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Economic Nexus

The conceptualization of economic nexus is all about nexus standards that look to certain criterias other than physical companionship in evaluating a sellers correspondance to that state.
Economic Presence Nexus is a legal term that refers to the requisites for entities administrating business in a state, including professional service firms, to collect and pay tax on income derived in that state even though the business may lack a physical presence Economic nexus is when a seller must collect sales tax in a state because they earn above a sales or revenue threshold in that specific state. A seller must make sure to do sales tax audit for better understanding. Economic nexus is most common for out-of-state sellers.

Nexus refers to the amount of presence your business has in a location, like a state or city. For example, you might have nexus in a state if you sell goods to customers in that state. Each state with economic nexus laws sets its own threshold that businesses must meet to have economic nexus. States’ thresholds for economic nexus vary.

The term “nexus” refers to a commercial linking in the state. A nexus is something you have. So, your business either has nexus in a state, or it doesn’t have nexus in a state. Traditionally, nexus have been determined by “sufficient physical presence,” and there are multiple ways your business could satisfy the requirement of “sufficient physical presence.” It could be through a brick-and-mortar office, a single sales representative, a high-grossing affiliate business, or even using cookies on computers located in the area.

An economic nexus is a sales tax nexus determined by economic activity, i.e. – the amount of sales you make in a particular state. Any kind of economic activity could trigger the nexus, once your total sales reach a certain amount.You can acquire an economic nexus regardless of where your business, employees, or warehouses are located. If your sales in that state are substantial enough, then you are liable for sales tax there. In states that use the number of transactions when determining sales tax nexus economically, a remote vendor should pay close attention to how the state accounts for transactions.

Conclusion : Regardless of when a remote vendor registers for sales tax collection, before doing so, they should assess whether they have any historical exposures as they relate to other taxes, such as income taxes and gross receipts taxes. This is particularly important because physical presence nexus, which still applies in a post wayfair world, may be established via in-state non-employee representatives acting on a remote vendor’s behalf. In addition, some states have adopted economic nexus thresholds for income tax purposes (and gross receipts tax purposes, too), which may also ensnare a remote vendor, and U.S. tax treaties that may otherwise exempt the remote vendor from U.S. federal income tax typically do not apply to state income taxes. If a remote vendor is exposed to other types of taxes, they risk being subject to interest and penalties without remediation, if not addressed early on.

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16 comments

  1. This is such a useful information specially for businessmen who may be confused about sales tax collection. Every businessman may not be aware of economic jargons and this post will help clear their fundamentals re sales tax.

  2. I’m not too much of a business person but this article has definitely opened my eyes to so many aspects and gives me confidence to do a few things on my own!

    • Shreemayee Chattopadhyay

      So much useful tips these are. I’m not a business person though. But your article definitely will help the people who are in this field, as they may not all be aware of sales tax collection and all.

    • This is such an informative article, finances, taxes are a handful for a lot of people out there. I’ll share it with my friends, thanks so much!

  3. The concept of Economic Nexus is indeed interesting. It takes the concept of business to include all entities including tax authorities, etc., into the value chain.

  4. This is such an informative article, finances, taxes are a handful for a lot of people out there. I’ll share it with my friends, thanks so much!

  5. That’s a very informative and helpful post. I will share this post with my friends who are in to business.

  6. I am sure this post will be very helpful for those in business. It is full of important information.

  7. This is such a informative article it undoubtedly left me an ounce more enriched in the topic

  8. This is useful info not every one is aware of sales tax collection, esply small businesses and vendors. The point worth noting here is that you have broken down this term to make the jargons comprehensible for layman.

  9. For a business person, knowing the rules of when nexus is applicable is important. This is a helpful article introducing the concept.

  10. Amazing and informative post. Economic nexus legislation to address how sellers conduct business today. Many states have imposed economic nexus standards for income tax purposes. Great thoughts.

  11. Understanding economic nexus is really very important… Thank you for sharing everything in such details! Will help many!

  12. Thanks for sharing about economy nexus in details. Easy to follow. Never know about that it’s importance for seller’s

  13. This is such an insightful information,gonna share it with my friends and family too,your post are always very informative

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