Many thanks to our friend Darcy Boerio from Avalara for this post:
Many people believe that sales tax legislation only applies to large online resellers like Amazon. But the fact of the matter is that if you do business in multiple states, there is legislation currently being debated in Congress that could require you to start collecting sales tax on all (non-exempt) transactions, whether you sell online or not.
Nexus* today – it’s all over the map (literally)
Nexus laws vary from state to state. In some cases, a state may consider a company to have nexus only if they have a significant physical presence there, such as an office building or warehouse. But as states look to sales tax revenue to help make up for budget shortfalls, that is becoming more of the exception than the rule. Other conditions that can create nexus under the various states’ laws are:
- Maintaining an inventory – whether consigned, stored, or carried by a sales rep
- Use of independent sales or manufacturers reps
- Hiring remote employees
- Various activities performed by employees traveling into a state (sales, deliveries, installations, etc.)
- Having affiliate or subsidiary relationships (“Affiliate and Related Entity Nexus”)
- Web advertisements that click through to a remote portal in order to complete a sale (“Click-through Nexus”)
Tip: Know the Nexus laws in all states you do business in. Reevaluate regularly to make sure that you haven’t created nexus in any new states – either through changes within your operations or changes to the laws.
The Future of Nexus?
On May 6, 2013, the Federal government took its first official step toward expanding the nexus reach of the individual states when the Senate passed the Marketplace Fairness Act of 2013 (MFA).
If it becomes a law, MFA will allow states to require remote businesses doing over a certain dollar amount in remote sales (currently $1 million, but subject to change before all is said and done) to collect sales tax on transactions in their boundaries, even if the seller has no physical presence there at all.
Supporters of the law say it will level the playing field between local businesses (aka “Main Street”) and out-of-state vendors whose selling price is lower because they aren’t required to charge sales tax. Opponents say that with 11,000+ tax jurisdictions and thousands of rate, rule, and boundary changes every year, implementing sales tax management processes will be a heavy burden for small to mid-sized companies to absorb into their operations.
Whether you’re for it or against it, you need to be prepared. Join Ennis, Pellum & Associates partner, Avalara, for a free live webinar on June 13: The Sales Tax Landscape Is Shifting. Be Ready.
Or download Avalara’s free whitepaper to learn more: The End of Nexus & Other Sales Tax Compliance Challenges.
Ennis, Pellum & Associates, in association with Avalara, offers sales tax automation solutions that integrate with your Sage ERP, as well as most popular e-commerce solutions. Contact us to learn more.
*Nexus refers to a significant physical presence in a state that warrants an obligation to collect sales tax