What is Nexus?

No, it's not the latest hybrid car. It's not a new science fiction blockbuster either. If you sell online, you may have already heard about it. If you haven't, it's probably time you did — because it could have serious consequences for your business.

Nexus is defined as a connection. In this case, the nexus we're talking about is a connection you create with the state. You can create this connection by being physically located in a state or selling products to customers in a state. When this connection or nexus is established, you have an obligation to pay sales tax to that state.

You may be thinking, okay, so nexus means I owe sales tax to a state. That's not so hard. You may also wonder about the different ways you can create that nexus. We're going to focus on two of the most common ways businesses create nexus — physical presence nexus and economic nexus.

With physical presence nexus, your business or your products physically being in a state can mean you need to pay sales tax there. This may mean your office, but it could also include inventory stored in a warehouse, kiosks, attending trade shows, and even remote employees.

For economic nexus, it's all about your sales. This is especially important for online sellers. Most states have a trigger or threshold that your business needs to pass. The threshold is usually a dollar amount of sales, a number of transactions, or in some cases both. Once you've surpassed a threshold, you're now obligated to collect and pay sales tax to that state.

If you feel lost, you're not alone. Sales tax is already complicated and nexus is another wrinkle. Find out more about what you need to know about nexus to stay in compliance.