E-commerce businesses sell products and services via the Internet to customers throughout the United States. If your business has a nexus (or link) in a state where one of your customer’s resides then you may be required to collect and remit sales tax to that state for the sales you generated in that state.
In general, sales tax is the tax collected by the end user of a product or service. Each state has their own rules regarding what is considered a taxable product or service and what is not. Your products or services may be taxable in one state, but not in anther. In some states if you separately state items on your invoice they are not taxable, if you lump them together, they become subject to sales tax.
In addition, each state has a different definition of “nexus”. Nexus is the term used to determine if you have a “link” in that state. If you are determined to have a link or nexus to a state then you are subject to that states sales and use tax rules and must collect and remit sales tax to the state. To make it even more complex, the definition of nexus as far as sales tax is concerned is different than the definition of nexus as far as state income or franchise tax is concerned. Thus you may owe sales tax in a state which you do not have to file a state income or franchise tax return.
Examples of items which may create a nexus in certain states include:
- Having an employee in that state, even if your business is based in another state
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