Whay is Nexus for State Taxes? CPA Exam REG

In this video, I explain nexus for state tax purposes.
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n the context of taxes, "nexus" refers to a business's connection or presence within a particular state or jurisdiction that is sufficient to establish its obligation to comply with that state's tax laws. This concept is crucial for determining whether a business is required to collect and remit sales tax, pay income tax, or comply with other state tax obligations.

The criteria for establishing nexus can vary from state to state, but generally, it can be created through various activities, such as:

Physical Presence: Having an office, warehouse, store, or other physical location in the state.
Employees or Agents: Employing people, or having salespersons, agents, or representatives operating in the state.
Economic Nexus: Generating a certain level of sales or transactions within the state. This has become increasingly relevant with the rise of online sales, especially following the South Dakota v. Wayfair, Inc. Supreme Court decision in 2018, which allowed states to require out-of-state sellers to collect and remit sales tax based on their economic activity in the state, even without a physical presence.
Affiliate Nexus: Having a business relationship with an entity in the state that helps a company establish or maintain a market in the state.
Once a nexus is established, the business must adhere to the tax laws and regulations of that jurisdiction, which can include collecting sales tax from customers, paying state income tax, and filing the necessary tax returns. Understanding and managing tax nexus is crucial for businesses, especially those that operate in multiple states or sell goods and services online.



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