Depending on your store's location and annual revenue, you may be required to collect and remit sales tax in states across the US.
This guide provides a brief overview of sales tax nexus and how taxes are calculated in ReCharge. You can also refer to our setting up taxes article for a general overview of how tax settings work in ReCharge, or our guide to charging taxes outside of the US for all other countries.
Sales tax nexus
Sales tax nexus refers to the connection your business has with a specific state. You must have some kind of presence in a state before you are required to collect taxes in each state.
In the past, you were only required to collect and remit sales tax if you had a physical presence in a state.
A brick and mortar store is the most obvious example of having a physical presence in a state, however, each state has its own rules as to what is considered a physical presence. Certain states might recognize the following examples as having a physical presence:
- Having an office or warehouse located in a specific state.
- Having an employee residing in a specific state.
- Having inventory stored in a specific state.
After the South Dakota v. Wayfair case in 2018, the Supreme Court ruled that physical presence isn't the only requirement a business must meet in order to have sales tax nexus in a state. Instead, states can now determine if a merchant must collect and remit sales tax if they have an economic presence as well.
Economic nexus refers to the economic connection your business has with a specific state, meaning you do not need to physically be located in a state to be required to collect and remit sales tax. Instead, you are required to have nexus in a specific state once you've met that state's economic thresholds.
Economic nexus laws vary per state, with each state having different thresholds defined that require you to process a certain amount of revenue, or a certain number of transactions, before you are required to collect and remit sales taxes in that state. These thresholds differ per state, so it's best to consult with a tax expert to determine how economic nexus applies to your business.
Economic nexus for merchants located outside of the US
If you are located outside of the United States and your business meets the sales tax nexus thresholds set by a state, you are required to collect and remit sales taxes for that state.
We recommend reading through TaxJar's economic nexus documentation or working with a tax professional to determine if you meet state-specific tax thresholds.
Automatically calculate tax rates
By law, you are required to collect taxes on all orders created in any state where you have nexus. ReCharge has made it easy for you to specify where you have nexus, and will automatically calculate the tax rate on all orders processed through the ReCharge checkout.
Setting up sales tax nexus
To specify where you have nexus, select Taxes from the Settings drop-down menu within the ReCharge Dashboard.
List the zip codes for the states where you have tax nexus in the Add a physical presence or economic nexus section.
ReCharge will automatically calculate tax based on whether the location is in an origin-based state or a destination-based state. You can list more than one zip code in this section.
Economic nexus exceptions
There are thousands of tax regulations and jurisdictions throughout the US. While most tax rates can be calculated quickly by our system using your zip code, there are cases where economic nexus has a few additional complexities.
If you have economic nexus in a state and need to complete additional steps to charge the correct tax rates, like adding multiple zip codes per region, or a different rate than expected is being used, please contact our support team so that we can look into alternative options for you.
Manually calculate US tax rates
While our automatic tax calculations work for most merchants, we recognize that there are times you may need to charge a specific rate due to product type or location. In that case, we can configure your tax settings to calculate based on a manually set rate.
If you do need to charge a tax rate different than the one automatically calculated at the checkout, reach out to our support team with the specific state and tax rate that you need manually added.