When Sales Tax Nexus Gets Complicated: What Every Business Needs to Know

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What seemed like a simple request—“Can you help us fill out a reconciliation form?”—turned into a multi-state sales tax discovery and a significant refund opportunity.

As our State and Local Tax (SALT) team dug into the request, it became clear there was more going on beneath the surface. A quick review of sales data and prior filings revealed a mismatch between where the company was filing and where they were actually doing business. They had moved operations out of one state several years ago, yet continued filing as if they were still physically located there, resulting in unnecessary payments and exposure in the wrong jurisdiction.

We helped correct those returns, build a refund strategy, and then asked the bigger question: If sales aren’t sourced to this state, where are they sourced?

The answer? Potentially 10–12 other states, each with different rules and thresholds. Some of those states had clear exemptions based on the client’s activity, but several presented new filing and compliance obligations that had gone unnoticed.

Why This Happens and Why It’s Common

This situation isn’t rare. Many businesses rely on long-standing processes that don’t keep up with how quickly their operations change. Others may not have dedicated in-house tax expertise, especially during transitions or after key team members depart. The result is often overreporting in some states and underreporting in others.

The complexity increases for technology and service-based companies, where the rules for sourcing revenue vary widely across states. What qualifies as nexus? Does economic nexus apply? Is the technology or service taxable in the destination state? These aren’t always simple questions, and the answers change more often than most businesses realize.

What Businesses Should Be Asking

If your business operates in multiple states, or sells across state lines, consider the following:

Are we filing in any states where we no longer have a tax obligation?
Have we triggered economic nexus in states we’ve never filed in?
Is our service or technology taxable in all of the jurisdictions where we have customers?
When was the last time we reviewed our sourcing methodology?

These questions are critical for compliance and for uncovering potential refund opportunities. Missteps can result in audit risk, penalties or missed chances to reclaim funds that were never owed.

The Takeaway

Sales tax compliance isn’t just about keeping up with due dates. It’s about understanding where your business truly has exposure and where it doesn’t.

If you’re unsure about your sales tax footprint or haven’t revisited your nexus exposure in a while, it might be time for a comprehensive review. Our SALT team helps businesses like yours navigate multi-state compliance with confidence and often uncover meaningful savings along the way.

Let’s connect and talk through your current footprint. You may be filing where you don’t need to and missing where you should be.

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