When Must Your Brand Register for Sales Tax?

TLDR

• You register for sales tax where you have nexus: a connection to a jurisdiction strong enough that it can require you to collect.
• Nexus is created by presence (people, stock, property) or by sales volume into a place you have never set foot in.
• Selling cross-border adds VAT and GST registrations to the list, and the rules differ by country.
• If your brand is merchant of record, the obligation is yours. Infrastructure can calculate and collect at checkout, but it cannot register for you.

Sales tax registration is the point at which a jurisdiction can require your brand to collect tax on sales into it, and to remit what you collected. The trigger is nexus: a connection between your business and that jurisdiction that the jurisdiction considers strong enough. Most brands discover nexus after they have created it. The purpose of this article is to help you see it coming.

What is nexus, and why does it decide everything?

Nexus is the legal word for “enough of a connection.” It is the test a state, province, or country applies before it can require you to register, collect, and file. There is no single definition. Each jurisdiction sets its own, and most set more than one.

The reason it matters is that registration follows nexus, not the other way around. Once you have crossed a nexus test, you are usually expected to be collecting from that point forward. Finding out two years later is the expensive version of this article.

What creates physical nexus?

Presence. A store, an office, a warehouse, an employee, or a contractor working in a jurisdiction can all create physical nexus. So can inventory, which is the one scaling brands miss most often. Stock held in a 3PL or a marketplace fulfilment center in a state you have never visited can create nexus in that state.

If you have recently added a fulfilment location, hired remotely, or started holding stock closer to customers, you may have created physical nexus somewhere new.

What creates economic nexus?

Sales. Economic nexus means a jurisdiction can require you to register based on how much you sell into it, with no physical presence at all. In the US this became the norm after the Supreme Court’s Wayfair decision in 2018, and most states now set a sales or transaction threshold that triggers registration.

The thresholds differ by state, they change, and some measure gross sales while others count transactions. This article will not quote them, because a number that is right today may be wrong next quarter. Swap’s sales tax by state pages hold the current rates and nexus thresholds for every state, updated monthly. The point here is structural: a brand with meaningful direct sales into a state should assume it has an economic nexus question there, and check.

Does selling through a marketplace change your obligation?

Partly. Most states now require large marketplaces to collect and remit on behalf of their sellers under marketplace facilitator rules. That covers the marketplace sales. It does not cover sales from your own site, and in many states marketplace sales still count toward your economic nexus threshold. A brand that sells both ways needs to look at both.

What changes when you sell cross-border?

The vocabulary changes, and so does the structure. Outside the US the equivalent is VAT or GST registration, and the trigger is more often the act of selling into the country than a volume threshold. Many markets run specific schemes for low-value goods sold to consumers, each with its own registration path, and several require a local representative to register at all.

If you ship DDP, the taxes due at import are calculated and collected at checkout. That solves the customer’s problem. It does not remove the registration question, because collecting a tax and being registered to remit it are different things.

If you are merchant of record, whose obligation is it?

Yours. The merchant of record is the legal seller of the order, and the seller carries the obligation to register where required, collect the right tax, and remit it. That is the trade-off behind keeping merchant of record: you keep the sale, the customer, and the data, and you keep the compliance responsibility that comes with being the seller.

Some cross-border providers offer to take this away by becoming merchant of record. As the previous article in this series covered, that removes the obligation by removing you from the transaction. The alternative is infrastructure that keeps you as the seller and handles the calculation.

Swap Global calculates total landed cost, including the taxes due on the order, before the customer pays, with your brand as merchant of record. The registration decision stays with you and your tax advisor. The checkout stops being the place where it goes wrong.

What should you do this quarter?

Three things. List every jurisdiction where you hold stock, employ people, or have crossed a meaningful sales volume in the last twelve months. Take that list to a sales tax advisor or a tax automation specialist and confirm where you have nexus - or speak to Swap. Then make sure your checkout is calculating and collecting correctly in every one of them, because a registration without accurate collection is a filing problem waiting to happen.

Nexus is not something a brand chooses. Knowing where you have it is.

Book a demo to see how Swap calculates duties and taxes at checkout with your brand as merchant of record.

Sales tax by state

Current rates, nexus thresholds, and registration detail for every US state and the District of Columbia, updated monthly.