Sales Tax Nexus for Medical Device Companies

Expanding into new states can create sales-tax obligations long before a company opens an office or hires employees. Understanding when nexus begins helps manufacturers avoid unexpected tax exposure, penalties, and compliance challenges.

Nexus Is Determined by Facts, Not Assumptions

A medical device company can acquire sales-tax nexus in a state without forming an entity, opening an office, or earning a profit there. Since the U.S. Supreme Court’s Wayfair decision removed the former physical-presence limitation, states may require an out-of-state seller to register, collect, and remit sales or use tax based on its economic activity within the state.

Economic Activity Can Create Nexus

Economic nexus rules commonly measure the value of sales delivered into a state during a specified current or prior period. Some states also apply, or combine the sales threshold with, a transaction-count test.

The thresholds, measurement periods, included revenue, and registration dates are not uniform. Depending on the state, threshold calculations may include wholesale, resale, exempt, or otherwise nontaxable sales.

A company selling high-value devices may cross a revenue threshold through only a few transactions, while a direct-to-patient business may reach a transaction threshold at a much lower sales value.

Physical Activity Remains Independently Important

Inventory stored at a warehouse or third-party logistics provider, consigned stock at hospitals, demonstration units, loaners, replacement devices, and return inventory may create nexus even when sales remain below the state’s economic threshold.

Employees, sales representatives, clinical specialists, service engineers, and certain independent contractors can also establish a sufficient connection.

Installation, training, maintenance, repair, product demonstrations, trade-show participation, and accepting returns in the state should therefore be included in the review.

Nexus and Taxability Are Separate Questions

Nexus and taxability are separate questions. A device may qualify for an exemption in one state, but nexus may still create registration, reporting, documentation, or other compliance obligations.

Define the Commercial Model Before Expanding

MDD Options can help manufacturers define a commercial model in which title, inventory ownership, invoicing, collections, returns, and channel responsibilities are operationally clear.

Its hybrid distribution model can simplify the manufacturer’s direct sales footprint where MDD Options purchases and resells the product, while MDD Options manages the obligations arising from its own activities.

Where the manufacturer retains direct sales or in-state functions, MDD Options can map the operating facts and coordinate review with qualified sales-tax advisers.