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When European companies establish their first U.S. office, hire employees, or store inventory in American warehouses, they often unknowingly trigger "nexus"—a legal connection to a state that creates tax obligations. Understanding nexus is essential to avoid penalties, maintain compliance, and budget accurately for your U.S. operations.
What Is Nexus?
Nexus refers to the connection between a business and a state that requires the business to collect and remit sales tax, pay income tax, or meet other state-level obligations. Each of the 50 U.S. states has its own nexus rules, making compliance complex for international businesses.
Common activities that create nexus include:
Having a physical presence (office, warehouse, employees)
Storing inventory in fulfillment centers
Sending employees to attend trade shows or client meetings
Reaching economic thresholds through sales into a state
Having independent contractors or affiliates operating in the state
Economic Nexus: The New Reality
This means European e-commerce companies shipping products to U.S. customers may have nexus obligations in multiple states without ever setting foot in America.
Since the 2018 South Dakota v. Wayfair Supreme Court decision, states can impose sales tax obligations based on economic activity alone—even without physical presence. Most states now have economic nexus thresholds, typically triggered by:
$100,000 in annual sales into the state, OR
200+ separate transactions in the state
TABS' Perspective: Proactive Compliance
At TABS, we help international clients conduct nexus studies before expansion to identify potential obligations across all 50 states. Our approach includes:
1.
Activity Mapping:
We analyze your business activities—warehousing, employee travel, sales patterns—to determine where nexus exists or will likely be created.
2.
Registration Strategy:
We prioritize which states require immediate registration and which can be addressed as your operations scale.
3.
Ongoing Monitoring:
Nexus isn't static. As your business grows, new obligations emerge. We monitor thresholds and notify you before you cross into new compliance territory.
“One client came to us after receiving a $47,000 penalty notice from California. They had employees attending conferences there for three years and never registered. With a nexus study upfront, that could have been avoided entirely.”
Sarah Mitchell, Senior Tax Advisor
Key Takeaways for European Companies
Nexus can be triggered by physical presence OR economic activity
Each state has different rules—compliance requires a multi-state strategy
Penalties for non-compliance can be severe, including back taxes, interest, and fines
Proactive nexus planning saves money and reduces risk
Conclusion
Nexus is one of the most misunderstood aspects of U.S. expansion for international businesses. By conducting a thorough nexus analysis before launching operations, European companies can avoid costly surprises and build a compliant, scalable U.S. presence. TABS coordinates this analysis alongside entity formation, payroll setup, and accounting to ensure your entire U.S. footprint is compliant from day one.
If you're planning to expand to the U.S. or have already begun operations, contact TABS to schedule a nexus consultation and protect your business from unexpected tax liabilities.
