Sales tax nexus questionnaire for a multistate client review

Nexus is the connection with a state that lets the state require a business to collect its tax. A state revenue department sends its own nexus questionnaire when it suspects a business has that connection. Pennsylvania’s business activities questionnaire, for example, asks about property, inventory, employees and deliveries in the state (Pennsylvania Department of Revenue, REV-203D Business Activities Questionnaire).

The questionnaire on this page works the other way. A firm sends it to a client before a review, collects the same facts for every state at once, then works out where to register. If the client has already received a state letter, the answers here also prepare the reply.

Before 2018, a state could not require a seller with no physical presence to collect its sales tax. In South Dakota v. Wayfair, the Supreme Court overruled that physical presence rule (South Dakota v. Wayfair, Inc. (2018), opinion text). Economic nexus is the duty to collect that comes from sales volume alone, with no office or staff in the state.

The South Dakota law upheld in that case covered sellers that, each year, delivered more than $100,000 of goods or services into the state or made 200 or more separate transactions there (South Dakota v. Wayfair, Inc. (2018), opinion text). That was the rule at the time. South Dakota itself now uses only the sales test: more than $100,000 of gross sales into the state in the previous or current calendar year (South Dakota Department of Revenue, Sales and use tax). Other states set their own thresholds and measurement periods. Pennsylvania’s questionnaire, for example, lists $100,000 or more of gross sales as economic presence for sales tax (Pennsylvania Department of Revenue, REV-203D Business Activities Questionnaire).

So the questionnaire asks for sales and order counts by state and by month, for the current and the prior calendar year. Monthly figures let the preparer test whatever measurement period a state uses, not only the calendar year, and states differ on which sales count toward the threshold. Check each state’s own rule before drawing a conclusion.

Physical presence still creates nexus, and state forms ask about it in detail. Nevada’s commerce tax questionnaire asks whether a business has a place of business, employees or contractors in the state, inventory there, or delivers goods in its own vehicles (Nevada Department of Taxation, Commerce Tax Nexus Questionnaire). It also asks about services performed while present, such as installing or repairing property, or running training sessions (Nevada Department of Taxation, Commerce Tax Nexus Questionnaire).

The client version groups those triggers by type, so one answer covers all states. Inventory in a third-party warehouse is stock a fulfillment service holds on the client’s behalf, and it is easy to miss because the client never visits the building. Ask for the provider’s list of storage locations.

Ask where the business already holds a sales tax permit, with the permit number and filing frequency, and for the last return filed in each state. Then ask for every letter or questionnaire received from a state, with its reply date.

Income and franchise taxes use different nexus standards than sales tax, so ask about those filings too. Ohio’s nexus questionnaire, for example, starts by asking which of its taxes the business has ever filed, from sales or use tax to employer withholding (Ohio Department of Taxation, Nexus Questionnaire).

1. Collect the questionnaire and the sales report by state.
2. Compare each state’s sales and transaction count with that state’s current threshold.
3. List states where a threshold or a physical trigger is met and no permit exists.
4. Find the date each threshold was first crossed, since it sets how far back exposure may go.
5. Agree the next step with the client: registration, a voluntary disclosure or a reply to a state letter.

• South Dakota v. Wayfair, Inc. (2018), opinion text: The physical presence rule was overruled; the South Dakota act covered sellers with more than $100,000 of sales or 200 or more transactions a year.
• South Dakota Department of Revenue, Sales and use tax: A business with no physical presence must be licensed and remit sales tax if it has more than $100,000 in gross sales into South Dakota in the previous or current calendar year.
• Pennsylvania Department of Revenue, REV-203D Business Activities Questionnaire: Activities that create nexus in Pennsylvania, including $100,000 or more of gross sales as economic presence for sales tax.
• Nevada Department of Taxation, Commerce Tax Nexus Questionnaire: Questions on places of business, employees and contractors, inventory, deliveries and services performed in Nevada.
• Ohio Department of Taxation, Nexus Questionnaire: Asks which Ohio tax returns the business has filed, including sales or use tax and employer withholding.