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Understand Economic Nexus for sales tax in QuickBooks Online

by Intuit Updated 4 months ago

Learn about your sales tax obligation in QuickBooks Online.

The economic nexus refers to your sales tax obligations in another state apart from your original state location. You have to pay and collect sales tax if you meet the economic threshold which varies by state. This helps you fulfill your legal obligations.

Activities that create a tax obligation

You may have tax obligations in a state if you do one or more of the following business activities:

  • Physical nexus or presence in a state. This includes owning or renting an office or warehouse with a mailing address.
  • Online sales to customers inside and outside of the state.
  • Employees and other independent contractors in the state.
  • Providing services in the state.
  • Soliciting orders at trade shows in the state for more than three days in one year.

If you have, you’ll need to register and collect sales tax and add tax agencies.

Business examples

The requirements for tax obligation vary from state to state. It's always best to check a state's specific nexus laws. Here are some basic business situations that will create an obligation to collect sales and use tax in a given state.

Example 1: You operate a cupcake shop in New York.

Obligation: The location of the shop creates tax obligation. You are then responsible to register a sales tax permit and collect sales tax from your customers.

Example 2: You operate that same cupcake shop in New York, but you ship to a second one-man distribution office just over the border in Massachusetts.

Obligation: You are now required to collect sales tax for sales inside of Massachusetts.

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