations when it comes to nexus triggers.
1. State-specific thresholds
Each US State sets its own threshold for economic nexus, and measure sales in their own way. While some base it on gross sales, others use net or taxable sales and a few include transaction counts as well.
The variations include:
- California: $500,000 in gross sales annually. This includes all revenue from sales into the state, regardless of product type or taxability. There’s no transaction count requirement.
- Connecticut: $100,000 in net sales and 200 transactions. Net sales exclude returns and may filter out some non-taxable items.
- Minnesota: $100,000 in taxable sales or 200 transactions. Only revenue from products and services subject to Minnesota sales tax counts toward the threshold.
That means it’s not just about the number; it is how the state defines it.
2. Effective date vs registration deadline
One of the biggest compliance risks is misunderstanding the timeline.
Effective Date: The date when your sales exceed a State’s nexus threshold. This is when your obligation to collect tax begins, not when you happen to notice it.
Registration Deadline: Ideally, you must register before making your next sale after crossing the threshold. Many states do not offer grace periods.
Failing to register on time could lead to penalties, back taxes, and interest.
3. Gross sales vs retail sales vs taxable sales
As mentioned, not all States measure thresholds the same way. Here’s how the terms differ:
Gross sales: all revenue from sales in a State, regardless of product type or exemptions. It is used by many States to determine nexus, even if products are tax-exempt.
Retail sales: the final sales to end consumers, not resellers. It may exclude wholesale or B2B revenue.
Taxable sales: Only applies to sales that are subject to sales tax under that State’s rules. It may allow sellers to stay below the threshold if most of their products are exempt.
Beware: using the wrong definition can lead to miscalculating nexus exposure.
4. Rolling vs calendar periods
Some States measure thresholds based on the previous calendar year, while others use a rolling 12-month period.
Calendar year: there is a clear cut-off every January 1st.
Rolling 12 months: you need to check monthly to see if the last 12 months of sales has triggered nexus.
One easy way to do this is through Nexus Checker – making US sales tax simpler.
Track, plan, act — in 4 easy steps
Nexus Checker is a purpose-built tool to help businesses like yours assess if they are liable for nexus:
1. Which States are you close to triggering nexus in?
2. Have you already crossed the line without realizing it?
3. Do you need to register, and if so, when by?
4. Which type of sales data do you need to track for each State?
Creating a US sales tax solution needs to combine real-time threshold rules, transaction data inputs and tailored compliance guidance so you can take the right action at the right time. You can do this in-house using a tool such as Nexus Checker or work with a US sales tax compliance team, such as Tax Desk.
Stay ahead of risk and focus on growth
As a finance team, you won’t want your sales tax compliance slowing down the company’s growth. The sooner you understand your exposure, the sooner you can register, collect properly and avoid costly surprises.
View the Nexus Checker today or speak to one of the team about mitigating your nexus risk.
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