Sales-tax nexus determines whether a business must collect and remit sales tax in a state. Here’s how physical and economic nexus work.
Sales-tax nexus is a sufficient connection between a seller and a state that can create an obligation to register, collect, and remit applicable sales tax. Nexus may be physical, economic, or based on other state rules.
Economic nexus is a state-defined level of economic activity that can require an out-of-state seller to register, collect, and remit sales tax even without a traditional physical location in that state. Thresholds and measurement rules vary by state.
Physical nexus is a connection with a state created by activities such as maintaining a location, inventory, employees, or other physical presence. The exact rule varies by state and activity.
A sales-tax permit, sometimes called a seller's permit or sales-and-use-tax license, is a state registration that authorizes or requires a business to collect and remit sales tax.