Sovos and Nexus conditions

Use taxes are imposed on a purchaser of taxable goods or services when the goods are purchased out of state. Determining when to collect a state’s sales or use tax depends on the amount of activity your company has in that state. The legal term, nexus, describes the conditions required to collect sales tax. Nexus conditions are generally met when:

• Company assets are located in the state.
• Company employees are employed in the state.
• In-state solicitation occurs on a regular and recurring basis.

If these conditions exist, you assess sales tax on transactions with customers in that state. If they do not exist, you have the option of assessing use tax. If the nexus rule applies and sales tax should be applied to the order rather than use tax, you must instruct your order takers to override the taxes calculated during Sales Order Entry. All taxable interstate transactions automatically have the use tax rate applied. You must override the use tax rate to apply the sales tax rates.

If you are using Sovos for Sales and Use Tax, you must set up SA Sales Use Taxes Setup records for all states where the nexus rule applies for your company. The correct sales or use tax for transactions with customers in each state is automatically applied by Sovos Sales and Use Tax.

The rules regarding nexus are provided here as a guideline only. Contact your professional tax advisor to determine how the tax laws apply to your company’s interstate business transactions.