As your business grows and you start selling to customers in different states, you will encounter the concept of sales tax nexus. Nexus is a legal term for a connection between your business and a state that is significant enough to require you to register, collect, and remit sales tax there.
Navigating nexus rules can be incredibly complex. To simplify this, Dappr's Nexus Monitoring feature, included in the Pro plan, automatically tracks your business activities and alerts you when you may have an obligation to register in a new state.
This guide will explain what nexus is, how Dappr monitors it, and what to do when you are notified that you have likely triggered nexus.
What is sales tax nexus?
Think of nexus as a "link" or "presence." If your business has a strong enough link to a state, that state can require you to act as its agent and collect sales tax from your customers there. There are two primary ways to establish this link:
Physical nexus
This is the traditional form of nexus. You have physical nexus if your business has a tangible presence in a state. This can be created by:
Having an office, warehouse, or other physical location.
Having employees or independent contractors who work in the state.
Storing inventory in the state (e.g., in a third-party fulfillment center).
Regularly attending trade shows or conducting business in person.
If you have physical nexus in a state, you are generally required to register and collect sales tax from your very first sale to a customer there.
Economic nexus
This is a newer form of nexus established by the 2018 Supreme Court case South Dakota v. Wayfair. You have economic nexus if you exceed a certain threshold of sales revenue or number of transactions in a state within a specific period (usually a calendar year), even if you have no physical presence there.
These thresholds vary by state. For example, a state might set its economic nexus threshold at $100,000 in sales OR 200 transactions in a year.
How Dappr's nexus monitoring works
Dappr's system is designed to monitor for both types of nexus automatically, giving you proactive insights into your compliance obligations.
Automatic State Monitoring: Whenever you create an invoice for a customer in a new state, Dappr automatically adds that state to your monitoring list. You can view this list by navigating to Sales > Taxes.
Physical Nexus Check: The first time you invoice a customer in a new state, Dappr will prompt you with a few simple questions about your physical presence there (e.g., "Do you have employees in this state?"). Your answers help determine if you have an immediate registration requirement due to physical nexus. Dappr will also review your company's records for new office or employee locations as you add them.
Economic Nexus Tracking: For each state on your monitoring list, Dappr tracks your sales revenue and transaction volume. On the Taxes page, you will see progress bars for each state, showing you exactly how close you are to reaching that state's economic nexus thresholds.
What to do when you trigger nexus
When your business activities trigger either physical or economic nexus in a state, Dappr will take proactive steps to notify you:
An email notification will be sent to your company's legal representative.
A task will be added to the representative's to-do list on their main Dappr dashboard.
This notification is your cue to take action and register with the state's tax authority. From the task or the Taxes page, you can click Review for the relevant state. You will then have the option to either use Dappr's sales tax registration service for a one-time fee or, if you've already registered on your own, add your existing registration details to the system.
Dappr is not a law firm or accounting firm, and this content is not legal or tax advice. Nexus laws are complex and change frequently. We recommend consulting with a tax professional to understand your specific obligations.