In today’s interconnected global market, understanding nexus is essential for businesses expanding across state lines, borders, and even continents. Whether you’re navigating the complexities of U.S. sales tax, VAT in the EU, or other tax systems worldwide, determining nexus is the first step in staying compliant. Nexus refers to the connection between a business and a tax jurisdiction that obligates the business to collect and remit sales tax. However, the rules vary drastically depending on the region, and failing to track and manage nexus risk can lead to costly penalties. In this comprehensive guide, we’ll break down how nexus is defined in multiple jurisdictions, the factors that trigger tax obligations, and how businesses can leverage automation to monitor and manage nexus risk effectively.

What Is Nexus in Sales Tax?

In simple terms, nexus refers to the connection or presence a business has with a jurisdiction that requires it to collect and remit sales tax. Nexus can be triggered by physical presence, economic activity, or other business actions within a jurisdiction. Understanding the different nexus rules across regions is critical for avoiding tax compliance issues and ensuring your business runs smoothly.

Key Point: Nexus laws and thresholds differ by jurisdiction, which means businesses must tailor their compliance strategies for each region they operate in.

Nexus in the U.S.: Economic and Physical Presence Rules

In the U.S., nexus is primarily determined by two factors: physical presence and economic nexus. Traditionally, a business had to have a physical presence, such as an office, warehouse, or employees, in a state to trigger nexus. However, the Supreme Court’s decision in South Dakota v. Wayfair (2018) reshaped how nexus is determined for online businesses, establishing the principle of economic nexus.

Economic Nexus in the U.S.

Under economic nexus, a business can be required to collect sales tax based on its revenue or transaction volume, even if it has no physical presence in a state. Many states now set thresholds for economic nexus. For example:

• A business must collect sales tax if it generates more than $100,000 in sales or has more than 200 transactions in a state.

What Triggers Nexus in the U.S.?

• Physical Presence: This includes having an office, warehouse, or employees in a state.
• Economic Nexus: Exceeding sales thresholds or transaction numbers triggers sales tax collection.
• Marketplace Facilitator Laws: Online platforms like Amazon may collect sales tax on behalf of sellers, even if the seller has no physical presence in a state.
• Affiliate Nexus: Having affiliates or partners in a state can also trigger nexus.

Nexus in the European Union (EU): VAT Compliance

The EU applies Value Added Tax (VAT), which has different rules compared to U.S. sales tax. In the EU, nexus is triggered when a business has a substantial presence in a country, including both physical and economic factors. The EU also has specific rules for distance selling (eCommerce) and a One-Stop-Shop (OSS) system that simplifies VAT compliance for cross-border sales.

Thresholds for Nexus in the EU:

Each EU country has its own sales threshold for VAT registration. Once a business exceeds a specified revenue from sales within the EU, it must register for VAT in that country. The EU-wide threshold for distance sales is €10,000 (or its equivalent).

What Triggers Nexus in the EU?

• Physical Presence: Offices, employees, or warehouses in an EU country.
• Distance Sales: Selling goods or services across borders within the EU that exceed the threshold.
• Digital Services: Digital products (e.g., software, eBooks) often require VAT to be applied based on the customer’s location.

Nexus in Other Global Jurisdictions

Beyond the U.S. and EU, other regions have their own nexus rules, primarily based on economic activity. For example, Canada and Australia have Goods and Services Tax (GST) and Harmonized Sales Tax (HST) that require businesses to register when they exceed certain revenue thresholds.

Managing Nexus in Australia, Canada, and Beyond

• Australia: Businesses must register for GST if their annual turnover exceeds AUD $75,000.
• Canada: Businesses must register for GST/HST when they exceed $30,000 in sales within Canada.

What Triggers Nexus in Global Jurisdictions?

• Economic Nexus: Reaching specific revenue or transaction thresholds in a country.
• Physical Presence: Having a facility, employee, or agent in the jurisdiction.
• Marketplace Nexus: For businesses selling through online platforms, the platform may be responsible for tax collection.

How to Manage Nexus Risk Effectively

Navigating the complex landscape of nexus requirements can be challenging. As your business grows and expands into new regions, you need tools that help you track and manage nexus obligations efficiently. IST provides automated solutions to help businesses stay compliant across multiple jurisdictions by tracking nexus thresholds and automatically registering for sales tax when necessary.

Managing Nexus Risk with Automation

• Track Nexus in Real-Time: IST’s tools help businesses track nexus thresholds in real time, ensuring that your business is always compliant.
• Automatic Registration: IST automatically registers your business for sales tax in jurisdictions where it exceeds nexus thresholds, reducing manual workload.
• Global Compliance: From the U.S. to the EU and beyond, IST helps businesses comply with complex tax laws in multiple regions.

Stay Ahead of Nexus Requirements

Successfully navigating nexus requirements is crucial to maintaining smooth operations and avoiding compliance issues as your business grows. With rules varying from one jurisdiction to another, staying ahead of nexus thresholds and tax obligations is more complex than ever. Whether you are selling within the U.S., across the EU, or globally, understanding what triggers nexus in each region is key. By using automated solutions like IST, businesses can simplify the process of managing nexus risk, ensuring timely tax registration and accurate tax collection. Don’t let nexus compliance hold you back—empower your business with the tools to manage multi-jurisdictional tax obligations seamlessly.

Stay ahead of nexus requirements with IST’s automated tax compliance tools. Ready to simplify your nexus management? Get started with IST today.