By now, every state has set a threshold for sales tax nexus — a revenue number that requires a business to register, collect, and remit sales taxes. Missouri and Florida, the last two states to enact these laws, have both set their thresholds at $100,000. That means that if you sold $100,000 in goods or services in these states last year, you must comply with sales tax regulations this year.
Each state has its own definition. In some states, the threshold might be $200,000. There might be a specific number of transactions included in the threshold definition. Some states count all sales — that is if you sell the threshold amount and some or even most of those sales are wholesale, you will still have nexus. It’s complicated.
But you also continue to be liable for sales tax compliance when you have other kinds of nexus. For example, if you have a warehouse in Florida but you only had $40,000 in sales there last year, you still have nexus.
Do ads create nexus?
Ads are not physical. Before Wayfair, it would have been hard for a state to make a case that your online ads showing up in their state created nexus for sales tax. Now, however, that can happen.
For example, Kansas says you can establish nexus by “conducting any other activities in the state that are significantly associated with the retailer’s ability to establish and maintain a market in the state for the retailer’s sales.” Are online ads “in the state”? In a sense, they are. They are not physically in a state the way a paper catalog is, but they are seen by eyes looking at computers, and both the eyes and the computers are in the state.
It’s definitely complicated.
Avoiding ad-triggered nexus
Online ads such as Google ads or Facebook ads can be controlled by geography. You can exclude Kansas from your ad by to avoid establishing nexus there. You might also avoid making sales in Kansas if you do that, but at that point, it’s a question of whether the advertising is worth establishing nexus or not. A resident of Kansas who comes to your website, because a link was shared by a friend of theirs on Facebook, might not be included in the definition of nexus in that state. Without buying Facebook ads directed toward people in Kansas, you can hardly be said to be conducting activities designed to establish a market in that state.
Kentucky, Massachusetts, Iowa, and Nebraska are some other examples of states that specify activities like advertising among the things that trigger nexus for sales tax in their states.
What if you trigger nexus with marketing?