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Sales Tax Nexus and Internet Sales

Posted by Brian Greer on Thu, Dec 02, 2010 @ 09:11 AM

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This time of year, I receive a lot of questions regarding the collection of sales tax on Internet transactions.  The key determinant is whether or not you have nexus in a particular state.  Sounds like an easy question on the surface, but this can quickly become rather complex.

Many companies look at the nexus question as to whether or not they have a physical store or location in a given jurisdiction - a brick and mortar building for example.  This is an obvious nexus creating situation.  However, sales tax nexus can be much more subtle than that:

1.  Do you have sales reps that travel into a particular jurisdiction?  If so, how frequently?  Some states have a very low threshold in this situation.

2.  Does your Internet based business have a connection to other "sister businesses" or traditional businesses that do have a presence in a particular jurisdiction?  For example, does the Internet business allow you to return a product to the traditional business?  Or does the traditional business promote or direct customers to the Internet business?

3.  Do you attend trade shows in a jurisdiction?  Similar to sales reps traveling into a jurisdiction, your presence at a trade show could also trigger sales tax nexus.

So...the position that the sale occurs over the Internet and therefore is not taxable is not necessarily true.  Be sure to understand your sales tax nexus and therefore, whether you should be collecting sales tax on those Internet sales.

Topics: sales tax nexus, sales tax, transaction tax, sales tax statute, sales tax collection