Each state has its own sales and use tax system, except Alaska, Delaware, Montana, New Hampshire and Oregon, which have none. There are several states where municipalities, counties, and some local agencies are authorized to collect the sales and use taxes. The respective state governments administer all of these local and state taxes. The combined rates vary from 4% to 8%.

Whether or not you are required to register for and collect sales and use taxes in a particular state depends on whether or not you have nexus, i.e., a sufficient connecting factor with the state in question. Nexus exists when the vendor has a substantial physical presence in the taxing state. Factors such as the presence of employees, a place of business for storage or sales purposes in a state, or a representative in the state can be sufficient to give nexus to a vendor. In addition, the use of the services of a telemarketing agency with its offices in the U.S., mail orders and other deliveries of property in the state, advertising in the state and, in certain cases, participating in trade shows can be sufficient to create nexus with the state. The many factors resulting in nexus vary from state to state.

Sales tax is imposed on retail sales of tangible personal property and on certain services and the vendor is required to collect the tax from the customer and remit the tax to the government authority. Use tax is a self-assessing tax and is imposed on the materials and labour used in respect of delivery and installation of tangible personal property, where the sale is not a retail sale. The tax liability of a supply is based on the place where the recipient acquires physical possession thereof.

The state of Michigan recently issued a bulletin which stated that two days of regular or "systematic" business activity (including sales solicitation, repairs and maintenance, account collections, installation and training or technical activity) in the state of Michigan would give nexus to a non-Michigan company. In addition to sales and use taxes, the state of Michigan also imposes what is called the Single Business Tax on businesses (corporations, proprietorships, partnerships) that have gross revenues in excess of $250,000 during their fiscal year from sales to Michigan customers. The Single Business Tax is calculated on an adjusted net profit.

The Department of Foreign Affairs recently negotiated some compromises with the State of Michigan concerning the calculation of the tax base, the issue of title (proposed that if title is transferred outside the US, the sale would not be included in calculating the tax) and that there will be no retroactive application of the tax to Canadian companies. These new rules are expected to be in effect for January 1, 2000.

While other states don't have a Single Business Tax, they do have income taxes which non-resident businesses would be subject to if nexus existed.

If you have nexus in any of the U.S. states and would like assistance with registration for the sales and use tax or income tax in that state, or if you would like assistance in determining whether or not you have nexus with any of the U.S. states, please contact the author of this article.