September 18, 2021

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How To Determine A Sales Tax Nexus For A Business Owner

How To Determine A Sales Tax Nexus For A Business Owner

How To Determine A Sales Tax Nexus For A Business Owner

Running a business is connected with a lot of responsibilities. Of course, it gives you freedom in many ways like time management and financial independence. But coming to this level of success and freedom you have to figure out a lot of strategies, methods, and ways that help you to grow and manage a business. 

You have to take care of the proper marketing, about the sales quality and probably the most complex aspects like business-, sales-, and tax-laws. It is fundamentally important to be pro or have an expert close to you who can always make sure that the business is on the legal page because laws are complicated and breaking them can cause a lot of damage.

One very important thing you should know is the tax system and the most common terms of it. 

Check it out!

Sales tax

Sales tax basically describes the taxes that the government collects from every business that makes sales. The sales tax is usually levied at the point of sale, that the retailer passes to the government. There are certain conditions that the business fulfills under which it has to pay sales tax. The sales tax is usually taken from the consumer of the product or service and is transferred through the business to the state. As the process of production and sale is becoming more complex nowadays, proper and clear documentation has to be done so it can be proven who has to pay the sales tax.

What is nexus?

The term nexus is very common in the field of taxes. It describes the connection between an entity and the government. It defines how much presence your company has in a city or state. 

Sales tax nexus

Nexus sales tax is the specific situation of your business being connected or present in a certain country or city that makes you collect sales taxes from your customer. Countries might have a different law about the sales tax nexus. Running a business, you should know what kind of law you have to deal with.

What is economic nexus?

As globalization is developing more and more international sales are becoming pretty common. With this, a new term which is called economic nexus came up. It means that you have to collect taxes in a country because you earn above a certain sales or revenue threshold. It is specified for all online sales because the common laws don´t include this variant of sales.

How to determine a sales tax nexus

Many people might ask, how they know when they have to collect sales taxes. Every country and even some cities have very specific and complex laws about what defines a nexus that requires collecting and paying sales taxes. 

There are some aspects that are generally defining the nexus. That includes the location of your office, warehouse store, or business. Having a physical location mostly indicates a clear nexus. If you have employees, contractor or salespeople in the country can be a reason that you have to collect sales taxes. Other important aspects are the number of sales and the trade show sales.