When to apply for sales tax licenses based on US state nexus?

[bboardwalk]

Because the rules for nexus are so complicated from US state to state, it's difficult to figure out which states my company currently needs a sales tax license for. What is the recommended strategy for selling to states where the company has nexus but does not yet have a sales tax license? Should we block sales to states like Rhode Island that seem to require a sales tax license from day 1? (Does Shopify provide tools for blocking sales to specific states?) Conversely, should we apply for a sales tax license in every state regardless of how many sales are made to that state, even if we have made 0 sales? Or, is there a middle ground for navigating this devilishly tricky conundrum? Any thoughts would be appreciated, thanks!

[Victor · Accepted solution]

Hi @bboardwalk,

Taxes in the US can be difficult to understand and navigate, so it is good that you are looking into this at an early stage. There is plenty of information online regarding tax nexuses and registrations, but ultimately due to the complex nature of this topic it is often advisable to consult with a tax professional if you are unsure of your obligations.

Shopify does offer a US taxes reference page that provides an overview of tax nexuses and tax sourcing which is worth checking out. I cannot tell you what your strategy should be for selling into states where you believe you have a nexus but do not yet have a tax license, but if you do wish to prevent sales into a state until you have clarified your position, you can do this in your shipping settings. For example, if you wish to prevent sales to customers in Rhode Island for the time being, you can edit your shipping zone that contains the USA and un-check the state of Rhode Island:

This means that any customers with a Rhode Island address will not be able to select a shipping rate and complete checkout. You can do this for any states you do not wish to sell to at this time.

Moving forward, the advice I would give would be to first determine in which states you have a tax nexus, and to then determine how you would go about acquiring a tax license in those states. I would recommend checking out the tax blog TaxJar, which contains a wealth of information, and in particular their article titled How to Register for a Sales Tax Permit in Every State. This should give you a good overview of registering for taxes in the states in which you have a nexus.

[bboardwalk]

That's helpful, thank you for your time! 

[Victor]

No problem at all, and I'm glad it helped! Please reach out to us again if you have any further questions.