Step 1. Determine whether you have nexus in a state

Before assigning any registration status to a jurisdiction, confirm that nexus exists.

There are two types of nexus:

Physical nexus

You have a tangible presence in the jurisdiction, such as:

• An office, warehouse, showroom, or other building

• Employees, representatives, or in-state affiliates

• Inventory stored at a third-party warehouse (including Amazon FBA)

• Temporary physical activity, such as a trade show

Economic nexus

You exceed a state's sales threshold without any physical presence. Most states use a threshold of $100,000 in sales or 200 transactions in a calendar year, though thresholds vary by state. Because economic nexus rules change frequently, check the requirements regularly to confirm your compliance. Sovos maintains a current Economic Nexus Threshold Table for reference.

Five states, sometimes called the NOMAD states, have no state-level sales tax: New Hampshire, Oregon, Montana, Alaska, and Delaware.

Step 2. Make sure you're registered before you collect

If you have nexus in a state, you are required to get a sales tax permit (also called a sales tax license) from the state before you begin collecting and remitting sales tax there. The registration process and any associated costs vary by state and may depend on your business type. Check the relevant state tax authority's website for requirements.

If you are registered as a CSP-compensated seller under the Streamlined Sales Tax (SST) program, see About Streamlined Sales Tax for guidance on how your SST registration works with Sovos.

Step 3. Select a registration status

Tax Determination supports eight registration statuses. For US customers, the most common statuses are Established and Voluntary Use Tax (VUT).

Established (recommended for most US jurisdictions)

Use this status if your organization has a fixed establishment or regular place of business in the jurisdiction. This is the standard status and it should be used for all US jurisdictions where you have nexus unless special circumstances apply.

Identified

For US jurisdictions, this status causes Tax Determination to apply seller's use tax at the destination. Use this status for the relevant state in the following circumstances:

Colorado

If you are a remote seller that files the Retailer's Use Tax Return (Form DR 0173).

Illinois

If you collect both state tax and local Chicago tax or if you are a remote seller collecting tax at destination. If you collect tax for any local jurisdictions other than Chicago, use the Established status.

Pennsylvania

If you collect tax for Allegheny County or Philadelphia without a physical presence there.

For EU jurisdictions, use this status if you are registered in a jurisdiction for tax purposes but have no fixed establishment there.

Voluntary Use Tax (VUT)

This status applies to US taxpayers only. If you participate in one of the following simplified or alternative tax programs, use this status for the relevant state.

Alabama

For remote sellers registered under the Simplified Sellers Use Tax program (Form 2630). Allows charging tax at a flat rate of 8% instead of collecting specific local taxes.

Illinois

For remote sellers and marketplace facilitators selling third-party goods who collect sales tax at the destination, including the IL Retailer Occupation Tax (ROT).

Marketplace facilitators selling their own goods should use the Identified status instead.

Louisiana

For direct marketers without a physical presence in Louisiana who collect tax at the combined 8.45% rate and remit to the Louisiana Department of Revenue.

Puerto Rico

For remote sellers who collect and file city tax.

Texas

For remote sellers using the single local use tax rate instead of collecting and remitting the total local tax at the destination address.

If you're unsure whether a program applies to you, check your most recent registration documentation or return filings, or consult your implementation team.

Special taxpayer

This status applies to organizations with limited tax collection and reporting liability, for example, those registered under a simplified or special registration regime that carries narrower obligations than a standard registration. The situations where this status is appropriate are uncommon. Before selecting this status, confirm with your implementation team or tax advisor that it reflects your actual registration.

EU statuses

The following statuses apply only to businesses with VAT obligations in the European Union. If you are a US-only business, you will not need these.

Established + Union scheme

For businesses with a fixed establishment in the EU that participate in the One-Stop Shop (OSS) scheme for reporting sales of goods, digital goods, or digital services to consumers across the EU.

Identified + Union scheme

For businesses without a fixed establishment in the EU that opt to register under the Union OSS scheme for reporting intra-EU goods sales to consumers.

Non-Union scheme

For non-EU sellers of digital goods or digital services to EU consumers. Businesses with an establishment in the EU should not use this status.

Distance sales

This status was used for intra-community goods sales before the OSS scheme took effect on July 1, 2021. Do not use it for new configurations.

Step 4. Select local jurisdiction statuses

In many states, tax is collected at the city, county, or district level in addition to the state level. How you're registered and what you're actually required to collect determines which local jurisdictions should be active in your configuration.

• You collect in every local jurisdiction across the state. This is common for sellers with broad physical presence or who are registered for statewide collection.

• You have no local tax obligations in this state. States with no local sales tax include Indiana, Massachusetts, and New Jersey.

• You collect only in specific local jurisdictions. This applies when your nexus is limited to certain cities or counties, or when specific self-administered locals require their own filing.

States where local tax scope is especially important to evaluate include:

Alabama

If you file self-administered local returns

Alaska

If you file the remote seller return in specific boroughs

Arizona

American Indian tribes and reservations administer their own taxes

Colorado

If you file self-administered local returns

Connecticut

American Indian tribes and reservations administer their own taxes

Idaho

Has self-administered locals

Illinois

If you collect Chicago local tax

Louisiana

Has parishes and self-administered locals

Nebraska

If you file returns for special districts, including development areas and enhanced employment areas

New Mexico

American Indian tribes and reservations administer their own taxes

North Dakota

American Indian tribes and reservations administer their own taxes

Utah

American Indian tribes and reservations administer their own taxes

Wyoming

If you collect tax for resort districts where you have a physical presence

When you're not sure

If you're uncertain about your status in a particular state:

Assume you have nexus

Tax Determination calculates zero tax for jurisdictions without a registration status. If you're unsure whether nexus exists, set a status while you investigate, as any gap in collection will be your liability if nexus is later confirmed.

Default to Established

When in doubt, use the Established registration status for any US jurisdiction where you believe you have nexus. It's the correct status in the vast majority of cases.

Talk to your tax advisor

Consult your tax advisor for any jurisdiction where your obligations are unclear, especially if you're a remote seller approaching economic nexus thresholds or recently expanded operations into a new state.