Glossary
Compliance & Tax

Sales Tax Nexus

By: Alec Hollingsworth
Updated:  
June 16, 2025

DEFINITION:

Sales tax nexus is the legal connection that requires an organization to collect and remit sales tax in a specific state.
Sales tax nexus refers to the connection or presence that an organization must have within a state before that state can require it to collect and remit sales tax on sales made to customers in that state. This nexus can be established through physical presence, such as an office or employees, or through economic activity, such as exceeding a certain amount of sales or transactions. For nonprofits, understanding sales tax nexus is crucial as it determines tax collection responsibilities, even if the organization is tax-exempt. Rules can vary significantly by state, and failure to comply with nexus laws can result in penalties and back taxes owed.

Key Takeaways

  • Sales tax nexus establishes your tax collection obligations.
  • Nexus can be physical or economic in nature.
  • Rules differ by state and can affect nonprofits.
  • Proper tracking helps avoid penalties.

Why It Matters

It determines if your organization must collect and remit sales tax in a particular state.

Real World Example

Imagine a nonprofit based in California that sells merchandise online to supporters across the country. After a successful fundraising campaign, their sales in Texas exceed the state’s economic threshold for sales tax nexus. As a result, the nonprofit is now required to register in Texas, collect state sales tax from Texas customers, and file sales tax returns with the state. Failure to recognize this new nexus could lead to unexpected tax liabilities and penalties. Using accounting software like Aplos can help the nonprofit monitor sales activity in each state and stay compliant as their fundraising efforts grow.

How Aplos Helps

Aplos helps nonprofits track their sales and fundraising activities to easily identify where they may have established sales tax nexus. This enables organizations to stay compliant with state tax laws and simplifies the sales tax reporting process within Aplos' accounting and reporting features.
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Frequently Asked Questions

What creates a sales tax nexus?

A sales tax nexus is created by having a significant presence in a state, such as a physical location, employees, or reaching certain sales thresholds.

Do nonprofits need to worry about sales tax nexus?

Yes. While nonprofits may be exempt from paying some taxes, they may still be required to collect and remit sales tax if they establish nexus in a state.

How can Aplos help manage sales tax nexus?

Aplos tracks your sales by location and helps identify where you may have established nexus, aiding in compliance and reporting.

Is sales tax nexus the same in every state?

No. Each state sets its own rules for what constitutes nexus, so requirements can vary widely.

What happens if I ignore sales tax nexus rules?

Ignoring nexus rules can result in fines, back taxes, and interest, so it’s important to monitor and comply with each state's laws.

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