How to know where you have a physical nexus

Determining if you’ve triggered a physical nexus is a bit like piecing together a puzzle. The picture becomes clearer as you fit in the right pieces. 

Here are the key factors you need to keep an eye on continuously:

  • Physical Location: The most straightforward piece. If your business has a physical location in a state – a store, office, or warehouse – you’ve likely established a physical nexus.
  • Employees or Representatives: If you have employees, salespeople, or even independent contractors working for you in a state, this typically constitutes physical nexus.
  • Inventory: This is particularly relevant for eCommerce businesses. If your goods are stored in a warehouse in a state, even if it’s an Amazon Fulfillment Center, that usually triggers a nexus.
  • Property: Owning or leasing property (equipment, vehicles, etc.) in a state can also establish a nexus.
  • Temporary Physical Presence: Attending trade shows, temporary pop-up events, or having a temporary physical presence in a state can sometimes establish a nexus, depending on the state’s laws and how often you engage in such activities.
  • Drop-Shipping: If you’re involved in drop-shipping, where a third party fulfills orders on your behalf, this can sometimes create a nexus, depending on the specifics.
  • Affiliate & Click-through Nexus: Having affiliate relationships in a state who drive business to you (through referrals or advertising, for instance) can sometimes be considered as triggering physical nexus. 

The complexity arises because each state in the U.S. has its own rules and interpretations of what constitutes a physical nexus, making “Do I have a physical nexus?” a nuanced question to answer. 

What triggers nexus in California might not be the same in Texas or any other state. 

Remember, triggering a physical nexus isn’t just about where you’re physically present; it’s about where your business activities extend. It’s a crucial step in understanding your tax obligations and staying on the right side of state tax laws.

How do I know when I’ve triggered one of these triggers? 

In practical terms, it means keeping a keen eye on your business activities in each state and staying updated with state laws, which can change. When in doubt, consulting with a tax professional or the state’s Department of Revenue can provide clarity and ensure compliance.

The best way to know whether you have a physical nexus is through the use of sales tax software that monitors your business presence automatically. 

Automated sales tax software keeps track of business activities across your operational network, notifying you the moment a nexus is created. That way you know immediately when to register for a sales tax certificate and can actively avoid exposure.