Sales & Use Tax / Nexus
Service description
Reviews where the business has a duty to collect and pay sales tax, called nexus, based on where it has employees, property and inventory and how much it sells into each state. Where a duty exists, the provider registers the business, sets up tax collection and brings filings current, including past periods if the business has been selling without registering.
Common industries
Online sellers, software and subscription companies, and any business selling across state lines.
ROI
Avoids back taxes, penalties, and interest from unregistered states, and prevents surprises in a future audit or acquisition due diligence.
Benefit
Determine where your business has sales-tax obligations ("nexus"), register where required, and get compliant — critical after selling across state lines or online.
Why get it
A business can owe sales tax in a state where it has no office, because its sales alone can create the obligation. Unregistered sales leave uncollected tax that the business may owe from its own funds, plus penalties and interest.
When you benefit
Typically a one-time review to find where obligations exist, then ongoing filing. The review repeats when sales grow into new states or the business adds locations.
What it costs
Fixed fee for review.
When you pay
Commonly one fee for the nexus review, due when the findings are delivered, then a recurring monthly or quarterly fee if the provider also registers and files. Cleaning up past periods is often quoted separately once the amount owed is known.
Other costs
State registration and filing fees where they apply, and tax-collection software or updates to the business's checkout or invoicing system.
Risks to know
The review is only as reliable as the sales data it starts from, and missing transactions can hide a state where tax is owed. A state can bill back tax, penalties and interest for past periods once it learns the business sold there without registering. Some states offer voluntary disclosure programs that reduce penalties, but sellers are not automatically eligible.
When risks arise
Back-tax exposure grows with every period of sales made without collecting tax, so risk is highest for a business that has grown quickly across state lines and hasn't yet reviewed where it sells.
The process
The provider analyzes the sales and physical-presence data to find where the business must collect tax, and presents the results for the business to review. The business chooses which states to act on, and the provider registers it, sets up tax collection and files returns. Where past periods are exposed, the provider can help the business approach the state.
Your commitment
The business provides its sales by state, broken out by product or service and by customer type, along with a list of where it has employees, property, inventory and contractors. It should also share any exemption certificates it holds and any notices it has received from a state.
Documents to gather
- Sales by state for the past several years, split by product or service
- List of locations, employees, contractors and inventory in each state
- Exemption and resale certificates from customers
- Any notices or letters received from a state tax agency
Helpful reading
- A practical guide to economic nexus — Journal of Accountancy
- A Very Short Primer on Tax Nexus, Apportionment, and Throwback Rule — Tax Foundation
- Sales Tax Definition | TaxEDU Glossary — Tax Foundation
Further research
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