States That Aggregate Related Entities When Determining Sales Tax Nexus
Some states apply economic nexus rules that require businesses to aggregate sales across related entities when determining whether they must register, collect, and remit sales tax. This approach prevents businesses from dividing revenue among multiple affiliated companies to stay below a state’s nexus threshold.
California: The Leading Example of Related-Entity Aggregation
California is the most frequently cited example of a state that aggregates sales among related parties. Under California’s economic nexus statute, a retailer must combine its sales with those of all persons related to the retailer as defined under Internal Revenue Code § 267(b) (Cal. Rev. & Tax. Code § 6203).
If, during the current or previous calendar year, the combined sales of tangible personal property delivered into California by the retailer and all related persons exceed $500,000, the retailer is deemed to be “engaged in business” in California and must register and collect sales and use tax.
Example of California’s Aggregation Rule
- A-CA LLC: $300,000 in California sales
- B-CA LLC (related under IRC § 267(b)): $250,000 in California sales
- Combined sales = $550,000
Because the aggregated total exceeds the $500,000 economic nexus threshold, each entity may be treated as surpassing the threshold—even though neither company reaches $500,000 on its own.
Many third-party tax summaries explain this simply as:
“California requires aggregation of the total combined sales of the retailer and all related persons.”
States With Marketplace or Commonly Controlled Aggregation Rules
Beyond California, some states do not aggregate sales across all related entities generally, but they do apply aggregation rules in specific contexts, such as:
- Marketplace facilitator laws, where the state aggregates sales made by the facilitator on behalf of third-party sellers.
- Commonly controlled group provisions, which require businesses under shared ownership to combine sales when analyzing nexus or filing requirements.
These rules vary significantly by state, meaning businesses with complex organizational structures must review each jurisdiction’s nexus standards carefully.
States That Aggregate Related Entities When Determining Sales Tax Nexus