Introduction To Nexus: What Is it, And How Does It Affect Your Ecommerce Business?
Nexus initially was a very simple concept based upon physical presence. Physical presence is a doctrine applied to tax collection that limits the ability of states to extend their taxing authority beyond their borders. However, in today’s world of global commerce the concept of nexus and physical presence has grown increasingly complicated. Today we have concerns and extensions of physical presence, such as:
But for this post we’ll only worry about the simplified concept of nexus. Nexus is most easily defined as a seller’s minimum level of physical presence that must exist before a state can require a seller to register, collect and remit sales and use taxes. There are common activities that create this minimum level of presence. Activities such as:
- Employees stationed within a state
- Occasional employee visits
- Attending trade shows and seminars
- In-state deliveries made by a company-owned truck
- Physical presence of property, even if just temporarily
- Incidental ownership of property
- Voluntary registration or incorporation
This is not an exhaustive list and each taxing jurisdiction has its own rules that govern what activities establish nexus. You should always investigate local laws before determining if nexus has been established.
Even though this is a state issue, it originates from the Commerce and Due Process Clauses of the U.S. Constitution. Both of these clauses are intended to protect interstate and foreign commerce. The inclusion of ecommerce and growth of the nexus definition to include “economic” connections has been a natural part of its evolution because the Due Process Clause requires “some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax.”
The end result is that nexus must exist before a state has jurisdiction to require taxes be collected and paid. Some activities create a clearer connection than others. If we were only focused on physical nexus only one post would suffice, but a true understanding of nexus requires further reading. Continue reading our series of nexus postings by clicking any of the links above to gain a better understanding of the different types of nexus and their nuances.
Have some more questions? Let us know! We’re happy to help, and we love talking taxes.
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