How sales tax nexus works
Physical nexus is created by an office, warehouse, employee or inventory located in a state, even a single remote employee working from home can be enough to create it in some states. Economic nexus is created purely by sales volume, most states set a threshold such as $100,000 in sales or 200 transactions in the current or prior calendar year, regardless of whether the business has any physical presence there at all, an important distinction for online sellers.
A business that sells into multiple states needs to track sales by state against each state's threshold on an ongoing basis throughout the year, since crossing one creates an obligation to register, collect and remit sales tax there going forward from that point on. Missing a threshold can mean months of uncollected tax that the business still owes out of its own margin, plus registration and filing catch-up across every affected state once the gap is discovered.
Example
An online retailer based in Ohio ships goods to customers nationwide throughout the year. By October, its sales into Colorado reach $105,000, crossing the state's $100,000 economic nexus threshold for the current year. From that point, the retailer must register with Colorado, start collecting Colorado sales tax on future orders shipped there, and file returns on the state's schedule, even though it has no office, warehouse or staff located anywhere in Colorado itself.
Sales Tax Nexus in QuickBooks Online vs Xero
Not software-specific. Tools such as Avalara or TaxJar connect to QuickBooks Online, Xero or a shopping cart platform to track sales by state, flag when a threshold is crossed and calculate the correct rate for each jurisdiction automatically as new orders come in, without manual lookup for every sale.
Related terms
How LedgerBPO handles sales tax nexus
We monitor sales by state against each state's economic nexus threshold, flag new registration obligations early and keep sales tax collected and remitted reconciled to what was actually charged on invoices, so nothing is missed as your footprint expands into new states over time.