Sales Tax Registration Requirements for Businesses

By Johanna Monroy
January 24, 2023
News and Insights , SALT
Sales Tax Registration Requirements for Businesses

A business that is selling goods and services within a state must register with the state’s tax department and collect the sales tax from customers and file the return regularly. Businesses that sell goods or services across state lines must be aware of the different sales tax rates and rules in each state and register accordingly.

Nexus threshold for Business Registration

Nexus refers to a connection or link between a business and a state or local government that triggers a requirement for the business to collect and remit sales tax. In the context of sales tax, a business has a nexus with a state or local government if it has a physical presence or economic presence in that jurisdiction. If a business has a nexus in multiple states, it must register and comply with the sales tax laws in each state where it has nexus.

Physical Nexus

The physical presence requirement for sales tax varies from state to state, but some common examples of activities that will establish physical nexus are:

  • Having a physical office, store, or warehouse in the state
  • Having employees or independent contractors working in the state
  • Regularly delivering goods to customers in the state
  • Owning or leasing property in the state
Economic Nexus

The concept of nexus has become more critical in recent years with the rise of e-commerce, as many online businesses may have customers in multiple states even if they do not have a physical presence in those states. In 2018, the U.S. Supreme Court, in the case of South Dakota v. Wayfair Inc., ruled that a business can be required to collect sales tax in a state even if it doesn’t have a physical presence there, as long as it has a certain level of economic activity (“Economic Nexus) in the state. As a result of the Supreme Court ruling, many states have passed laws requiring out-of-state sellers to collect sales tax if they meet a certain threshold for sales or transactions in the state.

State Differences

Each State has its own unique set of sales & use tax laws. As such, the physical and economic nexus thresholds vary from state to state and

Need Help?

PMBA can guide you throughout the entire process. From evaluating if you have met the nexus thresholds to start remitting tax for your business to helping you register your business to assist with any filing needs you may need. If you have any questions or would like to get more information, please contact PMBA and we can help you with your sales tax compliance obligations.