If you think sales nexus only applies to online businesses or in the states you set up shop, think again.
Last month, the Supreme Court overturned a 1992 sales nexus decision (Quill v. North Dakota) that prevented states from collecting tax from out-of-state sellers. With the landmark South Dakota v. Wayfair decision, states are saying, “I’ve got the power!” The June ruling came out in favor of states, granting them power to require out-of-state retailers to collect sales tax from resident buyers. This is a big deal – here’s why.
Implications of New Sales Tax Nexus Legislation
It’s not just about where you operate anymore, but where your buyers are.
If you sell goods or services (regardless of sales channel), the Wayfair ruling applies to you. Online sellers (e.g. Amazon third-party sellers) are heavily impacted by this decision because they inherently sell to customers in different states, but it’s likely to touch anyone who sells across state borders or lives in a state that has a sales tax.
That’s because the Quill “physical presence test” for sales tax collection and remittance (limited states from charging sales tax to out of state sellers) was overturned in the Wayfair decision and replaced with an “economic sales tax nexus”, allowing states to expand their sales tax rules and impact more out of state sellers.
Economic nexus takes the throne.
Economic nexus is typically based on sales or gross receipts that are earned from sales to customers within a specific state. Each state sets its own rules for the minimum sales activity required to initiate sales tax requirements, and sales nexus thresholds, exemptions, and effective dates vary from state to state.
Economic nexus isn’t the only way you’ll be evaluated, either – states will continue to enforce existing nexus rules, regardless of economic nexus. This means that your business is now faced with having to navigate a slew of new and changing state regulations that dictate:
a) Where you must collect tax,
b) Whether your goods are taxable, and
c) How you are required to handle the new tax computation, filing, and remittance obligations.
So, how will your business keep track of all the changes and make sure it’s in compliance? It’s not that easy for a sales-nexus novice to handle alone.
Next Steps for Business Owners
1) Assess state tax requirements that apply to you: With each state serving up different sales nexus rules, keep tabs on which ones need data from you. Then, take inventory of where you do business (selling, servicing, manufacturing, warehouses and storage, etc.)
2) Get help from a tax professional: MoneySolver’s SalesNexusSolver™ can help with determining where you’re required to collect sales tax and whether you need to file or amend returns. Getting help up front can prevent problems in the future, like owing a debt or being audited, and a competent tax professional can help you track and analyze your sales nexus liability in this rapidly evolving state tax environment.
Get ahead of the curve before it hits – and hurts – your sales and business you’ve worked so hard to build. Talk with our sales tax professionals for a free consultation today at to see where the rules may have changed on you, or check out our other business services at MoneySolver.org.
As sales tax revenues continue to downward spiral, the online sales community is destined to become a piggy bank for the government. A recent decision by Amazon triggered what could be a nationwide wave of state sales tax changes – and it will expose sellers who haven’t been keeping up.
Amazon Is Handing Over Data to the State
Amid pressure from the Mass. government, Amazon announced this week that it will hand over precious third-party seller data to the state’s tax officials. The data will expose uncompliant online sellers, allowing Mass. to go after uncollected sales tax – and we can expect that the rest of the country will soon follow suit.
Changing the Way of Sales Tax
Amazon (like most online retailers) does not charge, collect, or remit sales tax for third-party sellers. Instead, Amazon charges sellers to put their items in Amazon’s store but doesn’t add sales tax when the items are brought to check out. This process leaves individual sellers to fend for themselves.
States weren’t always able to require businesses to collect and remit sales tax unless that business had “sufficient physical presence” (i.e. office presence or a majority of their business conducted in that state). In fact, the issue hasn’t been heard in the Supreme Court since 1993 – well before the digital sales era.
This year, the US Supreme Court has decided to review South Dakota v. Wayfair, which will determine if online-only sellers without a store will need to collect state sales tax on transactions with its state residents. This decision is monumental for the entire online sales space.
The Impact on Online Sellers
An estimated 90 percent of online businesses don’t comply with current sales tax collection and remission laws. For these sellers, there’s no more hiding. Amazon’s compliance with Mass.’s request will likely trigger similar requests from other states. Soon, the states where your clients live will have your data – and come after what’s missing.
State tax departments will likely hire more auditors and target sellers who have fallen short of their tax obligations. Even for those who are currently in compliance, you’ll have to monitor sales across all states if the Court adopts an “economic presence” test to ensure you’re compliant. As you can imagine, things can get out of hand (and unorganized) quickly. Even low-volume sellers may need to hire a tax compliance manager.
Online Seller? Here’s What You Should Do
Assess state tax requirements for your situation: Each state has different nexus rules. For starters, keep an eye out on which states are requesting data and where Amazon is releasing it. From there, you’ll need to take inventory of where you do business – and not just where your office is. For instance, consider your business locations, gross sales, or even the state where you have a third-party warehouse.
Make a plan: The good news is the government can’t hold you responsible for tax on old sales as proscribed by new legal standards. This means your current sales tax obligations will be reconciled against current state laws, even if the Court sets a new standard across all 50 states. You’re not off the hook, though – every online seller needs a sales tax compliance plan moving forward.
Get help from a tax professional: While there are software tools to help with nexus, a tax professional can help with determining where you’re required to collect sales tax and whether you need to file or amend returns. Working with a tool or getting help up front can prevent problems in the future, like owing a debt or being audited, and a competent tax professional can help get you the right setup for your specific business. If you receive a letter from any state regarding unremitted sales tax, a tax professional can also help you through both the audit and a debt resolution.
The experts at Tax Defense Network have been helping online sellers and all types of businesses with sales tax compliance since 2007. We have offices nationwide and offer affordable payment plans to help sellers on any budget.
Get ahead of the curve before it hits – and hurts – your online sales and business as a whole.