Understand the economic nexus for sales tax

You can use the economic nexus page in QuickBooks Online to help you understand when your business activities require you to register for and collect sales tax in states outside your primary location. An economic nexus is established when specific business thresholds, such as sales volume or transaction counts, are met within a state. Knowing these obligations helps your business remain compliant with state tax laws by collecting the necessary sales tax from customers.

What is an economic nexus?

A nexus is a legal connection between your business and a state that creates sales tax obligations. When you establish a nexus, you’re required by law to collect sales tax from your customers in that state and pay it to the state's tax agency.

Economic nexus rules vary by state and are typically determined by the total number of sales transactions or the total dollar volume of sales made within that state's borders. Monitoring these thresholds helps you know exactly when you need to register for a sales tax permit in a new jurisdiction.

View the economic nexus page

Use the economic nexus page to check if your sales meet a state’s threshold.

Go to All apps , then Sales Tax, then Economic nexus (Take me there).

What does the info on the economic nexus page mean?

The economic nexus page shows your sales activity in different states.  

• State – the name of the state. 
• Date range – the specific period used to calculate sales for that state. States calculate the sales differently, so the range may be:
  • previous 365 days
  • over the current calendar year (January 1 - December 31)
  • the previous calendar year
• Sales – depending on the state rules, the total gross, retail, or taxable sales income, excluding exempt and wholesale amounts where applicable. 
• Transaction count – the number of transactions you’ve made in that state that count towards the economic nexus threshold.
• Threshold met – indicates with a red exclamation point if you’ve met or exceeded the state’s requirement to collect tax. Make sure to register with states where you meet the threshold so you stay compliant.
• Agency setup – a green check mark indicates you’ve already added the tax agency to your Sales tax settings. 
• Last updated – the most recent date your sales activity was refreshed for that state.

Business 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 presence: own or rent an office or warehouse with a mailing address.
• Online sales: sell products or services to customers inside and outside of the state.
• Workers: have employees and other independent contractors in the state.
• Services: provide services in the state.
• Trade shows: solicit orders at in-state trade shows for more than three days in one year.

Examples of tax obligations

The requirements for tax obligations vary from state to state. It's always best to check a state's specific nexus laws.

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

Obligation: The location of the shop creates a tax obligation. You’re then responsible for registering a sales tax permit and collecting 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’re now required to collect sales tax for sales inside Massachusetts.

Next steps

Once you identify a tax obligation through the economic nexus page, you’ll need to register with the state. Then add the agency in QuickBooks to start collecting tax on your sales transactions.