Sales & Use Tax
A CPA’s Basic Guide to SALT Requirements
State and local taxes affect every business in Illinois in one way or another. To ensure their clients remain tax
Benjamin Kluwgant
January 22, 2024
Nexus is the connection between a state and a business entity. If a business is determined to have nexus in a particular state, that means the company has a sufficient presence in the state to create tax obligations. This means a business has obligations to register, collect, and remit sales tax to a state for sales tax purposes.
Having remote employees is enough physical presence to create nexus. The rules surrounding contractors and agents vary state-to-state. However, some states, such as Florida, would consider having a contractor working full-time hours in a client-facing role as enough presence to create nexus.[1]
Many states would consider crossing into a state to perform services, deliver goods, promote, or consult as enough activity to create nexus. Even if no other type of physical presence exists, these business activities could potentially create nexus.
Economic nexus rules do not eliminate the physical presence standard for nexus. If a business has minimal sales below the economic nexus threshold in a state where it has a physical presence, it will still be required to follow the state’s sales tax regulations.
The answer will depend on the state and what their specific economic rules outline. Most states have chosen to include non-taxable sales or wholesales in determining economic nexus thresholds. A state could still require you to comply with their sales tax obligations, including registering with the state, filing periodic returns with zero tax due, and collecting exemption certificates from your customers. Some states, such as Illinois, have explicitly stated that non-taxable sales do not count towards the economic nexus threshold.[4]
Some states could define this type of activity as affiliate nexus. Although not every state has affiliate nexus rules. Those that do have different definitions of what constitutes affiliate nexus. For the most part, a commonly owned entity providing services on behalf of another entity can create nexus for a business that does not have a presence in a state.
This activity can create nexus. Some states have click-through nexus regulations, a type of nexus made through online referrals with commission payments to site owners. Over 20 states have click-through nexus regulations with different thresholds, often between $5,000 – 10,000 in annual sales.
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