(For those of you that receive my monthly email newsletter, this will be redundant, but I know there are some blog subscribers that don’t receive my monthly newsletter. As a side note, send me your contact information if you want to receive the monthly newsletter as well.)
The confusion around sales tax nexus stems from the loss of billions in tax revenue. We’re constantly bombarded with information as our sales tax system (which never anticipated the rise of e-tailers and VoIP telephony providers) works to revamp itself in an effort to recoup lost revenue.
Here’s a summary of some of the major sales tax nexus struggles that affect your business:
Amazon Laws and Click-Through Nexus – The simple explanation is that states are formally attaching nexus to out-of-state businesses that have in-state affiliates. Many internet businesses use these in-state affiliates to drive traffic to their websites. For this, the in-state affiliate receives a commission or payment of some type from the out-of-state business. For a complete discussion of this topic, check out the salestaxsupport.com blog.
Sales Tax Nexus vs. Income Tax Nexus – The general conclusion that many small and mid-sized businesses make is that sales tax nexus has the same threshold as does income tax nexus. This is NOT true. Sales tax nexus has a much lower threshold than income tax nexus. A general rule of thumb is that if you have income tax nexus then you will almost always have sales tax nexus. The inverse of this rule is not true. Check out this sales tax nexus questionnaire for guidelines on what contributes to sales tax nexus.
VoIP Providers – VoIP service providers tend to be fairly aggressive (translated – risky) when it comes to their tax position. They don’t like to hear that they have sales tax nexus where they have customers. “But we’re a VoIP provider and everything is done through the Internet”, is a common response. It doesn’t matter in the telecommunications industry. You are benefiting from the infrastructure of that state (switches, wirelines, etc.) so the state wants their share. Here’s a tax and regulatory guide for VoIP providers.
So, what's the outlook? More change and more confusion. It is going to take awhile for this to play out.