What is sales tax nexus and does it apply to me?
Sales tax nexus is the connection between your business and a state that requires you to collect and remit sales tax there. If you have nexus in a state, you’re legally obligated to charge sales tax to customers in that state. If you don’t, you’re not.
Traditionally, nexus was physical. You had nexus in states where you had a storefront, warehouse, employees, or significant physical presence. A Richmond restaurant only had Virginia nexus because all operations happened in Virginia. This was straightforward for most local businesses.
That changed in 2018 when the Supreme Court ruled in South Dakota v. Wayfair that states could require businesses to collect sales tax based on economic activity alone. Now most states, including Virginia, have economic nexus thresholds. If you exceed a certain amount of sales or number of transactions into a state, you have nexus there regardless of physical presence.
Virginia’s threshold is $100,000 in annual sales or 200 transactions. Other states set their own thresholds. Some are lower. Some count only sales, not transaction counts. Working with small business bookkeepers who track your sales by state helps you know where you stand before you accidentally cross a threshold.
For most local service businesses, this doesn’t apply. If you’re a contractor working on homes around Richmond, you have Virginia nexus and that’s it. Same goes for restaurants, salons, and most businesses that operate within the state. Your customers come to you or you go to them locally.
This matters more for businesses selling products online or shipping to customers in other states. If you’re regularly shipping to North Carolina, Maryland, or beyond, you need to track your sales by state. Once you cross a state’s threshold, you need to register, collect sales tax, and remit it. The compliance burden adds up when you’re dealing with multiple states and different filing deadlines.
Even some service businesses can trigger nexus unexpectedly. If you’re a consultant regularly traveling to work with clients in another state, or if you hire a remote employee in a different state, that can create physical nexus. The rules aren’t always obvious.
If you’re selling across state lines and not sure where you have obligations, getting help with sales tax compliance makes sense before you end up owing back taxes and penalties to states you didn’t know you were supposed to file in.
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More Questions
How do I track cost of goods sold when I sell online?
Track the landed cost of each product including purchase price, inbound shipping, and packaging materials. Use accounting software with inventory tracking enabled so COGS records automatically when items sell.
Read answerShould I connect my bank account to QuickBooks or enter transactions manually?
Connect your bank account. Bank feeds save hours of data entry time and reduce typing errors. You'll still need to review and categorize transactions, but you'll start from accurate data instead of hoping you entered everything correctly.
Read answerWhat records do I need to keep for sales tax audits?
Keep all sales invoices, exemption certificates, tax returns filed, and bank records that show how you calculated what you collected and remitted. Virginia requires you to hold these for at least three years, though four to six is safer.
Read answerCan I be held personally liable for unpaid sales tax?
Yes, even if you operate as an LLC or corporation. Sales tax is trust fund money that you collect for the state, and if you don't remit it, Virginia can pursue you personally.
Read answerHow do I handle overtime pay correctly?
Non-exempt employees must receive 1.5 times their regular rate for hours worked over 40 in a workweek. The tricky parts are calculating the regular rate correctly and making sure employees are classified properly.
Read answerDo I need to charge sales tax on services in Virginia?
Virginia generally does not tax most services. The retail sales tax applies mainly to tangible goods, not labor or professional expertise. However, there are exceptions for certain services like accommodations and repair work involving parts.
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