The CPG and Winery Guide to Sales Tax Nexus and Compliance
If you're selling products across state lines, whether through wholesale, direct to consumer (DTC), or via marketplaces, you may owe sales tax in more places than you think. One of the most common — and potentially expensive — surprises I see CPG founders and winery operators face relates to sales tax nexus issues.
Sales tax nexus is the legal trigger that determines whether you're responsible for collecting and remitting tax in a given state. The rules vary from state to state, but the confusion that comes with them seems to be universal. I’ve worked with plenty of growing brands blindsided by tax bills from states they didn’t even realize they had a presence in.
Luckily, sales tax, even on a large geographic scale, is manageable if you know how. In this guide, I'll explain how to identify nexus states and what to do if you've already got an issue.
What Exactly Is Sales Tax Nexus — and Why It Matters
Sales tax nexus is the legal connection between your business and a state that triggers your obligation to collect taxes and remit them to that state. Or, in even simpler terms: A nexus means you have a strong enough "link" to the location to be held liable for sales tax. It's a critical consideration for CPG and winery accounting.
You can trigger a nexus in two main ways:
Physically. You have a tangible presence in the state, such as an office, inventory in a third-party logistics location, or a sales rep
Economically. Your sales exceed the nexus threshold in that state in dollars or transactions.
For fast-growing CPG brands, economic nexus thresholds can sneak up quickly. For instance, you might add a few wholesale accounts in Texas when the state was mostly unexplored by your business or your direct-to-consumer sales in Illinois might suddenly take off. Or, maybe you found an option for storing inventory in a 3PL location and you didn't consider the potential tax implications of storage in another state.
Growing brands are especially vulnerable, because they're working hard to expand into new markets but may not realize when the line is crossed. If you're not tracking sales and operations across states, you can easily miss those milestones, leading to potentially expensive sales tax woes.
I've seen brands hit with huge tax bills from states they didn't even know they had a nexus in. In some cases, it costs them the ability to keep selling in that market. In others, it threatens the business altogether.
Where Do You Owe? How to Identify Nexus States
Not sure how to identify nexus states? You're not alone, and I walk businesses through uncovering their exposure all the time. We usually start with the key steps below.
Conducting a Basic Audit
Start with a quick review of your business operations. Where are you warehousing inventory? Where are you actively shipping products, either wholesale or DTC? Do you have remote employees, sales reps, or company-owned equipment in other states?
You might be surprised by how many of these touchpoints create a nexus. For example, storing product in a 3PL facility or having a part-time brand ambassador in a state could trigger a filing obligation. This type of audit doesn’t have to be perfect, but it should be thorough enough to flag potential risks.
Knowing What Triggers a Nexus in Relevant States
Each state sets its own thresholds, usually based on total annual sales revenue or the number of transactions. For example, when selling into Texas or California when you don't have a physical location in either state, the sales tax nexus is $500,000. But Colorado or Arizona's threshold is much lower — $100,000.
Identify every state you might trigger a nexus in and review your data monthly or quarterly. This helps you catch when you're getting close to the threshold. We’ve seen brands miss these milestones by a few thousand dollars and still face penalties. Being proactive is essential to protecting your cash and growth plans.
Integrating Technology to Automate Processes
Once you’ve got the basics mapped, tools like Numeral or Shopify's own sales tax engine can help automate state-by-state monitoring. Consider how you can integrate technology with your e-commerce and accounting systems to alert you when you're nearing or crossing a threshold.
These solutions aren't perfect, but they’re a big step up from spreadsheets. They also help you keep as close an eye on sales tax analysis as you do on critical CPG business KPIs.
Bringing in Professional Help at the Right Time
If you’re selling in multiple states or experiencing rapid growth, it’s worth having a partner who can look holistically at your exposure. At BBG, we walk our clients through sales tax nexus checks as part of a larger compliance strategy.
Common Nexus Mistakes — and How to Avoid Them
Even diligent CPG brands and wineries can overlook something when it comes to sales tax nexus issues. We've seen how easily these issues slip through the cracks, especially when a business is growing quickly or expanding into new markets.
Here are some common missteps we see and how to avoid them:
Overlooking 3PL warehouses. Storing inventory in a 3PL center can create a physical nexus in that state, even if you’ve never set foot there. Review warehousing strategies before you launch them to understand whether they open new tax obligations.
Setting DTC without considering nexus. DTC sales often cross state lines, and even modest volume can trigger economic nexus. Don’t assume your DTC numbers are too small to matter. Many states use transaction count, not just revenue, as a trigger.
Expanding without registering with relevant states. A CPG brand landing a few wholesale accounts in another state might think of the state as a “test market.” But if you’re shipping products there, you may need to register for sales tax and start collecting immediately.
Shipping into states without a license. Some wineries ship to consumers in states where they’re not licensed to sell. But if you owe sales tax in that state, you might be violating tax law and liquor control laws. Many, many wineries take the risk of selling without being licensed or reporting sales tax, but they don't understand the gravity of the penalties. They can be steep and severe, so do the regulatory work first.
What to Do If You’ve Got It Wrong
Realizing you owe back sales tax or that you've been selling into a state with the proper licenses can be overwhelming. However, there are ways to fix the situation, and the sooner you take action, the more control you have over the outcome.
At BBG, we've helped wineries and other CPG brands clean up sales tax issues, avoid or handle audits and get back on solid footing in every state that matters to them.
If you think you have a missed sales obligation, some actions that might help include:
Late filings and registration. Registering and filing returns late may help you fix your sales tax nexus issue without a lot of financial exposure. Many states allow late filings without steep penalties, especially if you take action before receiving a notice from them.
Voluntary Disclosure Agreements (VDA). If your sales tax liabilities span numerous years, you might be able to use a VDA to disclose unpaid sales tax and begin making good on your tax debt without severe penalties or audits.
Payment plans. Many states offer options for paying tax debts over time if you owe more than you can cover immediately.
Nexus Doesn’t Have to Be a Nightmare
Sales tax nexus concepts can be confusing, and mistakes with these obligations are serious. However, they don't have to derail your growth. The right visibility into where you're doing business and what triggers a nexus in each location helps you stay ahead of sales tax compliance and automate multistate tax management.
At BBG, we help you build proactive finance and accounting strategies that align with your long-term goals and keep you out of hot water with state sales tax authorities. Reach out to our team to start a conversation about protecting your business now and in the future.
