There’s a critical aspect of commerce that food and beverage owners and operators cannot afford to overlook: state tax nexus. Understanding tax nexus is essential to ensure compliance and avoid costly penalties.
“Compliance with state tax nexus laws isn’t just a corporate responsibility — it’s a personal one,” advises Karli Olsen, CPA and tax advisor at Pinion.
“CEOs, CFOs, and directors can be held personally liable for sales tax lapses, putting their own assets at risk. This isn’t a hypothetical risk; it’s a tangible, personal threat that must be taken seriously.”
For food and beverage companies in particular, the perishable nature of those products adds urgency to compliance. Given the need for timely delivery, companies often use multiple fulfillment centers across states, which can increase the likelihood of establishing nexus. Selling across state lines, using delivery services that have multi-state operations, and even attending and selling via tradeshows can establish nexus that requires out-of-state sellers to collect and remit sales tax.
What factors typically trigger nexus for sales tax? How do you determine if your business has nexus? And, if you have nexus in a state, how can you ensure adherence to its tax laws (including registration for a tax permit, collecting taxes on sales, and filing proper returns)? Pinion tax advisors have provided a high-level look at nexus tax parameters and what is needed to comply.
Guidance for Determining State Tax Nexus
What is it?
State tax nexus is the connection between a business and a state that establishes the business’s obligation to collect and remit sales tax in that jurisdiction.
Requirements impacting eCommerce businesses:
States can now require out-of-state sellers to collect and remit sales tax if they reach a certain level of sales or transactions in the state, regardless of physical presence.
“Each state has its own nexus laws, but states like California, New York, Texas, and Florida are particularly vigilant in enforcing tax obligations due to their large consumer bases and developed economic nexus regulations,” says Olsen.
How to determine if your business has nexus in particular states:
- Holds a physical presence in the state.
This includes property, employees, inventory, or any physical operations.
- Attained an economic threshold for sales in the state.
Each state sets its own thresholds for economic nexus, often based on sales revenue or number of transactions.
- Uses third-party affiliates or online marketplaces to sell products in the state.
Some states consider these channels as creating nexus. e., Amazon, Walmart Marketplace, Subscription Box Services
- Participates in food fairs, trade shows, or temporary events in the state.
Even short-term physical presence can establish nexus in some jurisdictions.
- Has remote employees or contractors working in the state.
This can sometimes create a sufficient business presence to constitute nexus.
- Uses drop shipping or third-party fulfillment services located in the state.
Nexus can be established if your inventory is stored or shipped from within the state.
Consider Nexus When Expanding Your Business
As your business explores new expansion or growth opportunities, stay attuned and compliant to the nexus rules that could apply. Owners should regularly assess their nexus footprint, especially when:
- Expanding product lines or services
- Entering new markets or discontinuing sales in others
- Changing distribution or fulfillment strategies
- Experiencing a significant shift in sales volume
The Risks and Rewards of Nexus
Risk for owners and operators:
The risks for noncompliance are real and can come at a personal cost. Failing to comply with nexus can result in back taxes, penalties, interest, and even legal action. Under “responsible party” laws, corporate leaders—not just the business—face personal liability for sales tax lapses. CEOs, CFOs, and directors risk their own assets, as states can demand personal identifiers like Social Security numbers at registration and probe personal tax returns to prove deep business involvement.
Benefits for your business:
Registering your business in states where you have nexus is crucial for tax compliance, but it can also provide legal and financial benefits.
“While sales tax on food is uncommon and manufacturers typically aren’t taxed unless selling directly to consumers, being registered can exempt you from collecting sales tax and allow for tax-free purchases from vendors through exemption certificates,” says Olsen.
“In essence, state registration is not just a legal requirement—it can also protect your business and reduce costs.”
Pinion tax advisors can alleviate compliance concerns and provide guidance on nexus state tax applicability for your business. Contact us with questions or to provide a complimentary risk assessment for your business.
