What happens to your nexus if you move?
- Sales Tax
- May 24, 2017 | Stephanie Faris
Most businesses start in one state and add locations as they grow. However, occasionally a business chooses to relocate across state lines, maybe to find a better customer base or access a more affordable lifestyle for workers.
Leaders know from the start that such a move will be disruptive, with such a long list of small details that things can easily fall through the cracks.
One of those details is a business’s sales tax structure, which is normally set up with your Point of Sale (POS). Businesses are currently required to charge sales tax when they make a sale in any state in which they have nexus, which includes their home state, as well as any state where they have a physical presence. That means if you change states, your sales tax will likely be affected.
Here are a few things you need to know about nexus and relocation before you move.
Online sales have complicated tax collection, with businesses regularly shipping items across state lines. Under nexus rules, which vary by state, your business must charge sales tax on sales in any state where you have an office, warehouse or a distribution facility. Nexus also usually applies if you have employees acting on your behalf, including online affiliates.
If you do business in states where economic nexus laws are in effect, you may be required to collect sales tax even if you don't meet the state's previous nexus requirements. With economic nexus, a business must begin sales tax collection due to the sheer volume of money it makes in that state. These laws are already in place in Alabama and Tennessee, with more states soon to follow. It’s important to carefully check the nexus laws for each state in which you do business.
Initially, it may seem as though all you have to do to sever your ties with a state is to change your circumstances. However, even if you relocate your business, you may have obligations to that state under their nexus laws.
In states with trailing nexus, you’ll still need to charge sales tax for a time, even if you’ve moved, closed your distribution facility or removed your sales representative from the area.
In Washington State, for instance, nexus laws apply until the end of the current calendar year plus an additional calendar year after the company no longer has a physical presence. In California, the law is more vague, simply stating that a business must continue to collect sales tax as long as it “continues to generate sales from the lingering effects of its physical presence in California.”
If a state doesn’t have laws specific to trailing nexus, clarify with the department of revenue whether you should continue to collect sales tax as long as you are generating income as a result of once having a presence in the state.
Now that many businesses rely on third-party services and marketplaces to handle fulfillment, nexus has become more complicated. Amazon, for instance, regularly places distribution centers in new states. However, if a third-party seller closes a facility in a state, the businesses working with that service may not even be aware of it. For that reason, it’s important to carefully monitor the physical presence your fulfillment centers have in each state. Although Amazon doesn’t specifically list its fulfillment centers, you can find a current list here.
If you’re relocating your business or fulfillment center, check the nexus laws in all applicable states to determine your sales tax obligations. To learn more about nexus, be sure to review our Sales Tax Nexus Guide.